Tuesday, December 01, 2015

Drilling For Taxes in Down And Out Connecticut

The city of Hartford, as well as other large cities in Connecticut, is tax poor, city fathers say, because it is home to so many non-taxable entities; hospitals are a prime example. Hartford cannot collect property taxes from hospitals, churches, schools and -- irony of ironies – the state Capitol, which houses the legislators who impose taxes on the rest of us.

In distributing tax funds to municipalities, the state attempts to level the playing field somewhat by giving more state taxes to poor cities, thus redressing a portion of the loss. However the state, as usual, has its thumb on the balance scales. Hartford Councilwoman Cynthia Jennings, a member of the Working Families Party, noting that the state has for years been shorting Hartford for the 52 percent of tax exempt land in the city, has proposed to levy a city tax on Hartford employees who do not live in the city, which usually receives less than half of what it is due from the state’s Payment In Lieu Of Taxes (PILOT) program. The Working Families Party marches under state employee union banners. Under the Councilwoman’s program, Hartford's private employers would pick up the slack from the state’s under-financing of the PILOT program. In a state in which business is still mired in a recession, the notion that urban employers should suffer yet another tax went over like a lead balloon.
The federal government returns to Connecticut in benefits about fifty cents for every dollar it collects in taxes, a poor return on taxes paid out, which means that Connecticut is a net supplier of tax funds to poorer states. In 2013, the most recent year on record, federal money made up 30% of revenues collected by the 50 states according to figures supplied by State Smart. Connecticut received $6.1 billion dollars from the federal government, 23.4% of its total revenue. During the same period, Connecticut residents and businesses paid $50.2 billion in federal taxes, most of it paid by or on behalf of individuals in the form of income, self-employment and payroll taxes.

Likewise for Connecticut’s state government, the return of tax dollars collected is greater for poor municipalities. Of course, state handouts are never enough – because poor cities share with the state an indisposition to cut spending, much of which is devoted to “fixed costs,” spending items that statutorily cannot be reduced.

Most legislators are averse to spending cuts because any cut in spending disturbs special interests that have over the years used their clout to move themselves from the touchable to the untouchable side of the getting and spending ledger. As a policy decision that might be employed to balance budgets, spending cuts on teachers' salaries, for example, are exceedingly risky for a party whose political heft is due in large part to union participation in political campaigns. State union contracts, negotiated during the Malloy years by the Governor and SEBAC, a union conglomerate, are multi-year affairs that extend well beyond the fiscal year in which budgets are hammered out by tax hungry legislators. Mr. Malloy has seen to it that Republicans in the legislature would not influence any of his budgets, and the special interests in the untouchable zone now exert a life or death power over accommodating Democratic legislators.

Facing a tsunami of protests from belabored businesses and some defections within his own party, Mr. Malloy recently has made an exception to his inflexible rule. Both Republican and Democratic leaders in the General Assembly have been knocking their heads together in meetings that may result in a special session, but there is no assurance that the Democratic dominated General Assembly or the Governor will sign off on any measures that will permanently reduce long term spending. Connecticut has to wring about $2 billion in spending cuts from its continuing budgets, and this cannot be done without attacking untouchable spending, renegotiating union contracts and adopting prudent spending policies for the future.      

Connecticut’s Capitol city is running out of money. No big surprise there; state government also is running out of money. Governor Malloy's two massive tax increases – the largest and the second largest in state history – have pumped most of the tax water out of the revenue well. So then, what does a tax hungry legislator do when his well has run dry? Does he cut spending? Does he move some “fixed costs” into the reducible column? Does he confront union lions in their own dens and require them to reduce their salary and benefit demands?

Nothing of the sort; he drills another well, little realizing that the water table has been reduced over the years though excessive pumping.
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