Drastic State Aid Cuts, Increased Tax Proposals In Malloy’s Latest Budget Plan

Gov. Dannel Malloy revealed his updated biennial state budget Monday afternoon that takes into account a massive drop in income tax receipts and a multi-year budget deficit that is approaching $5 billion. Included in Malloy’s budget plan are new and increased tax proposals.

Malloy’s budget also taxes a sharp ax to state aid to local municipalities and includes cuts totaling about $700 million over two years. (SIGN UP: Get Patch's Daily Newsletter and Real Time News Alerts. Or, if you have an iPhone, download the free Patch app.)

The sales tax exemption on non-prescription drugs would be eliminated under the plan, and there would be an increased conveyance tax on properties valued at more than $800,000.

“The truth is the new economic reality demands this of us," Malloy said. “The state can only support as many grants and programs as our available resources allow.”

Drastic drops in income tax receipts caused the projected budget deficit to grow by about $1.4 billion. In total the deficit is around $5 billion for the next two years.

The new budget proposal cuts expenditures an additional $241 million and other funds by $364 million for fiscal year 2018 from Malloy’s original proposal made in February.

In addition Malloy would curtail town aid that comes from sharing profits with the casinos. The Mashantucket Pequot and Mohegan Fund would be eliminated. The governor's original budget proposal called for distributing $58.1 million in aid to towns for the next fiscal year.

The Municipal Revenue Sharing Fund would be reduced from $349 million to $50 million per year.

The Connecticut Council of Small Towns was quick to criticize the revised proposal.

“The governor’s revised budget decimates funding for small towns. Cutting municipal aid and shifting teachers’ pension costs to towns is, in fact, a huge tax increase on the residents and businesses of this state,” said Betsy Gara, executive director of COST. “Unfortunately, many property taxpayers are at a tipping point and cannot afford an increase of this magnitude.”

Possible gubernatorial candidate and Trumbull First Selectman Tim Herbst said the cut was savage.

"This kind of reckless proposal is just a gimmick to plaster over what will amount to another massive tax hike on struggling Connecticut families, retirees and businesses," Herbst said. "Savagely slashing municipal aid will force cites and towns, many who have managed their budgets responsibly for years, to hike property taxes or cut services relied upon by residents."

His budget includes some proposals from both Democrats and Republicans. He incorporated Republican ideas of transferring the sales tax on motor vehicles to the Special Transportation Fund and requiring the Lottery Corporation to reduce spending.

Malloy is still counting on $700 million in state union concessions for the first year of the budget. Concession plans would have to be reached in the coming days in order to avoid a round of layoffs. As many as 4,200 state workers could be laid off if no deal is reached.

Individual cities and towns will have to decide the best way to deal with a reduced amount of aid, whether that means increasing taxes, reducing spending or a combination of both, Malloy said. He added that he believes there are communities that will be able to take the hit without increasing taxes.

Malloy also recommitted to helping urban municipalities that are facing momentous fiscal issues. Hartford is in an especially bad situation and may have to declare bankruptcy if state aid isn’t increased.

Image via MTA/Flickr Commons