Democrats abandon $41-billion budget plan

Gov. Dannel P. Malloy has warned lawmakers to avoid basing their budget on raising revenue. Gov. Dannel P. Malloy has warned lawmakers to avoid basing their budget on raising revenue. Photo: Matthew Brown / Hearst Connecticut Media Buy photo Photo: Matthew Brown / Hearst Connecticut Media Image 1 of / 8 Caption Close Democrats abandon $41-billion budget plan 1 / 8 Back to Gallery

HARTFORD — In a shocking breakdown of party unity, after hours of caucusing a $41-billion budget .Democratic leadership on Tuesday pulled the plug on the proposal, citing a lack of support.

The plug was pulled shortly after the committee meeting started at 3 p.m.

If approved, the revised budget would have increased spending over Malloy’s February budget proposal by $400 million, at a time when the next budget, which starts July 1, has a looming $1.7-billion shortfall. It would necessarily force the tax-writing Finance Committee to drastically raise taxes in a budget it will approve by its Friday deadline.

The spending package includes a massive raid on the troubled Special Transportation Fund, which receives tax revenue from gasoline and petroleum sales that has declined sharply in recent years. The budget would siphon off $150 million over two years from the STF, essentially eliminating Malloy’s “Let’s Go Connecticut” plan for long-term infrastructure improvements.

The budget would also increase the likelihood of highway tolls being approved before the legislative session’s statutory end at midnight June 7

While the Finance Committee holds a public hearing on legislation that would raise the current 6.35 percent sales tax to 6.99 percent and hike the highest income-tax rate from the current 6.99 percent to 7.49 percent, the Appropriations Committee is scheduled to debate and vote on a record-high spending package. The committee went into session at 10, but immediately recessed for Democrats and Republicans to review the revisions behind closed doors.

House Minority Leader Themis Klarides, R-Derby, was among the first speakers during the Finance Committee hearing, where she blasted a Democratic proposal to eliminate sales tax exemptions on good and services for non-profit agencies.

“We put more and more burden on them and now we’re taxing them,” Klarides said. “This is about figuring out a vision for the state of Connecticut. This is about finding a way to fix this state.”

Klarides got into a colloquy with Rep. Jason Rojas, D-East Hartford, co-chairman of the committee, who said that GOP criticism comes at a time when a Republican budget plan is overdue. Klarides reminded Rojas that Republicans are a still a minority in the House and are waiting for Democrats to act on their budget proposal.

“They are desperate,” said Sen. Toni Boucher, describing the Democratic attempt to tax non-profits.

Sen. L. Scott Frantz, R-Greenwich, co-chairman of the Finance Committee, said the bill to tax nonprofits ranks with the worst legislation he has seen proposed.

“There are people leaving this state,” said Senate Republican Leader Len Fasano, R-North Haven. “If you’re a business, you can’t plan for five years. The personal income tax is declining in Connecticut.” Frantz, who led Tuesday’s meeting, said the Democrats’ proposed tax hikes are onerous. “This is a lousy idea,” Frantz said. “It has no place in this building. It’s completely anti-pro-growth.”

A personal banker, Frantz said that he is personally acquainted with 11 high-earning families who have left the state over the last couple of years because of higher taxes “and because they don’t trust us to have a fiscal house that has any sort of solid foundation.”.

On Monday, Fasano, joined Frantz in writing a letter to Democratic leaders warning against increasing taxes. They noted that the latest revenue projection from nonpartisan legislative staff indicates a shortfall of more than $260 million.

“Given this new information, we urge you to stop further conversations about creating a budget that once again relies on closing a deficit with massive tax increases,” Frantz and Fasano wrote. “Even if we don’t go down that road, having a hearing on these tax increases sends the wrong message that such taxes are not out of the realm of possibility, resulting in people leaving our state and further accelerating the problems facing our state.”

They warned that even with two record tax hikes since 2011, the additional revenue has not helped the state climb out of the remnants of the 2008 recession.

“High taxes and the fear of more taxation will continue to push people and businesses out of our state, further eroding tax revenues and jeopardizing core functions of government,” they wrote.

Joe DeLong, executive director of the Connecticut Conference of Municipalities, during a morning news conference Tuesday, said that the only lawmakers who seem to be addressing the state’s needs in a bipartisan manner are the mayors, first selectmen and town managers who make up the CCM.

DeLong said that lawmakers considering the sales tax should first consider containing costs. “The state raised the income tax a few years back to deal with similar types of challenges,” he told reporters. “We brought in new revenue, we spent it like drunken sailors and we’re right back here again. Our municipal officials do not want that. On the other side of the aisle, when we talk about the revenue diversification piece and the need to reduce the property tax, we have Republican leaders who have talked for years about having a seat at the table and now, all of a sudden that they’re co-equals in the Senate, they’re drawing the line in the sand on absolutely no conversations about revenue. It’s absolutely wrong.”

kdixon@ctpost.com; Twitter: @KenDixonCT