New tax stats: Less driving, but smoking, drinking same

Pandemic has led to sharp decline in hotel tax, tourism revenue

HARTFORD — The ongoing coronavirus pandemic has fundamentally changed the lives of many Connecticut residents over the past eight months — and state tax officials have the evidence to prove it.

With many employees working from home for the first time and widespread concern about catching the virus, the pandemic has led to less driving, fewer stays in hotel rooms, and less dining out.

The latest state tax statistics provide a window into people’s behavior as they navigate a changing world. While some are driving less, people appear to be drinking and smoking just as much as ever. The year-to-date figures for the “sin taxes” for the current fiscal year show no drop off from last year during the pre-pandemic days.

Other taxes, however, are down by more than 50% during the current fiscal year. The petroleum gross earnings tax, which is based on the wholesale price of gasoline, is down by 57.5% as prices have

remained low during the pandemic. Collections of the gasoline tax, which is a flat rate of 25 cents per gallon that is charged separately, are down by 7.3%, based on statistics from the state tax department.

The room occupancy tax on hotels is down by 54% in the current fiscal year, while the tourism tax is down by nearly 37%.

The tax revenues also reveal another dramatic change: the red-hot real estate market. The explosion in home sales has led to a conveyance tax increase of 105.8% during the first four months of the fiscal year from July through October. The state collected $112 million during that fourmonth period, compared to $55 million in a similar period last year.

Meanwhile, it also appears that people aren’t just tossing their empties. Beverage container deposits are up by nearly 5% as more bottles and cans are being returned in tough economic times.

Deeper problems?

Incoming House Republican leader Vincent Candelora says he is concerned that the numbers are a sign of deeper problems that have been caused by the pandemic as anxiety and unemployment have remained high. Increased drinking, he said, “has a societal impact that the government needs to pay for on the other end.’’

“I know of three people who have died young,’’ said Candelora, who lives in North Branford. “I know a kid in my son’s class who overdosed on heroin, and I know this kid personally. This shouldn’t be happening, and the fact that it is right now is pandemic-driven. On a personal level, it’s scaring me to death because I’m seeing this stuff in my community. I can’t imagine what’s happening in high-risk communities. That’s really the alarm that we need to be sounding.’’

The legislature, he said, needs to focus sharply on pandemic-related problems when the regular session begins in January and not on other issues that have been raised by lawmakers.

Carroll J. Hughes, the executive director of the Connecticut Package Stores Association, said the stores have seen increased sales by an average of about 15%, including higher amounts in busier locations. One of the factors, Hughes said, is that drinkers at bars can no longer visit their favorite spots because they have been closed due to the pandemic. Instead, many of them head to the package store.

“There definitely has been an increase — whether increased consumption or a shift,’’ Hughes said. “Bars are closed. Restaurants are open, but not at the previous level of seating.’’

Gov. Ned La mont declared near the beginning of the pandemic in March that package stores were an “essential’’ business, and they have remained open ever since. Meanwhile, bars remained closed and restaurants are required to limit capacity at 50%.

Even with a 10% increase in 2019 in the excise tax rate on all alcohol except beer, the collections on the alcohol tax are projected at $73.2 million for the current fiscal year, up from $64 million in the 2019 fiscal year.

Besides the actual year-todate increases, the projections are calling for future increases. The latest consensus revenue estimates by the legislature’s nonpartisan fiscal office and Lamont’s budget office show an uptick in the sin taxes over the past six months. The projected cigarette taxes increased by $6 million and alcohol taxes were up by $3.5 million when compared to the April estimates.

There are also numerous media reports of sharp increases in the use of medical marijuana during the pandemic. A nationwide study from the Journal of Addictive Diseases found medical marijuana users with mental health issues reported a 91% increase in cannabis use during the pandemic. In Connecticut, medical marijuana is exempt from the state sales tax, and revenue officials do not track the sales.

Overdose deaths are also expected to top 1,300, a record high.

Rep. John Hampton, a moderate Democrat from Simsbury, said that even tax increases in the past have not stopped some hard-core smokers.

“You can’t tax yourself out of these addictions,’’ Hampton said. “Alcohol, gambling, opioids, mental health issues and addiction issues in this pandemic. It’s a perfect storm. We should be focused on creating and funding programs that are going to resolve some of these issues, especially opioids, depression, and anxiety. This pandemic has awoken some really scary mental health issues and problems.’’

The deficit remains

Overall, Connecticut is still facing major fiscal problems. The latest statistics say the projected deficit will be $854 million in the current fiscal year, followed by estimated deficits of $2 billion next year and $2.2 billion in the second year of the biennium. But Lamont notes that the state has nearly $3.1 billion in its rainy day fund for fiscal emergencies that could easily cover this year’s deficit. In addition, incoming House Speaker Matt Ritter of Hartford says the state could receive as much as $2.5 billion to $3 billion from the federal government under the administration of President-elect Joe Biden if Congress approves money for the states that have been hit by the pandemic.

The state still has a deficit because the major taxes on personal income, sales, and corporate profits remain far below the levels expected when the state legislature crafted the budget.

The budget deficits have remained as the state tries to return to normal after bottoming out in April. Sales of motor fuels, including gasoline and diesel fuel, were down 40.6% in April, compared to the previous year, down 32% in May and down 13% in June as more drivers returned to the roads.