Revising how education funding is distributed to Connecticut towns, cutting spending across the board, and changing the way future budgets are estimated are a few of the reforms highlighted by the Senate’s Democratic majority during a more than three-hour debate on the $19.76 billion budget on Thursday.
The bill passed on a 21-15 vote along party lines. The House is scheduled to debate and vote on the budget Friday. If the House approves the budget, it will go to Gov. Dannel P. Malloy’s desk for his signature or veto.
Sen. Beth Bye, co-chairwoman of the Appropriations Committee, said they cut $866 million from the budget, which was running a nearly $1 billion deficit as a result of decreasing revenue projections.
The budget reduces money for the state workforce by $300 million and it also caps pensions at $125,000 for non-union employees and increases health insurance premiums for non-union employees. The budget also closes prisons, two regional centers for the developmentally disabled, and consolidates six legislative commissions down to two. The budget didn’t stipulate which prisons would close but Bye said it would be left up to the Department of Correction to decide.
Bye said the biggest change is reducing the size of the state budget to 2011 levels. She conceded the cuts were painful.
“People say cut, cut, cut, but when it hits areas that people care most about, the cuts really hurt,” Bye said.
Several state employees stood outside the Senate chamber to urge Senators to vote against the budget. They said the budget package cuts municipal aid, which, along with state public service cuts, likely will lead to layoffs in schools and to local property tax increases, according to union leaders.
“We are not raising taxes. We are not borrowing money. We are not using the Rainy Day Fund,” Bye said. “We now have a balanced budget.”
Republicans in the Senate introduced six amendments to modify the budget, implement a spending cap, and require the General Assembly to vote on union contracts, but the amendments all failed.
Democratic legislative leaders have touted the budget as a document that makes “structural changes” to the budget. It also reduces future budget deficits by about 40 percent, according to the Office of Fiscal Analysis. But it doesn’t erase all the future red ink. Connecticut still faces a $1.26 billion deficit in 2018 and a $1.47 billion deficit in 2019.
Sen. L. Scott Frantz, R-Greenwich, said “reducing for a one-year period the amount of money we’re spending as a state government doesn’t strike me as a structural change because it’s not permanent.”
Frantz said the economy has been limping along for the past six years and it’s about time the state realizes it can’t spend more money than it has.
Bye answered that changing how education is funded is not a “one-time change.”
Senate President Martin Looney, D-New Haven, agreed.
“This is a budget of structural change. It does not raise taxes of any kind,” Looney said, adding that it’s a “painful” budget because it’s made up mostly of spending cuts.
The 10,000-member Connecticut Business and Industry Association and a business leader from Fairfield County believe the budget takes a step in the right direction.
“Bypassing the no tax hike budget, lawmakers will begin the process of getting Connecticut’s fiscal house in order and addressing the greater challenges ahead,” CBIA President and CEO Joe Brennan, said. “While many of the spending cuts in the budget agreement are difficult, we have no alternative.”
Joe McGee, vice president of public policy for the Business Council of Fairfield County, said the budget is a realistic first step to recognizing a sluggish economic recovery, which is likely to continue for several years.
The reason for Connecticut’s slow economic recovery was another point of contention during Thursday’s Senate debate.
Frantz said he personally knows that at least four millionaires who have made the decision to leave the state.
“I know them personally,” Frantz said. “They don’t like the high tax structure here and they don’t like being treated like second and third class citizens.”
Last week, lawmakers learned that the top 50 Connecticut taxpayers made $2.9 billion less between 2014 and 2015. That drop in income caused the state to lose $217 million in revenue.
Bye told Frantz that anecdotes are nice, but there’s also data.
“We have the second most millionaires in the United States,” Bye said citing a Phoenix Marketing International report. “There are still many wealthy earners in the state.”
Frantz said Jeffrey Immelt, the CEO of General Electric, who decided to move the company’s headquarters from Fairfield to Boston after Connecticut increased taxes last year, put his New Canaan house on the market this week.
General Electric’s move convinced legislative leaders that increasing taxes wasn’t necessarily the best solution to its budget woes. Despite the decision to move its headquarters to Massachuetts, a GE spokeswoman told The Hour this week that the company was moving up to 600 jobs to Norwalk.
Calls to increase taxes on Connecticut’s wealthiest residents or to fine large companies that don’t pay their employees $15 an hour largely fell on deaf ears this year.
But the budget does forgo some revenue in 2017, including the state admissions tax. The tax, which brought in $200,000 a year to state coffers, will be eliminated. The opportunity to impose an admissions tax will be given to municipalities. Under the bill, municipalities will be able to add a 5 percent surcharge to tickets at venues in their cities or towns.
The bill gives Hartford and New Britain an opportunity to impose a 10-percent admissions tax for events held at the new Dunkin’ Donuts Park, which will be the future home of the Hartford Yard Goats minor league baseball team, and New Britain Stadium, which became home to the New Britain Bees.
The budget cuts about $43 million to hospitals and changes how hospitals are taxed.
“For years, hospitals have been unfairly cut and taxed hundreds of millions of dollars, forcing them to take legal action to seek a remedy, Michele Sharp of the Connecticut Hospital Association, said. “Contained in this budget implementation bill is an attempt by the administration to make policy retroactively.”
The proposal, which is in the budget implementation language, seeks to retroactively change the entity imposing the tax on the hospitals. The hospitals filed an administrative complaint against the Department of Social Services and Department of Revenue Services last winter arguing that the legislature is the only entity that can set a tax rate. The budget implementer seems to try to address some of the association’s legal challenge.
“This proposal was not addressed in proposed legislation, and was not the subject of a public hearing,” Sharp said. “Hospitals did not have an opportunity to be heard on this change in the rules impacting pending litigation. We are gravely concerned about the impact of this language and the lack of a public process.”
The bill also looks to eliminate the sales tax on baby diapers and feminine hygiene products by July 1, 2018. The tax on tampons and sanitary pads brings in about $3.6 million a year. The tax on diapers brings in about $4.3 million a year.
Jack Kramer contributed to this report.