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Budget Failure

Hartford Business Journal

September 07, 2009

The state budget passed by the General Assembly last week provides little comfort to those who believe state government needs to be fundamentally changed.

The two-year $37.6 billion plan relies on one-time revenue sources and borrowing, without the kind of reinvention needed to give the state the kind of long-term financial stability that will encourage business retention and job growth.

Joseph Brennan, chief lobbyist for the Connecticut Business & Industry Association, points out that the budget relies heavily on a strong economic recovery. If it doesn’t come soon enough, the deficit facing the next two-year budget could be greater than the $8.5 billion hole the state currently faces.

The budget received overwhelming support from Democratic lawmakers in both the House and Senate, but Republicans largely rejected it saying it didn’t go far enough in make spending cuts. Gov. M. Jodi Rell decided to allow the budget plan to become law without her signature because the state was already more than two months late in getting a budget passed.

Overall, the budget results in a net general fund revenue gain of nearly $3 billion in fiscal 2010-2011 and $2.6 billion in fiscal 2011-2012, according to the Office of Fiscal Analysis. It calls for borrowing nearly $1 billion, spending the $1.4 billion rainy day fund, using $1.5 billion of federal stimulus money, and securitizing another $1.3 billion.

“If small businesses ran their books the way the state does then they would be out of business,” Andy Markowski, Connecticut director of the National Federation of Independent Business, told the Hartford Business Journal’s Greg Bordonaro in today’s edition.

As Brennan points out, many of the gimmicks used to plug the $8.5 billion deficit won’t be there in two years and in order for the state to avoid the pitfalls of more red ink, lawmakers must put “narrow agendas aside and truly focus on making our economy strong. “

Even with those dire warnings, the budget could have been worse for Connecticut businesses. Many of the original tax proposals put forward by Democratic lawmakers earlier this year didn’t make into the final version.

Democrats went from proposing $3.3 billion in new taxes in their April budget to $2.5 billion in the June budget, and $900 million in the final plan.

Among the proposals that were considered by state lawmakers this session but didn’t make it into the final budget were the extension of the sales tax to professional, insurance, occupational services.; suspension of all corporate tax credits for two years, including tax credits for research and development and breaks for businesses considering relocation to or from Connecticut; and elimination of dozens of sales tax exemptions, including on machinery and equipment.

The budget does impose a 10 percent corporate-tax surcharge for fiscal years 2009, 2010, and 2011, which is anticipated to bring in almost $140 million in revenue on companies with less than $100 million in annual gross revenues for any of these years or whose tax liability does not exceed the $250 minimum tax.

The budget also increases the personal income-tax rate to 6.5 percent from 5 percent on couples and single filers making more than $1 million and $500,000 a year respectively. Although the tax is aimed at individuals, it will hurt small businesses that are set up as pass-through entities because their owners pay personal income tax on the income generated by their businesses.

With the long budget battle now over, it’s time for our elected officials to take a real look at how government operates with an eye toward making Connecticut a business-friendly place that encourages entrepreneurs to open businesses and business owners to stay.