While many business leaders and legislators in Fairfield County and around the state seem to agree with Gov. Ned Lamont about how sacrifices will need to be made in order to straighten out Connecticut’s fiscal challenges, there appears to be strong disagreement as to just who needs to make those sacrifices.
The new governor’s Feb. 20 budget address, outlining a two-year, $43 billion plan that addresses a projected two-year, $3.7 billion deficit, received swift reactions. The Connecticut Society of Certified Public Accountants issued a statement condemning Lamont’s proposal to “modernize” the sales tax — partly by instituting the 6.35 percent charge on a number of additional goods and services — before the address had even begun.
Those items would include tax return preparation and accounting services. The CTCPA said the idea would put residents in the position of “having to pay a tax on paying their taxes.”
“Individuals who engage a CPA for their tax return preparation do so in order to comply with a tax code that is difficult to understand,” said CTCPA Executive Director Bonnie Stewart. Proposing to tax people for their voluntary compliance with such a tax code “adds proverbial insult to injury,” she added, saying her group would urge the General Assembly to reject the proviso.
Also unhappy are the state’s hospitals, which under the Connecticut Hospital Association umbrella filed a still-pending lawsuit in 2016 over the state’s controversial hospital tax.
Lamont’s proposal effectively overrides the current hospital agreement, which calls for $384 million in hospital taxes and supplemental payments to hospitals of $166 million in Fiscal Year 2020. Instead, the proposed budget would increase the tax to the FY18 and FY19 tax level of $900 million, but reduce supplemental payments by $43 million to $453 million.
It also links hospital payments to readmission rates, for a reduction of $6.1 million in FY20 and $7.3 million in FY21.
CHA CEO Jennifer Jackson blasted that part of the proposal, saying, “We continue to be willing partners to find a sustainable solution, but this is not it.” Jackson said that hospitals and health systems are key to Connecticut’s economic recovery and employ more than 100,000 people in Connecticut.
The state collects taxes from hospitals and nursing homes and then redistributes a portion of those funds to those industries.
The CHA suit maintains that the hospital tax violates the U.S. and Connecticut constitutions, as well as a number of federal and state statutes, and that the state’s reimbursement and tax scheme violates the federal Medicaid Act.
In a January interview with the Business Journal, John Murphy — president and CEO of the Western Connecticut Health Network and chairman of the CHA board of trustees — said WCHN’s hospitals (Danbury, Norwalk and New Milford) collectively lost $80 million last year in Medicaid benefits that were not reimbursed, and that WCHN pays about $180 million a year in state taxes. He also said he hoped that a court date for the lawsuit would be set for this calendar year.
Various elected officials have also objected to a number of provisos in Lamont’s budget, including shifting 25 percent of the cost of teacher pensions to Connecticut municipalities, which currently pay nothing to defray those spiraling costs.
“I welcome a few initiatives, like dialing back on bonding, and it shows that Gov. Lamont is listening,” said State Rep. Fred Camillo, a Republican who represents Greenwich. “Unfortunately, the state’s biggest problem is the one that we seem to push aside the most, and that is our fixed costs. Pushing teacher retirement costs onto towns will result in property tax increases, and refinancing state employee pensions will only increase our borrowing costs over a longer period.
“I know this is a tough issue to address because we want to be fair to our public employees who perform valuable services for the state,” Camillo continued, “but we must also be fair to the taxpayers who have to shoulder the burden and often do not receive such benefits in the private and nonprofit sectors. It appears the Democrat-controlled House did not recognize this urgency when they approved two union contracts.”
There was also discontent about the level of municipal aid being made available under Lamont’s proposal. The governor proposed reducing the total levels of municipal aid granted over the next two years, but when adding in the impact of the teachers’ pensions, the net effect can be eye-opening. Trumbull stands to lose $696,365 in 2020, a whopping 16.1 percent decrease, while Brookfield would lose 14.9 percent and Monroe 11.1 percent.
Stamford will see a 4.5 percent increase in municipal aid.
Newtown First Selectman Dan Rosenthal expressed concern. “At first pass there appears to be more of a reliance on revenue generation via taxation than on outright spending reductions,” he remarked.
Another major point of contention is highway tolls. The governor’s office expects tolls — for cars and trucks, but with discounts available to state residents — to produce about $800 million in net revenue beginning in 2024. Camillo and others said they still believed the majority of toll revenue will come directly from Connecticut residents and will impact Fairfield County especially hard.
Senate Republican Leader Len Fasano, a longtime opponent of tolls, called Lamont’s proposal “a disappointing” step backward.
“Telling people not to worry because residents will only have to pay ‘discounted’ tolls is a disingenuous attempt to curtail criticism,” he continued. “Residents do not pay any tolls in Connecticut. So you can tout a ‘discount’ all you want, but the truth is families are going to be paying more than they already do today if tolls are installed.”
Joe McGee, vice president, public policy and programs at The Business Council of Fairfield County, has long maintained that the time for tolls is now.
“Our organization led the fight to get rid of tolls 20 years ago, but now we’re for them,” he said. “The state of our transportation system can’t be kicked down the road any further. If you don’t like tolls, OK, where is the money going to come from (to repair and maintain the state’s highways)?”
Failing to fix the highways and speed up rail service “are enormous disincentives for economic growth,” especially in the county, McGee said. “Nobody wants to pay tolls, but what else are you going to do?”
McGee said expanding the sales tax to include services like accounting “is long overdue. Our economy has become much more of a service economy, and although you’re going to hear complaints from all these different groups, we’re all going to have to work together to deal with the problems we’re facing.”
Lamont and the General Assembly face a June 5 deadline to pass a budget.