March 1, 2018

CEO-led commission proposes tax overhaul, tolls, min. wage hike

Steve Laschever
Steve Laschever
Former CEOs Bob Patricelli (right) and Jim Smith, co-chairs of the Commission on Fiscal Stability and Economic Growth, which unveiled its recommendations for the state on Thursday.

The leaders of a state-created commission laden with high-profile Connecticut CEOs promised to be bold, and it appears they've done so.

The 14-member Commission on Fiscal Stability and Economic Growth on Thursday issued a list of proposals that includes a state tax overhaul, union bargaining changes, eliminating the estate and gift tax, a minimum wage hike, and paving the way for electronic road tolls.

The commission's report says Connecticut has a shrinking economy and is losing competitive ground to other states.

Its co-chairs, former Webster Bank CEO James Smith and former Women's Health USA CEO Robert Patricelli, penned an opening message to lawmakers urging immediate action on the commission's recommendations, though a full implementation would take several years.

The state is in a "quiet crisis by every measure," the report says. It has regular budget deficits, growing unfunded liabilities, weakened bond ratings and economic growth, and higher outmigration.

The commission has been working on a tight timeline. It was created by lawmakers in late October and convened for the first time in mid-December.

Major recommendations in the report include:

Tax rebalancing: A slew of proposed reductions and hikes to various state taxes would be revenue neutral, but would create economic growth to make it revenue positive, the commission says.

Its plan calls for a reduction in all personal income tax brackets (from 6.99 percent to 5.75 percent for the highest earners and by the same amount or more in most lower brackets). This would mean $2.1 billion less in personal income tax revenues by 2023.

Meanwhile, the sales tax would increase from 6.35 percent to 7.25 percent, adding $1 billion in revenue. Corporations with larger employee counts would see a tiered payroll tax of 0.8 percent in 2020, generating $475 million in revenue for the state.

Starting in 2020, the commission wants to reduce the dollar value of tax exemptions and deductions the state provides by 14 percent (though the report does not name specific tax expenditures to target), amounting to over $750 million in annual savings. The plan also wants to eliminate the estate tax and gift tax, which are expected to produce $176 million in revenue this year.

Minimum wage increase: The commission is calling for an immediate increase from $10.10 per hour to $11, and a phased increase to $15 by 2022.

Union bargaining: Connecticut is one of only four states whose legislature lacks control over determining pension and retiree health benefit formulas and funding policies, according to the commission, which wants remove that portion of bargaining from the negotiations between the SEBAC union bargaining group and the governor's office.

The commission also wants to authorize contract arbitrators to make compromise awards when parties can't agree, rather than the current system, which is known as "last best offer."

Pension liabilities: Between state employees and teachers, Connecticut's unfunded pension liability is a whopping $36 billion, according to the commission, which lays out a strategy for transferring the Connecticut Lottery's revenue stream to help reduce the teachers' liability over the next 30 years. The Connecticut Post reported recently that New Jersey had made a similar move.

Transportation: The report appears to support most of Gov. Dannel Malloy's proposal to spend more on transportation infrastructure.

To build up the Special Transportation Fund, the report envisions a gas tax increase of 7 cents or more over a four-year period, a quicker phase-in of a planned diversion of new car sales taxes to the STF, and the creation of road rolls.

"The Commission regards tolls both as an inevitability (Connecticut is the only state on the Atlantic Coast without them) and as a means of developing a competitive revenue stream for investment purposes," the report says.

The commission says the state should also prioritize creating faster rail service from Hartford to Penn Station and create a $10 million fund Bradley International Airport can use to lure new flights. The state's top airport official testified to the commission about creating a route development fund.

Municipalities: The commission wants cities and towns to have the option to raise local revenue by charging an additional 0.5 percent in sales tax and fees and taxes related to stormwater, hotels, car rentals and restaurants.

The commission is also recommending expanding the model of the Capitol Region Development Authority to at least two other Connecticut cities, that the state pay a higher PILOT tax to municipalities on the properties it owns, and that non-union labor be permitted on rehabilitation projects costing under $1 million.

Further expense cuts: The report gives the Malloy administration credit for reducing non-fixed costs by $1 billion over the past eight years, but is calling for a plan, led by a national consultant, to trim another $1 billion. Such a cut, along with the lottery shift and other changes, would lower projected deficits in the years ahead, the report says.

Education: The state should issue an RFP with the aim of recruiting a major research university to help create a STEM campus in Hartford, New Haven or Stamford, the report says. The commission also wants lawmakers to create a commission to study what would be needed to transform UConn into a top 10-15 public university by 2025.

A list of commission members can be found here. Look below for a link to the report. The commission said a full list of appendices would be distributed in several days.

DOWNLOAD PDFs

Read the commission's report

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