From the desk of Bruce Carlson, Connecticut Technology Council President & CEO
Budgets are first and foremost policy documents. They detail the policy directions and the priorities that an organization deems important. Through that lens, let’s look at Governor Malloy’s budget proposal released on Wednesday.
At the 10,000 foot level, here are the policy directions and priorities that I take away from the Governor’s proposal:
- Continued effort to reduce the size and scope of State Government
- Reshaping the State government’s financial relationship with the towns
- Priority and focus on our urban cores
- Support for business development and wealth creation in CT
- Maintenance of the “safety net” to support CT’s most vulnerable citizens
Let’s hold those priorities up against CTC’s Public Policy Priorities for 2017:
- Do no harm
- Stabilize state finances to allow for predictability
- Enact legislation that will help build a robust talent pipeline for all industries
- Support Growth Companies through the removal of rules and regulations that impede growth
- Urban Strategy to help our small cities be attractive to millennial workforce
Good news so far. If Governor Malloy’s budget was adopted as is, then #1,2,5 are covered and our job is to focus on #3 and #4.
So let’s drop to the 5000 foot level:
Responding to a $1.7 billion deficit in next fiscal year, and a $1.9 billion projected deficit in the following year, the Governor proposes to close those gaps with a combination of $1.3 billion in State budget reductions and $400 million in new revenues next fiscal year.
- Reduce the Size and Scope of State Government: Of the $1.3 billion in budget reductions, $700 million will come from state employee labor savings and $400 million from having the towns pick up 1/3 of the annual teachers’ retirement benefit costs (currently 100% funded by the State). Half of the $400 million in new revenues comes from the elimination of the maximum $200 property tax credit against the state income tax.
- Reshape the State government’s financial relationship with towns and priority on our urban cores: The Governor is proposing to re-allocate the current education funding the State sends to towns to prioritize urban school districts. The knee jerk reaction from local officials will be that this will increase property taxes in the 138 towns that will get less funding. Not so fast…..I would rather the response be, we will have to come up with some creative solutions to minimize the damage of these cuts. Let’s take my town as an example. According to OPM’s numbers, we are slated to go from receiving over $500k in education funding to actually paying the State about $130,000, a $630,000 swing. We have 1300 students in our public schools (K-12). We could enter into a regional school district relationship with other neighboring towns, have one Superintendent and related staff for the regional district and each town could save $400,000 minimum. If the State reduced our education funding by $50-100,000 there would be teeth gnashing but no structural change. A cut of this magnitude forces us to look for structural change to meet the new day.
- Support for business development and wealth creation in Connecticut: The Governor has not proposed any new business taxes or changes to the income tax. Instead, he has provided some relief that has been sought by the business community in previous years. Over the 2 years of this budget, he recommends phasing out the 20% Corporate Tax surcharge and phasing in an increase in the R&D tax credits back to 2014 levels. Despite all the cuts to get to a balanced budget, inside the Governor’s budget is a small reduction in the insurance premium tax. I see it as a down payment toward something more substantial at a later date when the State’s finances will allow it. It is a nod to the next important industry in Connecticut after advanced manufacturing which the Governor has locked into Connecticut for the next generation or so with his deals with Pratt, Sikorsky and Electric Boat. Even more subtle is the proposed increase in limits for the exemption of the estate tax (the death tax). Entrepreneurs deliberately move out of Connecticut taking their wealth and often their company with them to avoid our current taxes if they plan to sell their company. This is a step toward keeping both the entrepreneurial spirit and the wealth that individual has created here in Connecticut.
Sure, there are lots of questions. Can the Governor really secure $700 million in labor savings between now and June 30th, is one of the biggest. The legislative session is not due to end until June 7th. Given the traditional timing of getting a budget finalized and passed in the waning hours of the session, how can municipalities plan without knowing the extent of the damage to their state aid? That’s why I say pass it and sign it now. If it is going to take time to get the necessary steps in place to implement this budget, let’s give those who have that job as much time as we can.
Watch the Budget Address from February 8, 2017 below.