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December 17, 2012

Speaker: No business taxes, cuts

Photo / Steve Laschever House Majority Leader Brendan Sharkey (D-Hamden) will take over as Speaker of the House when Connecticut's legislature convenes on Jan. 8. In a session that will be dominated by the need to erase a $2.1 billion deficit in the budget, Sharkey said businesses won't face new taxes or program cuts, although local municipalities may lose state funding.

Connecticut's new Speaker of the House says business will not face new taxes or cuts to programs during the upcoming legislative session, but municipalities may not be so lucky.

House Majority Leader Brendan Sharkey (D-Hamden), who will take over as speaker when the 2013 session starts Jan. 8, said the state just launched several initiatives to help grow business and backtracking now would only perpetuate the financial malaise hampering this year's budget process.

"The mission we have now in the legislature here is to make sure we are not undermining those initiatives," said Sharkey, who is also a small business owner. "To start eating the seed corn is the wrong way to go."

In the 2013 legislative session, the Connecticut General Assembly must agree on a two-year budget plan to balance projected deficits of $1.1 billion and $1 billion for those two fiscal years starting July 1. Before that even starts, the legislature is holding a special session on Dec. 19 to trim $300 million from the current year's budget.

Sharkey sees municipal aid cuts as a way to trim a chunk of the $2.1 billion budget shortfall. The legislature has maintained municipal aid funding levels since 2008, and now that the state is in financial crisis, the time has come for local government to feel the pinch, instead of businesses.

"We really had the slowest job growth in the country, except for maybe Michigan," Sharkey said. "It was a function of benign neglect of previous administrations."

To burden businesses with new taxes or cuts to important job and other incentive programs from the state Department of Economic and Community Development would be counterintuitive to future revenue growth, said Sharkey, who owns a Hamden-based permitting consultant firm AmeriZone LLC.

"Where the rubber meets the road is small businesses," Sharkey said. "People with jobs pay more taxes, which is good for everybody."

Gov. Dannel P. Malloy said previously no new taxes will be implemented in the next budget, although those statements came before the most recent deficit projections.

Joseph Brennan, a lobbyist for the Connecticut Business & Industry Association, said the key to the 2013 legislative session will be avoiding another round of tax increases, after Malloy and the legislature pushed through a record $1.5 billion tax increase in 2011.

"We feel if the state can put together a budget that can avoid raising taxes and really changes the way government does business that could be one of the biggest economic development tools the legislature can offer," Brennan said. "We really want to see a change in the way state government does business."

Brennan said the state needs to focus on savings in areas including state employee benefits, corrections, and long-term care.

Although Sharkey and Malloy have said no new taxes will be implemented, there is the possibility of the state extending temporary tax increases that are set to expire in the coming fiscal year.

That includes the 20 percent corporate tax surcharge for companies with more than $100 million in annual gross income. The surcharge, which brings in about $116 million per year, is set to expire Dec. 31, 2013, right in the middle of the next fiscal year.

An extension could help add $58 million to the state's coffers.

Another tax set to sunset June 30 is the power generators tax, which charges power plants $2.50 for every megawatt of electricity produced in Connecticut. It has raised about $35 million for the state coffers in the past two years.

"Our hope and expectation is that the governor and the legislature are going to keep their word and let that expire," said Dan Dolan, president of the New England Power Generators Association. "Rates haven't gone down as much as they would have had the tax not been imposed."

Sharkey said the legislature likely will modify the tax before it sunsets because several power generators formed limited liability corporations to avoid paying the tax. The General Assembly plans to close that loophole.

As for continuing the power generators' tax past its sunset date, Sharkey said the subject is still up for debate, although a significant part of this legislative session will be dedicated to lower energy costs.

"Making Connecticut more competitive from an energy costs standpoint" is a priority, Sharkey said.

Malloy's comprehensive energy strategy for the state wrapped up its public comment period on Dec. 14, addressing several issues such as expansion of the natural gas home heating system and changing the definition of renewable power. Not all the strategy's recommendations need legislative approval, although the topics will be part of the legislative session.

On the health care front, both providers and payers will be watching closely how lawmakers handle growing Medicaid costs, which have been a major contributing factor to the budget deficit.

Total Medicaid enrollment has increased significantly in recent years to 588,488 residents as the economic downturn has made more people eligible for the health benefits aimed at low-income individuals.

Cuts to Medicaid would hurt doctors and hospitals and limit access to care for patients, said Ken Ferrucci, a lobbyist for the Connecticut State Medical Society.

"We are very concerned about any cuts to the safety net," Ferrucci said. "That ultimately increases the cost of health care."

Currently, Medicaid spending accounts for about 25 percent of state budget expenditures.

Besides the budget, the medical society will push to make the state more attractive for doctors. That includes tort reform, loan forgiveness programs, and opening up the state's Small Business Express loan and grant program to physicians.

Ferrucci said the expansion of insurance coverage under the federal Affordable Care Act will lead to physician shortages around the country, and put pressure on the state to be in a better position to recruit doctors.

"With the expansion of coverage, Connecticut is in a battle to attract and retain physicians," Ferrucci said. "That puts added pressure on the state to be more aggressive."

For manufacturers, the legislative session priorities are keeping the programs in place to help educate the existing and future workforce to compete in the global marketplace. The state's schools need to continue to teach important curriculum such as math and science, and the vocational-technical schools should continue their career-readiness courses, industry spokespersons said.

"I don't know many other industries that are in need of workers," said Jamison Scott, legislative chairman for the New Haven Manufacturers Association and vice president of Branford manufacturer Air Handling Systems.

Sharkey said after the education reforms implemented in the 2012 legislative session, he has no intention of making cuts to education programs.

"I want to keep the status quo," Sharkey said.

The Connecticut Association of Smaller Manufacturers wants to make sure budget cuts don't come from business programs such as research and development tax credits. Instead, the state should streamline its operations, following the example of the Department of Energy & Environmental Protection that used lean techniques to operate more efficiently with less staff, Scott said.

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