Republicans Pitch Tax Relief With Surplus Funds
Based on an assumption that the state will realize a nearly $1 billion surplus this year, Republican lawmakers attempted to beat Democratic Gov. Dannel P. Malloy to the punch Thursday by laying out their plans for how to spend it.
Malloy will release his budget proposal on Feb. 5 at the start of the legislative session, but news of a surplus and improved revenues earlier this month had Republican lawmakers assuming that the governor may be looking to offer some type of tax relief after imposing the second-largest tax increase in the state’s history during his first year in office.
At a Legislative Office Building press conference, House Minority Leader Lawrence Cafero, R-Norwalk, offered up three tax-relief proposals estimated to give taxpayers about $247 million in relief without worsening future deficits that have been estimated at about $1 billion starting in 2016.
If Republican lawmakers had their way the state would speed up restoration of the $50 tax exemption on clothing and footwear and the tax exemption on over-the-counter drugs. They would also eliminate the special assessment businesses pay to the unemployment fund. The proposals total about $247 million.
“We know there’s going to be great debate on how that money gets spent. We have made a proposal, as I just presented to you, on how we should spend $247 million,” Cafero said. “That does not mean that we should spend the rest of the excess revenue or the money in the Rainy Day Fund. We believe it should be used for debt reduction.”
He said there’s a total of about $940 million in what he’s calling “excess revenue” in the 2014 budget and the bulk of that should be used for debt reduction. He said only $247 million would be used for tax relief and would be revenue neutral.
For example, the restoration of the tax exemption on over-the-counter drugs would be paid for by maintaining the Earned Income tax Credit at 25 percent, instead of the scheduled 30 percent. Restoring the tax exemption would cost the state about $21.8 million.
The press conference left Democrats scratching their head.
“Two days ago, Republicans were denying we had a surplus,” Malloy’s spokesman, Andrew Doba, said. “Today, they’re laying out plans on how to spend it.”
It’s an acknowledgment that the Democratic administration is making progress on addressing the state’s budget woes or the economy is recovering at a quicker rate than anticipated.
“At least they’re finally acknowledging that after making some hard choices, Connecticut’s budget is in much better shape than it was three years ago,” Doba said. “The governor will have more to say about his own proposals in the days ahead.”
Cafero declined to comment on what the budget situation says about the Malloy administration or the direction it’s taking the state.
“I do think, obviously, it shows some welcomed, good news with regard to the economy,” Cafero said.
A lawmaker for 22 years, Cafero said it’s happened in the past that the state has had excess revenue one moment that’s disappeared the next.
“Part of the problem is that the legislature, starved for this moment, has taken the revenue and spent it … on ongoing programs so in the second and third year it increases our deficit,” Cafero said.
House Speaker Brendan Sharkey said Wednesday that he would like to see any surplus funds used to pay down the 2009 Economic Recovery Notes and beef up the state’s Rainy Day Fund, which was depleted during former Gov. M. Jodi Rell’s administration.
“My priority would be debt reduction,” Sharkey said.
He said the 2009 Economic Recovery Notes which were used to close the deficit before Malloy took office were “done on an interim basis when we were in the depths of a recession.” He said thanks to the current administration the state is now emerging from those depths and the first priority should be to pay off those debts.
The estimated $940 million in excess funds, includes about $271 million in the Rainy Day Fund, $506 million in budget surplus funds, and $160 million in increased revenues. There’s debate about how much of that is really “excess” because nonpartisan budget analysts have projected that it all but disappears by 2016, if the state continues to spend at the same rate it’s being spent currently. In November, the Office of Fiscal Analysis estimated deficits of $1.1 billion to $1.4 billion over the next three years starting in 2016.
Attempts to give surplus funds back to taxpayers have had mixed reviews and others have failed.
In 2008, on the cusp of the current recession, lawmakers were tripping over themselves to give taxpayers back the projected $260 million surplus. Less than five months later the state was facing a $67.7 million deficit. In 1998, former Gov. John Rowland issued the state’s first tax rebate with surplus funds.