Higher taxes may be un­avoid­able

The Register Citizen (Torrington, CT) - - FRONT PAGE - DAN HAAR

OK, we have a new gover­nor-elect and a re­turn to Demo­cratic con­trol of the state House and Se­nate. Guess what hasn’t changed: the loom­ing bud­get short­fall and the $2 bil­lion ques­tion that comes with it.

Will we see an in­crease in state taxes and fees start­ing July 1?

Democrats, in­clud­ing Gov.-elect Ned La­mont, are say­ing they don’t know yet, but they’ll work very hard to avoid it. Repub­li­cans are say­ing the in­flux of not just Democrats, but lib­eral Democrats, sev­eral from the la­bor move­ment, makes tax hikes in­evitable.

The num­bers say we’ll see a tax hike. It’s not pol­i­tics. It’s ba­sic arith­metic. Even Bob Ste­fanowski, who ran for gover­nor on ex­actly one plat­form, to lower taxes, would prob­a­bly have had to raise taxes for the fis­cal year that starts July 1.

The good news is that the usual bud­get en­gi­neer­ing should bring the need for an in­crease down to $300 mil­lion or so, maybe much less. Some of it isn’t an in­crease at all but the de­lay of sun-set­ting taxes and fees that were set to ex­pire.

Let’s see those num­bers. For fis­cal 2020, start­ing July 1, we’re look­ing at a short­fall of just a hair un­der $2 bil­lion if the state de­liv­ers and pays for all the same ser­vices that are in this year’s spend­ing plan.

How do we knock that down? It’s a com­bi­na­tion of mea­sures, not all of them spend­ing cuts or tax in­creases.

On Tues­day, the gover­nor’s bud­get of­fice and the non­par­ti­san leg­isla­tive bud­get of­fice are due to

present their joint fore­cast on rev­enues for the next few years. With­out chang­ing any tax rates, how much will we col­lect? This should bring good news, per­haps $300 mil­lion more for state cof­fers be­cause tax col­lec­tions are run­ning higher than ex­pected.

It’s not just the one-time tax wind­fall stuff we saw last win­ter; most taxes are ahead of plan and that’s good for the long-term fore­cast. No one will com­ment on the num­bers com­ing out, but based on what we know, $300 mil­lion, or about 1.9 per­cent higher than now an­tic­i­pated, seems rea­son­able.

Now we get to mov­ing money from the state’s bud­get re­serves, aka the rainy-day fund. As Oz Griebel, the pe­ti­tion­ing can­di­date for gover­nor, said dur­ing the cam­paign — it’s rain­ing, folks.

The fund is pro­jected to reach $2 bil­lion by next sum­mer and $700 mil­lion seems like a rea­son­able trans­fer to the bud­get. That’s roughly the amount that will be in the fund from cap­i­tal gains and div­i­dends over and above a cer­tain bench­mark called the volatil­ity cap. Don’t ask; just be happy the money is there. It will take a 60 per­cent vote in the Gen­eral Assem­bly to un­lock it, but that can hap­pen.

Now we get to fi­nan­cial en­gi­neer­ing, a nice phrase for gim­micks.

With creative ac­count­ing, and Con­necti­cut has plenty of that, we should see an­other $400 mil­lion lopped off the short­fall. We’re talk­ing about stuff like the hos­pi­tal tax that laun­dered more fed­eral money out of Med­ic­aid, we’re talk­ing about mov­ing money out of cer­tain ac­counts into the gen­eral fund, we’re talk­ing about as­set ad­just­ments to the pen­sion funds to re­quire smaller con­tri­bu­tions, and on and on.

It’s not pretty and some of it isn’t real, but as Oz said, it’s rain­ing.

To re­view, we’ve now cut that deficit from $2 bil­lion to $600 mil­lion. Now for the hard stuff — ac­tual spend­ing cuts and rev­enue in­creases.

Bud­gets in­clude some­thing called lapses, which is ba­si­cally money au­tho­rized to agen­cies but not spent. It’s rea­son­able to find $150 mil­lion in lapses, though that’s not easy.

Re­mem­ber, in the state’s $19 bil­lion bud­get, only about $7 bil­lion is agency spend­ing. The bulk of the bud­get is Med­ic­aid, debt and pen­sion pay­ments, health costs and mu­nic­i­pal aid, mostly for schools. And of that $7 bil­lion, maybe $1.5 bil­lion is out­sourced ser­vices, the sort Repub­li­cans love be­cause it shrinks the pay­roll and might even save money.

So lapses to­tal­ing $150 mil­lion are not easy, but doable. And let’s add an­other $150 mil­lion in ac­tual, bud­geted, tar­geted cuts. You may think we should get more, but Gov. Dan­nel P. Mal­loy and law­mak­ers al­ready

cut $1.3 bil­lion out of the bud­get over the last eight years, ad­just­ing for in­fla­tion. So it’s leaner than most peo­ple think, and $300 mil­lion in lapses and cuts is re­ally hard.

That leaves $300 mil­lion un­ac­counted for — which could mean higher taxes or, as I said, a de­lay in sun-set­ting some taxes. For ex­am­ple, cur­rent law calls for a $55 mil­lion ex­pan­sion of the prop­erty tax credit in 2020 and an ex­tra $16 mil­lion in ex­emp­tions for pen­sion and an­nu­ity in­come for mid­dle-class peo­ple. Those could get the ax.

It’s not rea­son­able to just say no to higher taxes, de­pend­ing on what they look like, if the cuts are al­ready steep and the gim­mickry stretches the bounds. La­mont says there will be no in­come tax rate hikes. The Demo­cratic lead­ers of the House and Se­nate all say we’ll see what hap­pens, with House Speaker Joe Ares­i­mow­icz, D-Ber­lin, most out­spo­ken about avoid­ing tax in­creases if pos­si­ble.

On the GOP side, we have skep­ti­cism. “I don’t think you can avoid a tax in­crease now, whereas if the num­bers were dif­fer­ent on Tues­day, you might have,” said Pat O’Neil, spokesman for the House Repub­li­cans.

The lan­guage is po­lit­i­cal on both sides but this isn’t a po­lit­i­cal ques­tion. It’s a num­bers game and a mod­est hike in taxes or fees seems in­evitable.

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