🔒State budget needs a redo

Editor's Note: The online version of this story, published in HBJ's 6/15 print edition, has been updated to reflect a proposal pitched late last week by Gov. Dannel P. Malloy to roll back some business tax increases. Malloy's plan was made public after this editorial went to print.

The state of Connecticut has had nearly two weeks to digest its new two-year budget; unfortunately, there are no antacids strong enough to curb the indigestion caused by the $2 billion in tax increases.

As Hartford Business Journal news editor Gregory Seay reports in this week's issue, economists of all political stripes are warning the $40.3 billion budget will slow economic growth, hampering the state's modest economic recovery.

State lawmakers must go back to the drawing board and rethink this budget in special session. Gov. Dannel P. Malloy has already proposed rolling back $220 million in business tax increases, which drew the ire of General Electric, Aetna and other corporate heavyweights. That's a good start, but there are other problems with the spending plan that need attention as well.

Hospitals, for example, are warning of major layoffs and service reductions following cuts to Medicaid spending, new tax credit caps, and an increase to the provider tax.

Combined with state cuts over the past three years, the impact on Hartford Healthcare, for example, amounts to $100 million, the five-hospital system said last week. Meanwhile, economist Fred Carstensen issued a report that said the state's declining financial support to hospitals will translate to more than 4,000 lost jobs, $300 million in lost personal income, and a $145 million decline in state revenue by 2017.

We understand Malloy and the state legislature were looking for a way to invest in a major infrastructure overhaul, which the business community supports. But lawmakers have chosen a costly path that will do more harm to the economy than good. Instead of siphoning off sales tax revenues to pay for infrastructure investment, for example, why not put tolls at our state's borders and transfer some of the tax burden to out-of-staters? Yes, we know tolls aren't popular among the electorate, but strategically, they could lessen the need for some of the tax increases.

Meanwhile, lawmakers have failed to root out structural deficits within the budget. There has been no reinvention of government services or reductions to state-employee costs, increasing the likelihood that tax increases will be a perpetual nuisance.

The legislature's second major tax hike in four years has made it open season on Connecticut businesses. Lower-cost states are lining up to woo our companies. Georgia's governor called GE's top brass to let them know the Peach State is open for business. The state of Indiana took out a full-page ad in the Wall Street Journal offering direct support to GE, Aetna and Travelers, using the creative tag line, “Friends don't let friends pay higher taxes.”

In a world where perception is oftentimes reality, the state budget approved by the House and Senate has already done damage to our business climate. Malloy, who has tried to shift blame for the tax hikes on the legislature, still has an opportunity to minimize some of the ill effects.

Following a week of criticisms from businesses and their lobbyists, Malloy last week said he will ask the legislature to walk back or delay certain business taxes in an upcoming special session.

The governor said he will support delaying until 2016 a new unitary tax on companies with operations in multiple states. He also hopes to keep the state's computer and data processing tax at 1 percent, rather than raising it to 3 percent over the next two years.

Malloy is an astute politician so we hope he uses his political chops to lessen the tax burden on businesses. Our future economic growth depends on it.