March 5, 2018
In Swan Song, Governor’s Budget Chief Presents Malloy’s Final Revenue Proposal, Covering FY 2019, to Finance Committee
Governor Malloy’s unflinching budget chief Ben Barnes today presented the Finance Committee with the Governor’s final revenue proposal—Governor Malloy has chosen not to seek re-election after two terms – covering 2019. The Finance Committee held a public hearing on the plan immediately following Barnes’ presentation, and if the past eight years are any indication, it is unlikely to come out of Committee intact. The plan is aimed at closing a FY 19 budget deficit that has been hovering around $200 million and cutting in half deficits in 2020-21. These deficits are projected to be about $2 billion and $3.4 billion, respectively.
In addition to enhancing revenues by $234 million, Barnes said the FY 19 plan helps state residents offset losses associated with federal state and local tax (SALT) changes; and maintains the volatility, bond, and spending caps negotiated as part of a bipartisan legislative budget deal reached in October.
Following is a partial list of proposed changes to revenues, tax exemptions and credits included in the Governor’s FY 19 plan:
- Repeal sales tax exemption for nonprescription drugs.
- Limit $2.5 million cap on unitary tax to manufacturers.
- Increase real estate conveyance tax from .75 to .85, and 1.25 to 1.4.
- Increase cigarette tax rate to $4.60 per pack; cigars to $1.50 and e-cigarettes to 75 cents at wholesale.
- Set corporate surcharge at 8-percent, beginning in FY 19.
- Expand 5-cent bottle bill deposit to include: energy drinks, fruit and sports drinks, and tea; and includes a new 25-cent deposit on wine and liquor bottles.
- Increase hotel occupancy tax from 15-cents to 17-cents, diverting revenue to tourism fund.
- Restore fund to Green Bank and Regional Greenhouse Gas Initiative.
Teachers’ Retirement System
The Governor’s midterm budget calls for mirroring the pension funding approach used for the State Employees Retirement System last year – basically flattening out state payments and lengthening the timeframe for paying off the debt – for the Teachers’ Retirement System (TRS) going forward. Barnes said that the Legislature might also consider using Lottery assets to cover TRS debt.
Finally, on the topic of transportation, which is rapidly taking front and center this session, the Governor’s proposed FY 19 midterm budget would;
- Impose a seven-cent increase in the gas tax to be phased in between 2019-22, starting with a two-cent increase in FY 19, one-cent in 2020, two-cents in 2021, and two-cents in 2022.
- Accelerate by two years the diversion of sales tax on motor vehicles to the Special Transportation Fund (STF).
- Impose a $3 tire fee.
- Urge adoption of tolls to sustain infrastructure improvements.
Barnes said that the STF is expected to reach negative territory in 2020. To prevent any near-term catastrophes, Barnes said the Governor will use his executive authority to increase transportation rates, decrease services and freeze projects.
April Revenues Key to Budget Decisions
Given the volatility of income tax receipts to date, the Finance Committee is not going to know what the revenue base for fiscal year 2018 is until after April 17th, the tax filing deadline. Until they have adequate fiscal data to determine the base, policymakers will not be able to make FY 19 revenue estimates necessary to make the Budget Revisions proposed by the Governor.
Looking down the barrel of a statewide election in November and dealing with a short session that adjourns May 9th, some are skeptical that the General Assembly will have time to vote on a full-blown budget that deals with out year deficits. Some feel it’s more likely that the Legislature will deal with the immediate FY 19 deficit and seek ways to prop up the state’s transportation infrastructure in the near-term.
Absent adoption of a full-blown budget by the General Assembly that deals with out year deficits this session, the problem will likely be left at the doorstep of the next Governor and Legislature.
Note: Yesterday, the legislatively created CT Commission on Fiscal Stability and Economic Growth released a draft report to address the state’s budget woes and stimulate economic growth. While the report contains some novel approaches, because its parts are intertwined and cannot be “cherry-picked” without unraveling, as one of the Commission members noted, these recommendations may also be passed along to next year’s Legislature and the new chief executive to sort out.