Gov. Dannel P. Malloy’s two-year, $40 billion budget offers a mixed bag for businesses. While the second-term Democrat offered a few carrots that aim to sweeten businesses’ appetite to the spending plan, numerous proposals will increase the cost of doing business in Connecticut.
Here’s an assessment of the good, bad, and uncertainty created by Malloy’s budget.
The Good
Small employers have long abhorred the $250 business entity tax, levied by the state every two years. Malloy is proposing to eliminate the tax, providing minor relief. However, Malloy’s budget also calls for increasing from $20 to $100 fees paid by most companies that file annual reports with the Secretary of the State’s office. That will reduce the tax cut’s overall impact.
Municipalities were largely spared from major funding cuts, making property tax increases less likely. Malloy also avoided introducing new business taxes, and he left most tax credit programs intact. Hundreds of millions of dollars have also been set aside for economic development initiatives ranging from brownfield revitalization to providing cheap capital to manufacturers.
The Bad
During last year’s election, Malloy promised not to raise taxes to close projected billion-dollar deficits, but his budget clearly falls short on that promise. Among his ploys to raise revenue Malloy wants to indefinitely extend the 20 percent surcharge on the corporations tax and limit the use of credits businesses can use to offset that tax.
The Connecticut Business & Industry Association said Malloy’s budget will make Connecticut less competitive, and we agree with that. Connecticut already is a high-cost place to do business, and Malloy’s budget only adds to that.
To be fair, Malloy faced difficult decisions. He could have slashed municipal aid, likely forcing many cities and towns to raise property taxes. And at least one UConn economist warned any serious government belt tightening could severely damage Connecticut’s recovery and hinder long-term job growth.
Malloy may have been caught between a rock and a hard place, but the budget reflects his view that state government must play a significant role in citizens’ lives. We think that role is too big.
The Uncertain
The business community has offered strong support for making transportation investments, and Malloy pitched an ambitious agenda, including spending $10 billion over the next five years on various bridge, highway, and rail projects. Long-term, Malloy wants to spend $100 billion over 30 years on highways, rail, bicycle paths, airports, and seaports.
The problem is Malloy has not identified the source for a significant chunk of the future funding. That is huge cause for concern for businesses, which already expressed reservations about adding tolls to Connecticut highways. Malloy’s budget chief Ben Barnes said tolls are possible, but he didn’t rule out raising other state taxes to pay for infrastructure investments.
The business community believes the state needs to invest in a modern, 21st century transportation system that safely and efficiently moves goods and people throughout Connecticut, but at what cost? If the state adds tolls and a host of other tax and fee increases to pay for Malloy’s ambitious plan we could just end up building bridges and roads companies use to move their operations to lower-cost destinations.