Malloy Offers Changes To Sales and Hospital Taxes And Municipal Aid

HARTFORD, CT — Gov. Dannel P. Malloy made what he called his last, best budget offer to legislative leaders Friday.

The two-year, $41 billion proposal makes changes to the sales tax, hospital tax, and in the distribution of municipal and education aid.

“The standoff … has gone on long enough,” Malloy said. “It has inflicted more harm than should be tolerated by any of us in positions of leadership.”

Malloy has been running the state by executive order since July 1, as lawmakers have struggled to find enough support for a two-year budget.

Members of the General Assembly have been adamant that they won’t support a budget that makes significant cuts to municipal aid, at the same time the governor’s been adamant that the budget must make significant cuts in spending and not lead with raising revenue through new taxes.

The largest concession Malloy made revolves around funding for cities and towns.

His proposal asks cities and towns to only contribute the employer share of educator pension payments for current employees — as opposed to retirees also — and phases in those payments over a two year period. It also makes changes to education funding.

The new education formula would increase funding for 21 school districts in 2018 and 38 in 2019, but it would still eliminate all Education Cost Sharing for 39 communities.

Elizabeth Gara, executive director of the Connecticut Council of Small Towns, said they appreciated the changes the governor’s new budget makes to binding arbitration laws and prevailing wages for new construction, but they still will be harmed by a proposal that will require them to contribute to the teacher’s retirement account.

“Although the governor’s revised budget proposal restores some of these cuts, the cuts continue to fall disproportionately on many of the state’s smaller communities,” Gara said. “Coupled with requiring towns to pick up millions of dollars in teachers’ pension costs, the revised budget will continue to force steep increases in property taxes in our small towns. In some cases, these increases could wind up taxing people right out of their homes.”

The Connecticut Conference of Municipalities said they also appreciated the changes, but continuing to force municipalities to pay for a system it has no control over is unfair.

“While CCM also appreciates that the governor has greatly reduce his proposed municipal contribution to the Teacher’s Retirement System (TRS)—having it only apply to current employees, it does not address the structural problems inherent in the TRS and is not accompanied with seats at the table for local leaders to manage this pension fund,” CCM Executive Director Joe DeLong, said Friday. “Our organization simply cannot support shifting costs onto local communities to support an unsustainable system, without first making necessary reforms to that system.”

The revisions Malloy presented Friday at a nearly hour-long press conference would increase the sales tax from 6.35 percent to 6.5 percent. It would increase the sales tax to 7 percent for restaurants, bars, and eateries. Under Malloy’s plan, that money would be collected by the state and used to offset some of the decrease in municipal aid to cities and towns.

The two sales tax changes would increase revenue by $87 million in 2018 and by $133 million in 2019.

Senate Republican President Len Fasano, R-North Haven, said Malloy’s proposal amounts to another $1 billion tax hike.

“The governor’s proposal would be the third billion-dollar tax hike for Connecticut in less than seven years,” Fasano said. “It includes tax increases totaling $1.3 billion over the biennium. And this from a governor who pledged to not lead with taxes!”

He said he sees nothing in the proposal that would allow members of his caucus to vote for it.

House Republican Leader Themis Klarides, R-Derby, said this isn’t a “compromise” it’s just “a slightly different version of what Democrats have been talking about for months.”

Malloy’s latest budget proposal also scrapped his plan to levy a real property tax on hospitals. Instead, he wants to increase provider reimbursement rates and and level the provider tax rate. By structuring the tax in this way, the state is able to leverage federal reimbursement, according to the governor.

But the Connecticut Hospital Association is opposed.

“We’ve been here before, and unfortunately are here again,” Jennifer Jackson, CEO of CHA, said. “Gov. Malloy’s revised proposal would hike the hospital tax, increasing healthcare costs, threatening the quality of care on which we rely, and dramatically harming our ability to serve the community.”

Jackson said it’s simply another tax hike.

Malloy’s administration says the hospitals would gain about $52 million a year.

This is Malloy’s sixth budget proposal since February. It’s been 212 days since he unveiled the first one.

“We are one of only two states without a budget,” Malloy said. “Our taxpayers, our businesses, our students deserve better.”

He said this is a budget he will sign if the General Assembly can pass it. He said if they can’t pass a budget soon, then they should stop trying to pass one and refocus their efforts on adopting a two-year budget next year.

Malloy said having to run the state by executive order until next year would inflict about $1 billion in additional cuts on municipal government.

Democratic legislative leaders are expected to be working through the weekend to see if they can get the votes to pass a budget Sept. 14. They plan to meet again with Republican legislative leaders Monday.

Earlier this week, Democrats who hold a slim majority in the House said they are negotiating on two parallel tracks both with Malloy and Republican legislators.

“It is encouraging to see the governor moving in a direction that I believe brings us an important step closer to adopting a state budget,” House Speaker Joe Aresimowicz said Friday. “With a pending disastrous scenario for our schools looming October 1, it is critical that we continue to work with the governor as well as Republicans to reach an agreement on a final budget within the next week that can become law, and helps fulfill our caucus priority of funding public education.”