Dems look to quicken plan to cap revenue projections

Dems look to quicken plan to cap revenue projections

Record-Journal


HARTFORD — Senate Democrats Thursday unveiled a plan to cap revenue projections on the most volatile portion of the income tax as a way to provide budget stability in the future.

The proposal would cap how much lawmakers could assume from the estimates and finals portion of the income tax when crafting their budget at $3.1 billion, the projection for next fiscal year, with any surpluses going toward the Rainy Day Fund, debt service, and other designated expenditures.

The proposal is very similar to one from Comptroller Kevin Lembo, which Democrats rolled into the current budget but delayed until fiscal year 2020.

Sen. John Fonfara, D-Hartford, said the proposal presented Thursday, which would speed up that timeline, “is in response to the unprecedented performance” in the estimates and finals portion of the income tax, a revenue stream that is paid by the state’s wealthiest residents and has been highly volatile.

“It’s effectively a game-changer in terms of non-recession related negative growth in estimates and finals,” he said, adding the revenue source has decreased in three of the last four fiscal years.

The problem is compounded by the state’s growing fixed costs, and Fonfara said declining revenue projections mean fixed costs will now account for 57 percent of next year’s budget if lawmakers don’t look for tax or fee increases.

The Senate Democrats’ proposal won’t address the roughly $5 billion deficit the state is facing in the upcoming biennium, as the cap is based on projections for next year, and the revenue stream is expected to grow by only $30 million in fiscal year 2019.

Democrats said the plan would help reduce fixed costs and provide more budget flexibility in the future though. Any income above the projection would cover additional payments toward unfunded pension liabilities, refuel the state’s Rainy Day Fund, or cover capital expenditures.

The plan specifies how much would go to each, with rates varying by how far the revenue stream exceeds the cap, but the largest portion would go toward pension costs.

Lembo’s plan, meanwhile, targets both the estimates and finals portion of the income tax and the corporations tax, another volatile stream, and changed rules to allow the Rainy Day Fund to grow to as much as 15 percent of the General Fund budget, up from 10 percent.

His plan creates a formula to determine assumption limits for the two revenue streams, as opposed to the creation of a hard limit. He said it would lead to more predictable growth in the budget, and could sustain growth with surpluses put into the Rainy Day Fund in booming economic years.

It is anticipated that lawmakers and Gov. Dannel P. Malloy will use the remaining $244 million in the Rainy Day fund to plug a roughly $390 million hole in the current budget, which would make the third straight year a transfer was needed.

Lembo said the Senate Democrats’ plan “recognizes the urgency of establishing state budget predictability and stability.”

“It’s unfortunate that when my initiative passed in 2015 its effective date was delayed to 2020,” he said. “I’m happy to assist their efforts in any way.”

Senate Republican Leader Len Fasano, R-North Haven, meanwhile, criticized Democrats’ characterization of the issue, saying the revenue stream is volatile because of their “policies passed year after year that showed a complete lack of fiscal discipline.”

He also said Republicans had predicted the problem, and “the irony today is that all of a sudden the individuals whose policies damaged our state are now trying to be fiscal conservatives. Today’s press conference was an effort to deflect from the fact that Democrat lawmakers have yet to show any clear path out of the disaster they created. Thus far their change in rhetoric hasn’t been matched with a change in action.”

Still, Fasano said he remains committed to working on the budget in a bipartisan manner.

msavino@record-journal.com 203-317-2266 Twitter: @reporter_savino


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