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Singing the Budget Blues
Senate Majority Leader Looney says he and his colleagues had no choice but to play the cards they were dealt
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Business New Haven
3/17/2003
By: BNH
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New Haven State Sen. Martin M. Looney (D-11) is Senate Majority Leader and has been intimately involved in the tortuous process of crafting a new biennial state budget.
This first round of tax increases and budget cuts was the first act of a multi-act play. What can we expect in terms of the big picture in the next budget cycle?
Because of the increase in the income tax by 0.5 percent to five percent, and the surcharge on the corporate tax and other changes such as the increase in the cigarette tax and the ongoing effect of some of the reductions, we have probably addressed about half of what was projected to be $1.7 billion deficit for the 2004 fiscal year. We are still facing about an $800 million deficit in '04 and a comparable amount for fiscal '05. In the 2003 session we will be adopting a two-year budget for fiscal 2003-04 and 04-05. If we had not acted we would have a $1.7 billion deficit plus a carryover of $650 million.
As difficult as this process has been, wasn't it in fact the 'easy lifting'? Isn't balancing the budget going to get a lot harder from here?
I think there will be discussions about additional revenues as well as additional reductions. One issue that has to be addressed again is the so-called 'millionaires' tax having a differential rate above a certain level. I think we're going to have to look again a 5.5-percent tax on incomes above certain levels. Another option that is being considered is to look at re-structuring our income tax system to piggy-back on the federal income tax. This was an option first considered back in 1991 when the income tax was first adopted. Your state income tax liability would be pegged at your federal income tax liability.
How much would the 'millionaires tax' generate?
It would be a little above $100 million for the full fiscal year. The number of taxpayers with incomes over $1 million a year is about 6,000. About 3,000 [have incomes of] between $1 million and $2 million and another 3,000 over $2 million. The average income in the group over $2 million is about $7 million. One of things that makes our income tax somewhat progressive is that we do have a property tax credit, and that was not effected. Lower income couples can get up to one $500 credit..
Small-business owners say that even more than taxes, they are concerned about health-insurance costs. What kind of help, if any, can we look to the state for on that front?
There has been some discussion and research on opening up the state's own health-care plan to certain small employers. That was a proposal that the controller advanced last year. I was a proponent of that in the finance committee, where we supported it. I think we also need to look at more careful oversight of insurance rates and possibly some kind of prior rate approval rather than the merely filing of rates, as is the case now.
We had several years of small or no increases and now three or four years of double-digit increases. Over ten years the average age of employees increased as well into higher-premium brackets. And Connecticut remains the only state that doesn't permit medical savings accounts.
Over the years there have a been a number of philosophical objections to [medical savings accounts)] on the theory that it would tend to weaken the Medicare or other insurance. That's probably something we would revisit if someone pushes that as an option.
Do you think there is enough revenue coming into cities and towns or is it a spending issue?
We hear from municipalities all the time that the one revenue source they are restricted to is the property tax, and they don't have a flexible revenue system. Unlike the state or federal government, municipalities don't have a growth form of taxation. It is also true that the state has been extraordinarily helpful to distressed municipalities over the last decade. The amount of state aid to New Haven, Hartford, Bridgeport and Waterbury has grown astronomically during the decade of prosperity at the state level.
In New Haven, residential taxes pay less than 20 percent of the cost of running the city. Much of the commercial tax base is 'regional' in that companies' customers and employees live in or come from throughout the region. Between this and state revenue, don't we already have 'regional' taxation?
The state pays about 55 percent of the city's operating funds from various state sources, particularly education grants. In terms of promoting economic development, we have to look at a regional tax structure along the lines of the Minnesota plan. In this model when a new factory, new business or a mall comes into the area, there ought to be some benefit to all the towns in the area, not just the one where the facility is located. That would allow the region to market itself as a region, rather than have the cutthroat competition where there is only one winner. That would allow for a broad base sharing of resources and marketing.
How well is Connecticut positioned to grow its business base?
It will have to position itself in terms of a highly educated and capable workforce. Historically, one of Connecticut's great advantages in the age of factories and machines was that Connecticut had so many skilled workers, companies wanted to locate here even if the wage scale had to be higher. Connecticut will never be able to compete - nor would we want to - in terms of wages with Southern states or offshore. We need a workforce that can attract sophisticated industry and development. That means we have to continue to invest in our education system.
Gateway Community College was last in line state funds for consolidation and relocation. Does the budget crisis put that on indefinite hold?
I was an early proponent for having Gateway move downtown because that has shown to be a successful model for community colleges in our state. [The relocation of] Housatonic [C.C.] has meant a great deal to Bridgeport. The new [Capital] Community College in the old G. Fox building is doing well. Approximately half of the total cost of the development has already been authorized, although not allocated, and I'm confident over the next few years we'll be able to get the balance.
For many companies, the downturn in the economy has generated structural changes, such as Lucent cutting thousands of jobs to respond to an altered economic environment. The governor is suggesting structural changes in the way state government delivers services.
We undertake spending commitments depending on a revenue stream. If that stream declines, those commitments have to be curtailed or we need to fund them with additional taxes. That's why cuts are so difficult. We have commitments to Medicaid, for example, payments to nursing homes continue to grow at a very significant rate as there are people living longer and needing care at the end of their lives. Most people in nursing homes are Medicaid patients, because the costs are so expensive that even someone with significant assets becomes a Medicaid patient pretty quickly. In our criminal-justice system we have three times as many people incarcerated as 20 years ago, even though our state's population is pretty much the same, and [we must bear] the cost of maintaining them. We have all of these fixed commitments and a revenue stream that is volatile.
In Massachusetts the governor is talking about no new taxes and $2 billion to $3 billion in budget cuts. What kind of reaction has there been to that here?
Just to the extent that people believe that is a very extreme position that [Gov. Romney] would be willing to inflict an irresponsible level of cuts. We're not likely to see anything like that in Connecticut.
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