Opposition prompts revisions in proposed state budget Corporations' threat to leave state prompts another look at proposed tax increase

Gov. Dannel P. Malloy holds a news conference at the Midwestern Connecticut Council of Alcoholism (MCCA) in Danbury, Conn., Monday, May 18, 2015. Right is Joseph Sullivan, president and CEO of MCCA. Gov. Dannel P. Malloy holds a news conference at the Midwestern Connecticut Council of Alcoholism (MCCA) in Danbury, Conn., Monday, May 18, 2015. Right is Joseph Sullivan, president and CEO of MCCA. Photo: Carol Kaliff Photo: Carol Kaliff Image 1 of / 14 Caption Close Opposition prompts revisions in proposed state budget 1 / 14 Back to Gallery

HARTFORD -- Criticism and veiled threats from two of the state's iconic corporations -- General Electric and Aetna -- would consider leaving the state forced Democrats to rewrite their planned tax package Monday.

Lawmakers made last-minute changes Monday night to a proposed two-year, $40 billion Democratic budget that had prompted several major employers to sharply criticize proposed tax increases, with two raising the possibility of leaving the state

House Speaker Brendan Sharkey said he was uncertain when the House of Representatives would vote on the package, saying rank-and-file members needed to be briefed on the changes to the bill, which was still being drafted by nonpartisan staff. The House adjourned early Tuesday and was expected to take up the budget again later in the day.

Sharkey voiced optimism that he had enough votes to support the budget deal and believed the adjustments would satisfy the businesses.

"We tried to accommodate them," he said, without providing any details. "But I also would remind those companies that the governor produced a budget in February that they were really upset about and the budget we're producing addresses a whole lot of those concerns that they had with the governor's version."

Negotiations that had been declared complete early Sunday were rekindled behind closed doors in the Capitol as budget experts from Gov. Dannel P. Malloy's office joined House and Senate leaders and staff in searching for additional revenue for the two-year, $40 billion budget.

The corporations complained that an additional tax on corporate headquarters -- above and beyond the state's 9 percent flat tax -- was onerous. The new tax would have raised more than $38 million in the first year and about $24 million in the second year.

By mid-afternoon, the issue of higher cigarette taxes was being discussed to fill the revenue gap left if the additional corporate tax -- called unitary reporting -- were dropped from the final budget.

House Majority Leader Joe Aresimowicz, D-Berlin, said he hoped the final budget will reach the House floor at some point Tuesday.

"It's just a matter of making sure we have all the information proofread and the all points that we agree to are accurate, and then we'll turn it in, get it up on the board and debate and vote," Aresimowicz told reporters on the House floor. "It's an ever-morphing document."

He said the late-breaking revisions and the complaints of the corporate executives were not an impediment to passing the budget.

"I think they are a constituency group like all the constituency groups up here, and when they have something to add to the conversation here, we listen," Aresimowicz said.

More Information The package would:

Cut the annual property tax credit from $300 to $200 on personal income taxes.

Cut sales tax-free shopping week in August from a $300 maximum purchase to a $100 maximum.

Increase tax on computer services from 1 percent to 3 percent.

Add new 6.35 percent sales taxes on car washes and parking in municipal lots.

Add a new 6 percent sales tax on services received from ambulatory surgical centers.

The current $3.40-per-pack cigarette tax is expected to raise about $337 million. A 50 cent-per-pack increase would raise an additional $48 million.

The new budget talks came as rank-and-file lawmakers got a closer look at the budget and Republicans and business leaders called for rejection of the deal.

Corporate uneasiness

"This isn't the first time we've heard businesses say they want to leave," said House Minority Leader Themis Klarides, R-Derby. "We hear it year after year with these policies that we're putting forward. At a certain point, they're actually going to leave and it's going to be that breaking point. I think this is the straw that broke the camel's back."

Fairfield-based General Electric issued a morning statement indicating that a retroactive tax hike on state-based corporations could lead the company to consider moving from Connecticut. Aetna followed suit in the afternoon.

On Tuesday, Matt Bordonaro, a spokesman for The Travelers, said the company has not threatened to leave the state.

In a statement, Travelers said, "We are disappointed with the proposed tax increases in the budget agreement. Raising taxes again will increase the cost of living for nearly every resident and small business in the state, negatively impacting our employees and customers. Lawmakers should explore other solutions to the state's budget to help keep Connecticut competitive and make it a desirable place to live and work."

Senate Minority Leader Len Fasano, of North Haven, charged that the proposed tax increases are the second highest in state history, after the record hikes of 2011.

Sen. L. Scott Frantz, R-Greenwich, ranking member of the Finance, Revenue & Bonding Committee, warned that the higher taxes would make other states more attractive places in which to live and relocate businesses.

Sen. Michael A. McLachlan, R-Danbury, said a moving-and-storage company now for sale in Westport seems to offer a robust growth opportunity for those who might want to start a business moving people from the state.

The Connecticut Business & Industry Council asked the rank-and-file on both sides of the aisle to reject the budget compromise, which would raise income taxes on the state's wealthiest and reduce the property-tax credit on state income taxes for the middle class.

While full details of the budget were unavailable Monday afternoon, the Democratic compromise package would:

Exempt 100 percent of military retirement pay from state income taxes.

Lower the current annual $300 property-tax credit on personal income taxes to $200.

Reduce the value of purchases during the annual sales tax-free holiday week in August from $300 to $100.

Raise corporate income taxes by $44 million in the first year and $75 million in the second.

Allow alcohol sales to extend one more hour per day and let permit holders obtain more licenses. A proposal to end so-called minimum pricing was removed from the legislation amid claims that smaller store owners would suffer at the hands of larger discount stores.

Raise the current 1 percent tax on computer services to 3 percent.

Create a 6.35 percent tax on purchases of water by private water companies.

Create a new sales tax on car washes. Another new tax would be levied on those who use municipal parking lots.

The current program that returns about $56 million to state hospitals from their 6 percent taxes would end. There would also be a new 6 percent sales tax on services received from ambulatory surgical centers.

"This budget proposal clearly sends Connecticut down the wrong path," said Joe Brennan, president and CEO of CBIA. "Big increases in state spending combined with major tax increases on employers will undermine family income by making the state much less attractive for job growth."

Brennan said while some Democratic plans to hit accounting and veterinary services were withdrawn from the final product, increased corporate taxes and an increase in the tax on computer services are unacceptable.

"The major changes to our corporate tax, combined with the tripling of the sales tax on computer services, will mean less investment and fewer jobs going forward," he said. "Connecticut holds itself out as a technology state, an innovation state. Why would we increase a tax on computer services, a tax that most other states don't even have?"

Complaints of being left out

Fasano, speaking to reporters before the tax-writing Finance, Revenue & Bonding Committee met to accept revenue estimates associated with the budget, said some new taxes, looked at in isolation, aren't that onerous. He favored the apparent rejection of a 0.5 percent tax on capital gains.

"With the number of taxes we have in, it's still a significant impediment to business, which results in a further sluggish economy and a continued problem with employment here in Connecticut," Fasano said, stressing that not all of the budget had been revealed to lawmakers.

A proposal to cap local property taxes on cars at 32 mills in the first year of the budget, aimed at providing relief to city dwellers who pay higher taxes for their vehicles, got mixed reviews from Fasano.

"I think that's a mistake," he said, noting that mill rates fluctuate widely throughout Connecticut. He said he is concerned that the revenue dedicated from the sales tax to reimburse higher-taxed cities would not support governmental efficiency.

"This money should go directly back to the communities, dollar-for-dollar," Fasano. "This is not relief."

He was pessimistic that the Senate would get to vote on the budget Monday night, or even early Tuesday.

When the Finance Committee started at noon, Frantz kicked off GOP criticism, charging that a $2 billion tax hike over the two-year budget cycle is unacceptable.

"It's pressure that will be transferred to the taxpayers of the state of Connecticut," Frantz said. "I would argue we can only do this for so much longer. This is a potential death knell for the state of Connecticut. The taxes, as far as I can tell, are job killers. They're a threat to economic growth."

McLachlan said the recent announcement in Danbury from Praxair that it would not be expanding its headquarters indicates that executives there anticipated a second huge tax hike in four years.

"I think the best buy in Connecticut right now is a business for sale in Westport," McLachlan said. "For $650,000, a sharp investor can get up and increase this business into a mega-moving company, because that's what people are going to be doing, starting today."

Under questioning from Republican lawmakers, the Democratic chairmen of the Finance Committee admitted that a plan to use 0.5 percent of the 6.35 percent sales tax to help roll out the first years of Malloy's 30-year transportation vision is practically offset by proposed reductions in transfers from the General Fund to the Special Transportation Fund.

According to a legislative analysis, the budget proposal would funnel nearly $159 million in sales tax revenue to transportation in the first year of the biennium, and $277 million in the second year. Transfers from the General Fund to the STF would be reduced by $153 million in the first year and nearly $163 million in the year afterward.

Rep. Terrie Wood, R-Darien, a member of the committee, said continuing the tax on hospitals, including a new 6 percent tax at ambulatory care centers, is onerous.

"It's not equitable. It's not fair," she said. "It's not a sustainable way to run our state in any way."

Wood complained that Republicans, who offered their own budget in April, have been shut out of the secret meetings between Democrats and Malloy's staff.

"Your ideas and thoughts were there," assured Rep. Jeffrey Berger, D-Waterbury, co-chairman of the Finance Committee. "Some of the ideas are in the final package of appropriations."

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The Associated Press contributed to this report.