HARTFORD, CT — After months of missed deadlines and weeks of uncertainty, the legislature’s Finance, Revenue, and Bonding Committee adopted a two-year revenue package that establishes a cellphone tax, reduces a popular middle class tax credit, creates a statewide property tax on seasonal homes, and increases taxes on hotels and hospitals.
Democrats, who hold a one-vote majority over Republicans on the committee, voted 26-25 in favor of the revenue estimates over the objections of the minority party.
Republican lawmakers objected to the tax and fee increases, which total $1.56 billion over two years, but promised with hours of debate ahead of them to keep their commentary and questions short.
Sen. L. Scott Frantz, R-Greenwich, said Connecticut’s brand is hurting.
“The budget, in general, is a commentary on the health and the leadership of the state,” Frantz said.
“This revenue plan is an indication that we’re desperate,” he added, citing the 49-cent cellphone tax as an example.
Frantz said the statewide property tax on a seasonal home will be an “unmitigated disaster” like it was in Vermont. He said Vermont’s real estate market still hasn’t recovered.
He said he doesn’t know where the state even got an estimate on taxing vacation homes. The Office of Fiscal Analysis estimated that it would generate $32 million a year.
An increase in the real estate conveyance tax that was proposed as part of Gov. Dannel P. Malloy’s compromise budget last week was not included in the package. That tax would have raised an estimated $50 million in the first year and $77 million in the second year of the budget.
Over the objections of municipalities, the package also includes a shift in teacher retirement costs to municipalities. The change in how those costs are funded would generate an estimated $91.9 million for the state in 2018 and $189.7 million in 2019.
Middle class homeowners would also lose $100 of the $200 property tax credit. The reduced $100 credit would only be available to homeowners over the age of 65 or those with dependents. Single or married homeowners without dependents would no longer be eligible for the credit.
Cigarette taxes would increase 45 cents per pack, but there would still be no tax on vaping, also known as “e-cigarettes.”
A broad-based sales tax increase and an enhanced sales tax on food and beverages sold by restaurants was scrapped in the negotiations Democratic legislative leaders had with Malloy.
The hotel tax will increase 1.75 percent, to 16.75 percent. The 1.75 percent increase is expected to help with tourism marketing.
The package also includes an increase in the hospital tax. But the Connecticut Hospital Association, which has previously opposed the tax, said it supports the increase.
“Specifically, the agreement would leverage and maximize federal funding at no cost to the state or taxpayers,” Jennifer Jackson, CEO of the Connecticut Hospital Association, said. “Hospitals would receive statutory assurances that the state would ensure that they receive funds. At the end of the biennium, the hospital tax would be reduced.”
The package also establishes a 25-cent tax on ridesharing services such as Uber and Lyft, and creates a daily fantasy sports tax.
House Speaker Joe Aresimowicz, D-Berlin, who watched the Finance Committee’s debate, said the budget strikes the right balance between spending cuts, efficiencies, and “moderate increases in fees.”
He said the budget doesn’t include any broad-based tax increases, such as sales or income tax increases.
“Everything costs more money,” Aresimowicz said. “My electric bill is higher than it was four years ago. My food bill is higher than it was four years ago.”
He said to budget in a way that ignores rising costs “just isn’t responsible.”
He said when the state grows the economy, legislators won’t have this fight anymore about what services to cut and which fees or taxes to increase.
Increasing debt and pension obligations — along with plummeting income tax receipts — created the two-year, $5.1 billion deficit. In July, in a mostly party line vote, lawmakers resolved part of the deficit by extending the state’s labor agreement until 2027, saving Connecticut $1.57 billion over the next two years.
However, for the past 11 weeks, Democrats, who hold a slim majority over Republicans, were unable to find the right mix of spending cuts and tax increases to close the $3.5 billion deficit and get the necessary votes to pass a budget.
After spending most of the summer talking with Republican legislative leaders, Democrats decided last week to negotiate with Malloy, ending any hope of a bipartisan budget solution.
Malloy encouraged legislators in a statement to swiftly adopt the proposal so he can sign it.
“The urgency of the present moment cannot be overstated,” Malloy said in a statement. “It is critical that a responsible budget is passed by the General Assembly, one that provides greater predictability and stability for the people and businesses of Connecticut. Local governments, community providers, parents, teachers and students — all of them are best served by passing a budget, and passing it now.”
