By Keith M. Phaneuf
Connecticut’s 50 largest state income tax filers reported nearly $3 billion less in quarterly earnings this spring than they did one year ago — which resulted in a $217 million hit to the state’s coffers, the legislature’s nonpartisan fiscal staff reported today.
That drop represents a 30 percent plunge in earnings, a trend that sparked fierce debate within the Finance, Revenue and Bonding Committee as members approved a revenue schedule for next fiscal year’s state budget.
“If we’re losing $3 billion (in adjusted gross income) the impact is going to be across the whole budget,” said Sen. Stephen T. Cassano, D-Manchester, who first questioned nonpartisan analysts about the revenue trend.
Connecticut’s income tax, which provides nearly half of the revenue needed to support the annual budget, gets about 60 percent of its receipts from paycheck withholding and about 40 percent from quarterly filings.
Friends and Neighbors:
Representative Steinberg voted for the last two budgets that resulted in huge income tax increases on Westporters, yet the state faces a serious financial crisis. In addition, Westport has lost over $600,000 in PILOT payments from the state and we could find our education funding also cut. His votes did not represent our interests.
The financial situation in Connecticut continues to deteriorate, even more than what was reported just a few months back. The situation has become so bad, the Democratic leaders in Hartford are having a difficult time getting to a budget agreement with the Governor for the coming fiscal year (2016-2017). The General Assembly is constitutionally mandated to be finished today which includes passing the budget, but the drop in tax revenues is so significant no budget agreement will be voted on tonight. A Special Session will be called to keep legislators working until the budget is approved.
Tax revenues make up about 50% of the State of Connecticut revenues. The latest projections published on April 29, and signed by Benjamin Barnes (Office of Policy and Management) and Neil Ayers (Office of Fiscal Analysis) show a significant decline since projections issued in January 2016. Personal Income Tax revenues have declined $295 million and now Business Income Tax receipts have declined by $66 million in just 4 months. The decline in Business Tax receipts is “new news” and most concerning.
While some revenues generated from casinos and Inheritance and Estate taxes have risen, the final budget deficit for the remainder of 2016 is now set at over $256 million. With the projections of the revenue shortfall for the remainder of 2106, the General Assembly is having difficulty approving the budget for 2016-2017, which is estimated to have an almost $1 Billion deficit.
One major issue occurring in Connecticut is the 50 largest state income tax filers recently reported nearly $3 billion less in quarterly earnings than just one year ago. This drop in income caused a $217 million reduction in state income taxes collected. Also, with the news that 2 billionaires are moving out of the state and the eventual loss of GE’s high paid executives, Connecticut state income tax receipts most likely will continue to decline.
The budget for 2016-2017 will eventually get approved in Hartford. However, be prepared for temporary one-time budget schemes in addition to cuts in spending and state personnel. But, also be prepared for the majority leaders not to resolve the long term elements causing the budget problems, and for the majority leaders in Hartford to hope they can keep the budget balanced until after the November elections. It appears the goal of the leaders in Hartford is to get re-elected, and then hit taxpayers with new tax increases as they refuse to address the long term cost issues facing the state.
As the financial problems in Connecticut continue and no real plan to resolve them, more businesses and taxpayers could leave the state. Budget deficits are projected to grow to over $2 billion starting with the 2017-2018 fiscal year. Connecticut state revenues could drop more and the financial crisis in Connecticut will deepen.
Your friend and neighbor,
Bart
No one should be surprised here. When a state depends on an ever increasing share of revenues from fewer and wealthier sources, tax revenue generation becomes riskier. Eventually, the golden geese fly away to places like Florida and Massachusetts.
The real question that the citizens and legislators should be asking themselves is what will make Connecticut attractive again for businesses. It is OK to have higher costs and taxes if the benefits are commensurate. So far we are failing badly with that value construct versus other states.