Ending a months-long budget process that went right up until the last day of the fiscal year, Gov. Dannel P. Malloy on Tuesday broke a campaign promise when he signed a two-year, $40.3 billion budget that includes $1.3 billion in tax hikes.
The legislature had just passed the revised budget language hours earlier in a special session after having approved the original budget June 3. The new language erases approximately $500 million in tax increases that the business community aggressively campaigned against for the past month.
Malloy ended speculation Tuesday that he would allow the budget to become law without his signature when he held a signing ceremony in his office.
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.
In September 2014, he expressed confidence that under his leadership the state would continue to hold the line at a 2.8 percent spending increase, and would thus not end the year with a budget deficit. And he said he would not raise taxes.
“That’s not a promise I made four years ago,” Malloy said at the time. “I was weary of the situation I was inheriting if I was to be elected.”
Despite knowing what he was getting into this time around and claiming that he has consistently kept spending under control, Malloy signed a budget that includes a higher income tax rate for the state’s biggest earners, unitary reporting for multi-state companies starting in 2016, and the elimination of the sales tax exemption on clothes and footwear under $50.
Senate Minority Leader Len Fasano, R-North Haven, criticized the governor for going back on his promise.
“Gov. Malloy told us there would be no tax hikes, but what did he just do? He just signed the second largest tax hike in state history into law,” Fasano said in a statement. “Why did he go back on his word? Why did he break his campaign promise? Why won’t he just admit that he broke his pledge to the people? I hope that a year from now, when Connecticut will without a doubt be facing another deficit, the governor will have the courage to own up to the fact that this budget did nothing to change the structure of how our state taxes and spends.”
Malloy told reporters Tuesday that he’s done a better job of reining in spending than his Republican predecessors. The newest budget keeps spending growth to 3.9 percent in 2016 and 3.0 percent in the following fiscal year, according to Malloy’s office.
During a sit-down meeting with reporters in his office Tuesday, the governor characterized the budget more as an exercise in “shifting” resources than a broken campaign promise. He said his commitment to transportation, education, and property tax relief means investing in the future.
He pointed to a measure enacted this session that will use a portion of sales tax revenue to help lower the property tax burden levied by municipalities in which the mill rate exceeds the state average. A matching portion of the sales tax will go to into the special transportation fund to support one of Malloy’s biggest priorities.
“So, yeah, there’s some shifting going on, including the shifting of one-half cent of the sales tax that’s going to transportation on a long-term basis,” Malloy said.
Malloy has previously stated that by taking a half percent of the sales tax and putting it in a transportation “lock box,” there will be an average gain of about $300 million a year in the untouchable fund dedicated to transportation so “we have the monies necessary to move the projects along.” Malloy’s transportation plan looks 30 years into the future and comes at a cost of $100 billion.
In total over the next five years, approximately $10 billion will be spent on transportation between the budget, planned capital spending, and federal funds, according to Malloy’s office. Projects include fixing outdated interchanges on Interstate 84 in Hartford and Waterbury and completing the rail line running from New Haven to Springfield, Mass.
The governor has advocated for codifying the lock box in statute and putting it into the state constitution as well. The statutory lock box was a last-minute addition to the budget language approved by the legislature and signed by the governor Tuesday.
Republicans have said a constitutional amendment for a lock box is the only way to prevent future legislatures or governors from shifting funds to the general budget.
Malloy said he will keep working for a constitutional amendment, which could be on the ballot as early as Nov. 2016.
Such a measure would need to be approved by voters after the legislature either passed it with a super majority or passed it with a simple majority two years in a row.
Joe Brennan, who serves as the president and CEO of the Connecticut Business & Industry Association, said willingness by Malloy and the legislature to make changes to the budget signals an important change in direction for economic development in the state — and policymakers “can’t stop now.”
“As originally adopted by the General Assembly, the budget hurt companies’ ability to compete. By reopening the budget and making modifications to tax increases, lawmakers have begun undoing some of the damage,” Brennan said in a statement.
Brennan said the revised budget still includes higher taxes on employers as well as reductions in the value of tax credits and operating loss provisions.
“Make no mistake about it, taken as a whole, this budget does not help Connecticut’s overall competitiveness,” Brennan said. “Policymakers now must aggressively follow up on the special session with structural reforms that more efficiently deliver services, reduce long-term costs, and stabilize our economy to benefit everyone who lives in Connecticut.”