Whenever anyone mentions increasing taxes in the state of Connecticut — or just about anyplace else in the United States — most people insist we should cut spending first.
I tend to share that view. After all, starting in 1991 with the adoption of the state’s first income tax, and twice since 2011, the General Assembly has passed, and governors have signed, the largest tax increases in state history. And it has hardly righted our fiscal ship.
It’s interesting to note that national polls have consistently shown that large majorities of respondents favor spending cuts generally. But when pollsters narrow their questions to include cuts in specific programs, support for spending reductions quickly evaporates.
In other words, as long as it’s a faceless bureaucrat in some department I’ve never heard of, send him home. But roads, bridges, police, firefighters, schools — they’re our people and we need them. Keep your hands off, I say. Aside from the obvious NIMBY implications, the problem with that line of thinking is that even in your own backyard, the cuts from the state are coming and the low-hanging fruit will be first on the chopping block.
The current labor agreement with most of the state employee unions forbids layoffs until 2021 and benefits are safe until 2027, so cashiering thousands of state workers or slashing their benefits is simply off the table for awhile. Even when those measures become an option, the state’s unfunded liabilities — pensions and other post-employment benefits — will remain high for the foreseeable future, crowding out spending on other more popular programs.
Among the most popular items in the state budget is aid to municipalities and school districts. Connecticut residents love those programs because they fund local infrastructure replacements, for example, as well as community colleges, youth service bureaus, school construction and operations. There are truckloads of money at stake here. Education spending alone, for example, accounts for about a quarter of the state’s $42 billion biennial budget.
And it gets worse. Connecticut is one of the few states — if not the only state — in the nation that has sole responsibility for funding the pensions of its public school teachers. Both Gov. Ned Lamont and his predecessor, Dannel Malloy, have tried, unsuccessfully so far, to offload a portion of that responsibility to school districts themselves. The current unfunded liability stands at $13.2 billion and counting. Lamont’s most recent effort would have required towns to contribute 25% of teacher pension costs next year, with that percentage rising steadily until it hits 100 percent by 2022. Mark my words: eventually it will happen and all the state’s municipalities will need to be prepared.
In my last column on teacher pensions and how to pay for them, I mentioned the possibility of the state giving Connecticut’s 169 towns and cities the tools to raise revenues on their own — beyond real estate and personal property taxes, and fees from services such as building permits and the like.
I can already hear conservatives objecting to this idea but it would not be mandatory. Towns that don’t care for the concept of a local sales tax wouldn’t be obligated to enact one. Connecticut would not have to reinvent the wheel here. We’re one of the few states that does not allow any government entity except the state itself to place a sales tax on purchases. Even the Connecticut Conference of Municipalities has recommended it and two years ago it was proposed by Senate President Marty Looney, who rightly emphasized at the time that its purpose would not be “to grow the size of municipal government, but rather to enable our towns to diversify their local revenue base.”
The system works pretty well in Massachusetts, where there is no broad-based option for a local sales tax. Instead, since 2009 towns have had the option of imposing a 0.75% tax on restaurant meals, which is returned to towns by the state Department of Revenue. A similar option enables towns to tax hotel rooms. Those taxes have been quite a boon to many Bay State towns and cities and have helped to mitigate upward pressure on property taxes and bolster their rainy-day funds.
And since it was legalized in Massachusetts in 2016, recreational marijuana sales have been taxable at the local level at rates as high as 3%. This has created a windfall for towns that host cannabis retailers.
In the Berkshire County town of Great Barrington (population 7,000), for example, in the first six months of this year alone, the town raked in almost $1 million in combined taxes on $10.3 million in sales at Theory Wellness, the town’s only cannabis retailer. Oh, and by the way, a lot of the cars I see in Theory’s parking lot have those baby-blue Connecticut plates.
So are targeted local-option sales-tax add-ons the solution for Connecticut? The Republican American newspaper asked that same question in an extensive piece last Sunday. Some municipal officials liked the idea but others, mainly retailers, were nervous about the prospect.
I share their concern but I’m also worried that when the hammer comes down and state aid is dramatically reduced and billions in teacher pension obligations are dumped back on municipalities, mill rates could double or triple. That would be far worse than a modest local sales tax on meals, hotel rooms and weed (once we come to our senses and legalize it), especially when much of those aforementioned taxes would be paid by out-of-towners.
Contributing op-ed columnist Terry Cowgill lives in Lakeville, blogs at CTDevilsAdvocate.com and is managing editor of The Berkshire Edge in Great Barrington, Mass. Follow him on Twitter @terrycowgill or email him at firstname.lastname@example.org.
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