An ‘Incomplete’ on business issues
At session’s end, General Assembly, Lamont leave work on some key matters for the future
The way the state budget and other new legislation affect Connecticut’s business climate is always a matter of concern and debate, never a clear picture. This year it’s even murkier than usual for several reasons.
I give a grade of “Incomplete” to the General Assembly and Gov. Ned Lamont on business issues, chiefly because some of the biggest decisions were postponed from the regular legislative session, which ended at midnight Wednesday, to special sessions later in the summer — or to future years.
Those issues are tolls, gaming, health reform, marijuana and the crucial economic development system that Lamont’s administration will adapt — all of which will bend the curve for many businesses in the state, not to mention the all-important psychological mindset about where we’re going.
On gaming — casinos, sports betting and online gambling, we failed to see any progress once again this year for the simple reason that Lamont couldn’t persuade the tribes that own the two big casinos to agree to a compromise. On health reform, Lamont tried to do too much too late, Cigna flexed its muscles and the weaker, decent bill that ended up in the Senate ran of time.
On both of those issues, as well as the obviously logical retail sale of marijuana, we’re stuck. And that’s not helping move the state forward.
That, too, adds to the overall grade of incomplete.
Likewise, the budget itself adds to the murky sense of what just happened, even though it did fill a projected gap without raising income taxes or the rates of other taxes. We don’t know yet whether the middle course Lamont and lawmakers took — some pension reform, modest tax increases and not much cost-cutting from agencies — will help the state grow.
On the bright and clear side, the session that just ended saw some pro-business measures that were bipartisan and less heralded than the big controversies. Rep. Caroline Simmons, D-Stamford, House chair of the legislature’s commerce committee, touted those bills.
They include more attention paid to marketing the state — including, yay, reopening and extending the hours of the welcome centers; faster progress on the evergreen goal of creating “onestop shopping” for business regulation and permitting; an extension of the tax credit for angel investors, who back startup businesses at a very early stage; and a measure to make it easier for owners of polluted sites to cut through the rules needed to sell those properties.
“We need to a better job of being more positive,” Simmons said. “When we’re so negative about businesses leaving or saying that the sky is falling and that it’s the worst state, that sends a signal that we’re not friendly to business. And there’s a lot of great things happening in our state, there’s so many positive things we should be proud of.”
Will any of those measures transform Connecticut? Of course not, but they can add to the sense of forward motion. Pension reform alone, part of the budget, saves taxpayers $365 in the year that starts July 1 alone, although it will lead to billions of dollars in payments between 2032 and 2049.
Lurching left, except on taxes
On two big issues affecting the economy, Connecticut lurched to the left, led by a large class of restive, newbie Democrats. Those are the minimum wage increasing to $15 an hour by mid-2023, and indexing after that to the employout
ment cost index, a federal measure that tends to rise faster than consumer prices; and paid family and medical leave, which will mean a 0.5 percent tax on all wages and salaries up to the Social Security wage base, which is now $132,900.
That means a $400 million tax amounting to $450 a year for a household with $90,000 in earnings. How will it affect the business climate? We don’t know. It will obviously increase the cost of living in Connecticut, but it will also attract some workers who see the paid leave benefit as a factor in where to live.
Republicans focus on the cost of doing business, which is, of course, a huge problem — though it doesn’t seem to hinder growth in Boston, Brooklyn, Seattle, Washington, D.C., and the urban enclaves of California.
“It was a horrible budget for business, horrible,” said Rep. Themis Klarides, RDerby, the House Republican leader. She noted that state spending is up, there’s no agreement on cutting state borrowing even though Lamont wants to do it and the budget raids $58 million a year that was supposed to go to the transportation fund.
And Klarides added, “You’re raising taxes $1.7 billion.”
How big a tax hike?
The size of the tax increase, like everything else this year, is a matter of debate. The $1.7 billion is a 2-year figure that includes a continuation of a $500 million tax on hospitals, most of which the hospitals receive back in the form of Medicaid reimbursements. It’s called a tax increase because it was scheduled to end, but it’s been in effect for years.
Not including the hospital tax, the budget raises taxes, or postpones scheduled tax decreases and credit increases by about $340 million a year. About half of of that is money we’ve been paying already and half — led by a new limit on credits for partnerships and small corporations, for $50 million — is new.
On top of that, in 2020-21, Lamont’s budget office must find another $30 million to $50 million in fee increases, which could affect business.
We should mention the taxes that were proposed but didn’t make it into the budget: a $260 million-ayear surcharge of 2 percent on capital gains, which Democrats wanted and Lamont refused to allow; and a $400 million expansion of the 6.35 percent sales tax, to cover professional services and other services and goods now exempt.
Instead, we’re getting a much smaller expansion of the sales tax, led by levies on prepared foods and digital downloads. We also have another postponement in a long-scheduled decrease in the corporate earnings tax, netting the state $60 million, and $12 million in higher registration fees for partnerships, partly offset by the end of the hated “business entity tax” of $250 every two years, just for existing.
Psychology matters most
All of this, except the business taxes, will affect businesses indirectly, and will affect different businesses in different ways.
“I think overall, business should be pleased,” said
Senate President Pro-Tem Martin Looney, D-New Haven. “Not only business but everyone in the state should think that we had a good session, we had a balanced budget, meeting our needs, doing it in a way without raising revenues that people would find painful. So I think it’s a careful balance and a successful balance.”
Sen. Kevin Witkos, RCanton, the No. 2 Republican in he Senate, isn’t convinced the budget will stay balanced. “Hold on to your wallets and prepare for the worst,” Witkos said, but he added, “It wasn’t too bad as far as regulations go.”
While Klarides gave the session aD for business( not an F only because there were few new regulations and no increase in income taxes ); Witkosg ave aC— and aB if we include bills passed other than the budget.
It all comes down to psychology, not dollars, for Connecticut’s economy. The murky nature of the budget and other bills that passed will not change that fact. If people can start to feel better about the state as a place to be — and they should, since the quality of life consistently scores among the highest states — then the economy will take care of itself.
“We need to do a better job of touting our successes and not always harping on the negatives because I think it sends a signal, people are listening the news and listening to what we say,” Simmons declared. “I would say that we are open to business, we’re working as hard as we can to make our state more business friendly.”