Gov. Dannel P. Malloy won’t veto the two-year, $40.3 billion budget that increases taxes by nearly $2 billion, even though on the campaign trail last fall he promised no new taxes.
Malloy reasoned outside his Capitol office Thursday morning that he upheld that promise because the budget he presented on Feb. 18 did not increase taxes, even though it extended taxes scheduled to sunset and eliminated tax credits proposed in previous budgets.
Asked if he would veto the budget the General Assembly sent him last night, Malloy said “there’s work to be done, but I don’t envision that happening.”
However, Malloy did not explicitly say he would sign the budget, which he will have 15 days to consider once it reaches his desk.
Even before he announced his re-election bid last year, Malloy promised the business community he didn’t intend to raise taxes.
“If we did have a deficit we’re not going to raise taxes. We’re done. I gave,” Malloy said on March 5, 2014, at a forum hosted by the Connecticut Business and Industry Association.
He said in 2011 when he took office he faced a $3.6 billion budget deficit and there was no other way to fix that problem without taking a look at everything from tax increases to changes in the state’s relationship with its workforce.
“I think we’re entering into a phase where over the next few years revenues will rise — not because we’re adding new taxes — but because the economy is slowly but surely getting better,” Malloy said in 2011.
However, the economy didn’t improve as quickly as Malloy anticipated. And after winning re-election in 2014, Malloy said he didn’t “see any new taxes.”
But on Wednesday, the final day of the legislative session, Democrats pushed through a budget with $2 billion in tax increases. On Thursday, during a post-legislative session news conference, the governor and Democratic lawmakers tried to highlight the positive legislation included in the budget, regardless of the tax hikes.
The said they never envisioned a budget that makes so much progress on property tax reform and transportation initiatives. The proposal approved 19-17 by the Senate and 73-70 by the House caps municipal motor vehicle taxes, changes how cities and towns are funded, and uses a half a percent of the 6.35 percent sales tax to fund transportation projects.
“If you ask both the business community and individuals what’s the most onerous tax in their opinion, they’ll tell you property taxes. If you ask business leaders what’s the biggest challenge in Connecticut, they’ll tell you transportation. This budget allows us to make progress on both,” Malloy said.
Malloy said he continues to have discussions with business officials at GE, which was one of the first companies to publicly release a statement in opposition to the budget. He said their concerns are something lawmakers should “take a look at,” not just in special session but going forward.
“I think the revenue package is the revenue package. I think it needs to be fully understood, and to the extent it needs to be clarified, it should be,” Malloy said.
House Republican Leader Themis Klarides, R-Derby, said the package approved Wednesday sends a message to the business community that they are not welcome in Connecticut. About $282 million of the more than $670 million in tax hikes in the first year of the budget will be paid by the business community through a variety of tax increases.
Klarides said the governor has apparently “convinced himself that this isn’t his budget,” even though his employees were in the room negotiating a deal with the legislature’s Democratic leadership.
“I always believed that if the governor had to take a lie detector test he would pass it because he convinces himself of what he says, no matter how ridiculous it is,” Klarides said. “I would urge him if he doesn’t believe this was his budget then he should veto it and we should start over. Otherwise it’s hypocritical.”
Klarides said the budget the Democrats approved doesn’t fix the problem because the budget projects a $1.2 billion deficit in 2018 and 2019.
The budget spends $19.8 billion in the first year and $20.4 billion in the second year. That’s a 4.1 percent increase in spending in the first year and a 3.25 percent increase in spending in the second year.
But if it was such a great budget then why did so many Democrats have to be convinced before voting for it?
House Speaker Brendan Sharkey, D-Hamden, said that by offering property tax relief and funding transportation they “were doing something everyone in the state wants us to do.”
He said those things had to be addressed this year and some of his members needed to understand that before they voted on the budget. After an all-night session Tuesday, Sharkey called the budget bill at 5:20 a.m.
Sharkey said he talked to members throughout the night about the impact of the budget, and said none of his members received any special funding for their communities in exchange for their vote.
Sharkey said statements from GE, Aetna, and Travelers who said they were thinking about leaving the state over the tax package was just “static.”
However, the Associated Press has reported that GE told its employees Thursday that they were looking for possible relocation options.
Aetna also released a statement today:
“Elected leaders have failed to address the state’s budget obligation responsibly. But it’s Connecticut’s businesses and residents that will pay the price. Aetna currently pays approximately $65 million each year in taxes to the state. Once this new budget is fully implemented, our tax burden increases by approximately 27 percent annually. Taxes like the tripling of the computer and data processing tax hurt our ability to remain competitive and invest in our employees and customers.”
Joe Brennan, president and CEO of the Connecticut Business and Industry Association, said the reaction from the corporate community is the result of building frustration and is unlike anything he’s seen in almost three decades on the job.
“In my mind it’s unprecedented to have these major, iconic Connecticut institutions say the things that they said,” Brennan said. “They’ve had their taxes raised in Connecticut before. I’ve never seen a reaction like this.”
Now is not time to increase taxes on businesses, according to Brennan. “Coming off the largest tax increase in state history four years ago, given the fact that our economy hasn’t rebounded, we have the highest unemployment rate in New England, and we haven’t recovered the jobs we lost in the last recession, we just didn’t think it was the right time to be raising taxes,” he said.
Klarides said she’s surprised the corporations haven’t moved already. “I have no idea how they sit everyday having no certainty about the climate in this state and seeing the road down which we’re going,” she said.
While Senate President Martin Looney said the companies “doth protest too much” with suggestions that they’re going to pack up and move, both Brennan and Klarides disagreed.
“I believe that day is sooner than the Democrats and the governor believe it is,” Klarides said.
“It’s not protesting too much,” Brennan said. “I think there’s just a building frustration.”