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Lack Of Tax Revenue Nixes Proposed Sales Tax Cut

CHRISTOPHER KEATING and JON LENDER

November 25, 2009

Call it the tax cut that never was.

When a scheduled Jan. 1 sales tax cut, from 6.0 percent to 5.5 percent, was passed by the legislature in September, its approval was contingent on tax revenues staying within 1 percent of projections.

Many legislators had predicted at the time that a continued weak economy would drag tax collections below the required level. But the death knell for the tax cut was not heard until Tuesday, when Gov. M. Jodi Rell's budget chief announced that the never-implemented cut was history, based on the state comptroller's certification in recent weeks that tax collections had fallen more than 1 percent behind.

As a result, Robert Genuario, head of Rell's budget office, said that a projected state deficit of nearly $470 million would be reduced by $129.5 million — the amount that would have remained in taxpayers' pockets had the tax cut taken effect as enacted.

But that still leaves the state facing a deficit of $337 million for the current fiscal year, so Rell is asking the Democratic-controlled legislature for cuts in a variety of programs, including a 3 percent cut in aid to cities and towns.

The Connecticut Conference of Municipalities, which represents most cities and towns, calculated the loss to the towns to be at least $84 million this fiscal year. CCM vowed to lobby legislators at the Capitol to block Rell's proposed cuts.

"Cutting more state aid in mid-year wouldn't be a savings," according to a statement released by CCM spokesman Kevin Maloney. "It would merely shift more of the state budget deficit onto local governments and local property taxpayers."

CCM continued: "Increasing the state's largest and most unfair tax — the property tax — by cutting municipal aid is bad public policy. Zero cuts in municipal aid must be priority one for state leaders. Do the math: Cuts in state aid to your hometown equals increases in your property taxes."

Genuario acknowledged that the state's 3 percent reduction in aid to municipalities — an $84 million cut out of $2.8 billion — presents a challenge, but added that they are only "being asked to be a small part of the solution."

"Everybody's going to have to rethink the way they do business, as the state has been doing for the last year or so," Genuario said. "And we are asking everybody to do that and to participate in this process — because state taxpayers simply cannot afford to fund ... the way we used to do business."

Finding Ways To Offset Cuts

The cuts are being proposed after a period of relative plenty, Genuario said. During the two-year budget period before this one, he said, "there were greater increases in municipal aid than in any biennium over the course of the last decade. So we are starting at a base of municipal aid that is higher ... than it had been at any time prior to this point."

"When the state had surpluses and increasing revenues, the governor made it a point to see that municipalities shared in those revenues," Genuario said. "The reverse situation is now in the state, and municipalities will have to be a part of the solution, just as they were a part of the successes."

Rell is proposing a panel of legislators and municipal leaders to recommend ways to offset the cuts in state aid.

Tuesday marked the first time that Rell's budget office had conceded that the sales tax cut would be scrapped.

With budget officials in both the executive and legislative branches agreeing in recent weeks that tax revenues are too low, the demise of the newly legislated tax cut "should not be a shocker," Genuario said.

Now that the sales tax cut won't take effect in January, it cannot be reinstated without the legislature's passing a new tax-cut bill, said top Genuario budget deputy Jeffrey Beckham.

Rell is expected to call the General Assembly back into session before the end of the year to enact $116 million in wide-ranging reductions that she cannot order herself — from a $1.2 million cut in arts and tourism grants to $14.4 million in reductions in payments to certain Medicaid health care providers.

Another Rell proposal requiring legislative approval would be to save $10.9 million by putting off by one year the scheduled 2010 start of the so-called "Raise the Age" changes in juvenile justice procedures.

Those changes would raise the maximum age of juvenile court jurisdiction from 16 to 18.

Rell's Proposals To Be Reviewed

Top Democratic legislative leaders said they need to study Rell's proposals.

"We have just received the governor's proposed deficit mitigation plan," state Senate President Pro Tempore Donald Williams and Senate Majority Leader Martin Looney said in a joint statement. "It will now be reviewed by our 24 caucus members. The governor and her administration took about a month to compile this plan. It will take us several days to examine its merits and disadvantages. We look forward to working with the governor regarding the state of Connecticut's budget and economy."

They continued: "Obviously the effects of the global recession continue to be felt here in Connecticut just as they are being felt across the entire United States. Thirty-five other states are currently attempting to close new deficits in their existing budgets."

Republicans called for quick action.

"Clearly, we have to act and act now to cut spending — it is the only option left," said House Republican leader Larry Cafero, who is considering running for governor. "Connecticut's credit rating and fiscal health are at risk if we do not take steps in the next few weeks to reduce state spending in significant ways.

"We cannot afford the inaction of the last year that led to the fiscal crisis in the first place." Cafero said. "We all knew that the Democratic budget the majority party passed in September was not real and [was] out of balance as soon as it became law."

"We are left with fewer options and even less time to start Connecticut back on a path toward fiscal stability," Cafero said.

Health care advocates said Rell's proposals will hurt the neediest of citizens.

Ellen Andrews, executive director of the Connecticut Health Policy Project, said: "The governor's recommended cuts are unnecessary, and would have a disastrous effect on some well established and much-needed programs, many of which have struggled for years with under-funding. The vast majority of the cuts would affect people who can least afford them — the elderly, disabled, people with HIV/AIDS, and the poor."

She added, "Once again, I urge the governor and the legislature to consider better options, such as recovering the $50 million in annual overpayments to HUSKY HMOs that were uncovered in the recent comptroller's audit. We really can do better."