🔒DiPentima: Despite lack of tax cuts, legislative session offers ‘positives’ for businesses

A year ago, despite a historic tax cut approved by the legislature and signed into law by Gov. Ned Lamont, the state’s largest business lobby called the 2022 legislative session a disappointment due to a lack of tax relief for employers.

Businesses during the 2023 legislative session also missed out on a significant tax cut, despite the state enjoying a more than billion-dollar projected surplus and $3.3 billion rainy day fund.

Connecticut Business & Industry Association President and CEO Chris DiPentima said the lack of business tax cuts in the recently passed two-year, $51.1 billion budget is “baffling and frustrating,” especially given the state’s strong fiscal position, and bipartisan agreement on the need to grow the economy.

Overall, however, he’s got a more upbeat view on the 2023 legislative session, which included a significant income tax cut for residents, in addition to key investments in housing, skills training and child care — all aimed at helping address the state’s structural workforce shortages.

“There were a lot of positives that came out of the session,” DiPentima said in a recent interview.

The biggest victory for businesses this year, DiPentima said, was lawmakers’ decision to extend for five years state budget fiscal guardrails, which were adopted in 2017 to better control spending.

The guardrails include spending and bonding caps that have been credited with turning around the state’s fiscal condition, which was plagued last decade by deficits that led to numerous funding cuts and tax hikes.

“They’ve given us fiscal stability and predictability, which is what businesses want,” DiPentima said of the fiscal guardrails. “And while it may tie some hands during the session, by limiting some of the spending, the business community doesn’t feel that’s a bad thing. We often survey businesses and one of the top things they recommend to the legislature is to continue to hold down spending, because when spending gets out of control, it ends up with tax increases on residents and businesses. And that’s something that no one wants to see.”

The income tax cuts — which lower the 5% marginal income tax rate to 4.5%, and the 3% rate to 2% for income year 2024 — will also help reduce Connecticut’s cost of living, which DiPentima said is crucial to growing the population and workforce, as the state looks to fill 104,000 job openings.

Still, DiPentima said lawmakers’ missed numerous opportunities to lower small business costs. The CBIA lobbied for several tax cut proposals, including restoring the pass-through entity tax credit, which would provide $60 million in relief shared by 123,000 small businesses, he said.

CBIA also unsuccessfully lobbied for repeals of the 10% corporate tax surcharge and sales tax on workforce training; extending the net loss carry forward credit; and expanding the research and development tax credit to small businesses.

DiPentima recently chatted with the Hartford Business Journal to reflect on the 2023 legislative session, which ended June 7. Here’s what else he had to say.

The Q&A was edited for length and clarity.

Why do you think businesses missed out on tax cuts two years in a row, despite some bipartisan support for them?

A. I think sometimes our policymakers think about the people who get them elected, and that’s often residents. But our small businesses and large businesses are made up of residents as well, and lawmakers don’t always equate the two together.

For this session specifically, I was told that groups that were looking for increased investments were prioritized over small business tax relief.

If tax relief and stimulating the economy in Connecticut by lowering the cost of doing business is not a priority for policymakers, that is a major concern.

If we’re going to grow the economy here, you have to make it more affordable for individuals and businesses.

What’s in the budget for workforce development?

A. We won’t increase the workforce if we don’t have places for people to live. So, we were behind the housing agreement that was reached that incentivizes the construction of more worker housing, more affordable housing so that we can keep more residents in the state and attract new residents to the state.

(The state budget allocates $810 million over two years in capital support for housing development and financial assistance.)

That’s going to help grow the labor force, including housing that our recent graduates can afford, because we lose 35% of students who go to our colleges and universities to other states. They leave the state every year, so having housing they can afford to move into is certainly a big win.

Lawmakers also made key investments in child care, including increasing the tax credit for child care-related expenses from 5% to 25% for C corps. That’s a big win for the workforce because we’ve got to increase the labor participation rate in Connecticut, especially for women who often bear the brunt of domestic support — the labor participation rate for women is about 6% less than the statewide average.

In the future, we’d like to see that expanded not just to C corps, but smaller businesses as well.

The CBIA also pushed for more funding for the Manufacturing Innovation Fund, which provides loans and grants to small manufacturers that invest in apprenticeship programs, other workforce training and new technology or capital equipment. How did that effort fare?

A. For the last couple of years, the fund has had about $10 million a year, or $20 million over the biennium. The bonding bill recently passed by the legislature increases that funding to $15 million a year, or $30 million over the biennium, so a 50% increase.

It’s pretty significant. That will allow current programs to be funded, but it will also allow the innovation fund board to look at new programs to support and launch to help grow the nearly 3,900 small manufacturers that exist in Connecticut.

The CBIA this session made a big lobbying push for association health plans, which would allow trade groups to offer large group plans to their members.

There seemed to be bipartisan support for association health plans, especially as small employers continue to face rising healthcare costs, but the legislation ultimately failed to get passed. What happened?

A. After months of negotiations, we really tried to collaborate and compromise on that, including with the governor’s office, the Department of Insurance, Office of Health Strategy, the Senate and House, and Ted Doolittle, the Healthcare Advocate.

We got to an agreement with those groups a few days before the end of session, which we thought was not only a good bill, but probably a best practice for other states looking to pass association health plans.

Unfortunately, there was a divide among some policymakers, and a campaign from national patient advocacy organizations that were spreading disinformation, saying the bill was pitching something that it was not, and that it was not protecting patient rights, when it was.

For example, the final bill was in compliance with the Affordable Care Act and required coverage of many state healthcare mandates, but that attack was enough to divide the legislature, and it never reached the floor for a vote.

Based on our head count, it actually had majority support in both the House and Senate and certainly the governor’s support. We’ll raise it again next year.

The CBIA spent a lot of time pushing back against new labor mandates that businesses view as costly and/or unfair. How did those efforts turn out?

A. We played a lot of defense this year, which is never our desire.

But we were successful in killing a lot of labor mandates, including bills that extended unemployment benefits to striking workers, expanded paid sick leave, and eroded noncompetes. Overall, we were able to defeat over 50 mandates that were proposed in the Labor Committee.

What’s the current perception among employers of Connecticut’s business climate?

A. I think there’s been a shift in the willingness to invest in the state, and certainly the appreciation of what a fiscal surplus can do. The fiscal guardrails and surpluses are providing businesses with some optimism and predictability around state finances, which allows them to have some stability around their taxes and the cost of doing business in the state.

Now, it’s a matter of making the state more affordable for businesses, and making it more business friendly by reducing the number of employer mandates, and making sure we don’t have 50 labor bills proposed by one committee that cause the business community to be on its heels.