MALLOY, DEMS REACH BUDGET AGREEMENT; UNION CONCESSIONS STILL THE WILD CARD

Gov. Dannel Malloy and the leaders of the Democratic-controlled legislature have agreed on a new two-year budget deal that they say eases the burden on the middle class while asking more of the state’s richest residents.

The agreement was announced in the ornate Old Judiciary room at the Capitol with Malloy, Senate President Pro Tem Don Williams and Speaker of the House Chris Donovan leading the event. Everyone involved cautioned that the budget is not a done deal as the legislature’s finance and appropriations committees still have to vote on the plan.

Most of the elements of Malloy’s original budget proposal remain in intact. However some changes were made to cushion the impact on the middle class. The popular property tax credit that benefits middle class taxpayers is back but topped at $300 as opposed to the previous $500.

Other moves to benefit the middle class and lower-income residents include:
• The inclusion of an earned income tax credit (EITC) that Democrats and some Republicans have been backing for years. It will apply to only those that now qualify for the federal EITC and the state EITC will be 30 percent of that.
• There will be no sales tax on cars washes, boat storage and cleanings, the now infamous haircuts and the tax-free week enjoyed by families who do back-to-school shopping is back
• The so-called coupo

n-clipping tax is also gone. Malloy originally proposed changing the law so that consumers would pay sales tax on the full value of any items purchased even if a coupon was used to lower the price.

Before anyone gets too excited about not having their haircut taxed, you will be paying sales taxes on things like over-the-counter drugs, limo rides, airport valet parking, mani-pedis, all clothing (as opposed to the current tax-free purchases of under $50) and three cents more a gallon on gasoline. Those items and other were all part of Malloy’s proposed budget and remain in this new agreement.

There will be no elimination of the used car trade-in exemption sought by Malloy and his proposed luxury tax on jewelry selling for more than $5,000; cars for more than $50,000; and yachts for more than 100,000 has been lowered.

But remaining in the plan are the income tax increases and increased taxes on gasoline, alcohol and cigarettes (the so-called “sin taxes”). Corporation and in heritance taxes are also increased over Malloy’s initial proposal.

The elephant in the room is still the concessions from state employee labor unions. Every budget proposed so far—Malloy’s initial plan, the Republican no-tax-increase plan as well as the agreement announce yesterday—all rely on a $1 billion a year for each of the two years of the budget in givebacks from labor. This could put considerable pressure on union negotiators to somehow come up with the concessions. Negotiations have been taking place quietly behind closed doors.

The General Assembly is required by the state constitution to pass a balanced budget. Therefore, there is considerable question as to the constitutionality of passing a budget if the union concessions are not in place prior to a vote. Voting on a budget that assumes it will be balanced will be a topic of discussion as concession negotiations drag on and a vote on this new agreement nears.

If the unions refuse to come to an agreement that reaches the $1 billion mark, public opinion in the state will likely and quickly turn against them. Malloy’s string of town hall meetings attracted residents who believe union members have far better wages and benefits than the private sector and that it’s time to cut back. The Republican budget called for a 5-percent reduction in the state employee workforce. The national tide against state employee unions (see Wisconsin, Ohio and others) has not yet reached Connecticut and Malloy has said he would not use layoffs unless he’s forced to unlike Govs. Cuomo (NY) and Christie (NJ). But that could all change if these negotiations fail.

Republicans strongly opposed the new agreement saying it still raises taxes too much. GOP leaders have complained of being left out of the process. That’s nothing new. House Republican leader Larry Cafero said there is now a one-party political system in the state. Note to Cafero: If you don’t like it, win some more elections.

Although it may have seemed like a cum-by-ah announcement on the budget deal, much work has to be done as astutely pointed out by Sen. Williams. Meanwhile, in the House, Speaker Donovan may have his work cut out for him. Just this week more than 60 House members expressed in a letter their desire to see the income tax rate increased even higher than what Malloy proposed on the highest-earning taxpayers. That isn’t in this agreement.