🔒Legislature largely ignores businesses’ pleas

1 of 7

The state's business community did not get what it wanted this legislative session. Not even close.

When the session's marquee legislation — the two-year, $40.3 billion budget — was approved by the House and Senate last week, the business community was left feeling burned.

“Maybe it is our inability to communicate fully, or it is people at the Capitol who have agendas that don't align with ours … but the legislature thinks growing government is better than growing the economy,” said Joe Brennan, president and CEO of the Connecticut Business & Industry Association. “I was very disappointed, and I don't think the legislators fully heard our message.”

Heading into a legislative session in which CBIA and other industry lobbying groups were expecting no tax increases, companies and hospitals will end up paying about $1 billion more in taxes over the next two years. The budget includes a new law taxing multi-state companies' revenues, stricter limits on tax credits, continuation of the corporate tax surcharge that was supposed to sunset two years ago, higher sales taxes on computer services, and an increase in the hospital provider tax.

All that came despite last-minute pleas from the state's largest employers — General Electric, Aetna, and Travelers — not to significantly raise taxes in a state already considered one of the most costly to do business in. Business lobbyists, too, urged lawmakers for months to reject major tax hikes.

The business community didn't seem to be a top priority when Malloy and the legislature considered a budget that touches every business and resident in the state, said Andrew Markowski, Connecticut state director for the National Federation of Independent Business (NFIB).

Markowski said two main reasons exist for business's lack of priority status at the State Capitol: Most legislators don't understand how businesses operate; and the legislature, instead of budgeting based on projected revenue without tax increases, develops a spending plan first and then figures out ways to raise enough money to pay for it.

“Connecticut state government has an insatiable appetite for state spending,” Markowski said. “The only way they can satiate that appetite is by finding more revenue, and there are only a few places they can get more revenue.”

Democrat reasoning

For their part, Malloy and the General Assembly's Democratic leadership didn't feel as if the state budget de-prioritized the business community, noting the spending plan has positives for companies.

House Speaker Brendan Sharkey (D-Hamden) said legislators resisted proposals during the session to cut research and development tax credits for businesses. They also didn't expand the sales tax on professional services, which would have impacted an estimated 20,000 companies ranging from dry cleaners and accountants to engineers and architects.

Sharkey said a large focus of the budget is to generate funding for Malloy's 30-year, $100 billion overhaul of the state's transportation system, something the business community has requested for years. The spending plan also includes a $436 million increase in municipal aid, which will help cities and towns reduce their property tax burden on land and vehicles.

“Let's be very clear. Businesses, residents, and the Connecticut economy lose billions — billions — of dollars of output each year because our transportation infrastructure needs a transformation,” said Malloy spokesman Devon Puglia. “The historic investments we're making, the largest in the history of Connecticut — an additional $10 billion over five years — are good for job creation, good for the economy, and good for businesses.”

The final budget approved by the legislature did set up a funding mechanism for increased transportation spending in the future by dedicating a portion of sales tax receipts to a special transportation fund. However, the $436 million set to be collected for that fund over the next two years is mostly offset by the legislature's decision to withhold $371 million in general fund money typically earmarked for transportation.

Malloy, who still needs to sign the budget before it becomes law, late last week did leave open the possibility that the business taxes could be tweaked.

A brief impact

Despite not getting much of what it wanted in the budget, the business community did have a brief impact on the negotiations.

After GE, Aetna, and Travelers openly voiced their displeasure — including suggesting they might relocate elsewhere — over several tax proposals, some moderate Democrats hesitated and delayed the budget vote by a day.

“The effort put out by CBIA was nothing short of phenomenal, and I have been very critical of the CBIA in the past for refusing to make waves,” said Senate Minority Leader Len Fasano (R-North Haven). “They mobilized, got information to businesses, and those businesses got in here to talk about this impact.”

Despite that one-day reprieve, however, the business lobby was not happy with the final outcome of a budget that includes continuing the 20 percent corporate tax surcharge when it was supposed to sunset two years ago, raising $82 million by further limiting the amount of tax credits companies can take, and generating $26 million in new taxes from parking facilities and car washes, Brennan said.

“It may have been a little better than the original, but it is still pretty bad,” Brennan said.

The business lobby's inability to get its message across and the legislature's unwillingness to listen has created a state that has the highest unemployment rate (6.3 percent) in New England, Brennan said. Meantime, the state has only recovered 78 percent of the jobs lost during the Great Recession, compared to 130 percent nationally and 150 percent in Massachusetts, said Brennan.

“It is just the makeup of the legislative body,” Brennan said. “There are people who don't fully understand the importance of creating a business-friendly environment.”

The General Assembly needs a structural change not only in how it listens but how it acts, said Markowski. It can't keep shaping its tax policies around a pre-determined spending plan, he said, otherwise small businesses will continue to leave the state.

“People considering this tax package have to think about what is going to happen two years or four years from now, because we appear to be heading down the same path,” Markowski said.