Gov. Dannel Malloy, D-Conn., has vetoed a bill designed to classify small and midsize manufacturers as “pass-through” entities and extend the existing apprenticeship tax credit to include LLCs, LLPs and S corporations.
As a result, a number of legislators and business leaders are calling for a vote overriding the veto.
Senate Bill 261, which had been unanimously approved by both the state Senate and House, would apply a manufacturing tax credit to investors in or owners of small and midsize manufacturers to their personal income taxes. The current tax credit is available only to C corporations.
“The United States Department of Treasury recently revealed that only about 10 percent of pass-through entities were small businesses with employees,” Malloy wrote in a letter to Secretary of State Denise W. Merrill. “While this bill may have been passed to help small-business owners, it would also allow owners of large, complex institutions to greatly reduce their personal income tax liability without limits.”
The governor further wrote that he felt the measure “should not be used to shield individual investors from paying their fair share for state services, especially when the cost is not offset by spending cuts or other revenue.”
Malloy maintained that signing the legislation would have resulted in a revenue shortfall of $650,000 unaccounted for in the bipartisan state budget.
The governor vetoed a similar bill in 2016. He also vetoed a bill that would limit the executive branch’s authority to cut education funding.
Reaction to the two vetoes was mostly negative. In an unusual move, Malloy’s fellow Democrat, House Speaker Joe Aresimowicz, called on the General Assembly to override Malloy’s actions when it reconvenes in the coming weeks. A two-thirds vote from lawmakers in both the House and Senate would be needed to override the vetoes.
State Senate Republican President Len Fasano and House Minority Leader Themis Klarides sent a letter to Aresimowicz and Senate President Martin Looney calling for their support to override the veto of S.B.261.
“This bill does not create a deficit in the state budget, as the bipartisan budget has a $1.8 million surplus in the General Fund,” the two Republican leaders wrote. “In addition, the short-term loss of $650,000 will be far outpaced by the potential for job creation and economic development over the long term. By making it easier for businesses to grow and expand in our state, this bill will have a positive impact on the budget for years to come.”
“The governor’s veto message makes it clear that Governor Malloy simply cannot bring himself to lower taxes in any situation,” the pair wrote. “His misguided progressive views won’t allow him to accept even this bill which garnered strong bipartisan support.”
The Connecticut Business and Industry Association (CBIA) – citing support from the Aerospace Components Manufacturers, the Metal Manufacturers Education and Training Alliance, the New England Spring and Metal Stamping Association, the New Haven Manufacturers Association, and the Smaller Manufacturers Association of Connecticut – also called for an override of Malloy’s veto.
“While the governor is absolutely correct with his concerns about the state budget, we believe the best way to solve the state’s fiscal issues is through economic growth and job creation,” said CBIA President and CEO Joe Brennan. “Workforce challenges are suppressing that growth, and this bill is part of the overall solution.
“The top concern Connecticut manufacturers face is finding skilled workers to fill thousands of well-paying positions,” Brennan continued. “This measure helps smaller manufacturers train the employees they need to address the growing shortage of skilled workers in the state.”
Brennan referenced a 2017 CBIA survey that showed manufacturers need to fill over 13,000 job positions this year to meet growing demand and replace retiring workers.