Connecticut Gov. Dannel Malloy last week signed into law a $40 billion biennial budget that includes across-the-board tax increases and relies upon $2 billion of projected employee savings.
While the two-year budget will cut spending and consolidate state agencies to 57 from 81, it also includes a combined $3.7 billion of tax increases in fiscal 2012 and fiscal 2013, according to Adam Liegeot, spokesman for the Senate Republicans.
Those changes include hiking income, sales, and several other taxes along with reductions to some tax exemptions to generate revenue to balance the budget. The spending plan does not use deficit financing.
The state has a track record of using deficit debt financing to solve budget gaps and is set to issue up to $647 million more such debt before June 30 for the current budget. That borrowing may decrease if officials apply fiscal 2011’s anticipated surplus towards the current-year deficit.
Malloy, a Democrat, commended the General Assembly for passing a budget without “gimmicks,” but added that he intends to submit a revised spending plan if he fails to achieve the anticipated $2 billion of savings from labor union concessions.
Democrats control the House and the Senate.
“Now it’s up to my administration to reach an agreement with our fellow state employees and to present it to the legislature for ratification,” Malloy said in a statement.
“I remain hopeful that we’ll get there. If we don’t, I remain committed to presenting an alternative budget to the General Assembly in the next couple of weeks,” he added.
Increases to the state’s marginal income tax rates will generate an additional $565 million next year and $399 million the following year, according to a fiscal analysis of the biennial budget.
Those planned changes include increasing the number of tax brackets and boosting the top marginal tax rate to 6.7% from 6.5%.
The state’s sales tax will increase to 6.35% from 6% to raise $283.1 million of new revenue for the general fund during the next two years.
Municipalities will gain $115.6 million in fiscal 2012 and fiscal 2012 from the tax hike.
Broadening the sales tax base and eliminating certain exemptions will also generate additional sales tax revenue.
Lawmakers approved a 10-percentage-point increase to the state’s corporate tax surcharge to raise a projected $162 million and also boosted taxes on cigarettes, hotel rooms, and car rentals.
Cutting the state’s property tax credit to $300 million from $500 million will generate $301.4 million during the next two years.
Republican lawmakers criticized Democrats for implementing the highest tax increases in the state’s history and for adopting a spending plan that depends upon $2 billion of savings that have yet to be realized.
“Gov. Malloy and his Democrat colleagues own this budget and they are solely responsible for its consequences,” Senate Minority Leader John McKinney, R-Fairfield, said in a statement. “Connecticut taxpayers will be left to pay for the bad choices the governor and Democrat legislators have made.”