After months of frustrating delays, legislators went home early Friday morning after failing to approve a two-year, $41 billion budget that would have created an array of new taxes and fees but avoided an increase in the sales or income tax.
Following an all-day marathon at the state Capitol, Republicans sent their members home in a chaotic ending after saying that Democrats had failed to cobble together the votes to pass the budget. House Speaker Joe Aresimowicz told reporters that the detailed legal language in the budget, which had been delayed all day long, would not be ready until at least 6 a.m. Friday.
It remained unclear exactly when the legislature would pass the budget, but the Senate will come back at 12 noon Friday. Some lawmakers said it would be difficult to stop the deep cuts from Gov. Dannel P. Malloy’s executive order on October 1.
After the expected budget vote fell apart late Thursday night, House Republican leader Themis Klarides told reporters that Republicans have presented budgets that were “ready to go,” but Democrats rejected them.
“They weren’t willing to budge on the important things, and the people of the state want a budget,” she said. “The shame of it is this: we have major problems…but we know how to fix them.”
Senate Republican leader Len Fasano said the chaos of Thursday night proves that lawmakers need to cooperate to get things done.
“I think [the Democrats] have learned they cannot do this with one-party rule anymore,’’ Fasano said. “They need our help.”
The Democrat-backed plan would have added new taxes on cellphone bills and vacation homes, along with hiking tax rates on hospitals, cigarettes, smokeless tobacco and hotel rooms.
In a late-night development, insiders said the plan also includes a $12 surcharge on all homeowners’ insurance policies statewide for the next five years in order to help residents with crumbling concrete foundations. Homeowners have been grappling for years with problems, and government officials have been unable to reach a comprehensive solution.
More than 500 homeowners in 23 towns have filed complaints with the state, but Gov. Dannel P. Malloy fears that more than 30,000 homes could be at risk. Besides complaining to insurance companies, residents have pleaded their cases at the local, state and federal level.
The House had not yet started the debate as of 11 p.m. Thursday, and delays in preparing the budget documents were expected to run until 6 a.m. Friday. That forced the Senate to delay its deliberations.
The state budget deal also adds new taxes on ride-sharing services, nonprescription drugs and companies that run fantasy sports gambling. More than $40 million is being set aside as part of a multipronged effort to help Hartford avert bankruptcy.
Significantly, the agreement also includes increased funding for municipalities and avoids deep cuts in public education that were promised by Malloy through an executive order that would take effect Oct. 1.
“The urgency of the present moment cannot be overstated,’’ Malloy said Thursday. “Local governments, community providers, parents, teachers and students — all of them are best served by passing a budget, and passing it now.”
The overall increase in revenue is estimated at $1.77 billion in the first year and $1.87 billion in the second year, including all tax increases and revenue transfers, lawmakers said. The budget would close a projected $3.5 billion deficit that spans two years.
In a fast-changing landscape at the Capitol, numerous tax hikes were discussed and dropped. There will be no increase in the current rates on real estate transactions and restaurant meals. A transportation advisory board, which some feared would pave the way for electronic tolls on Connecticut highways, was also dropped from the final package.
Republicans were surprised Thursday by the property tax on vacation homes that would largely affect wealthy residents who have moved to low-tax states like Florida and still maintain a second home in Connecticut — as well as New York residents with homes in places like Litchfield County. The tax would cover an estimated 20,000 single-family homes, and the new state property tax would generate $32 million a year.
“We did feel that was a more progressive alternative to raising revenue than some of the other options that we had,’’ said Senate President Pro Tem Martin M. Looney, a Democrat from New Haven. “If you own a second home, that indicates a certain level of affluence. It seemed to be more fair than some of the other options that were being discussed that would have been more harsh on lower-income people.’’
During a marathon day Thursday, sleep-deprived attorneys and nonpartisan staff members placed the finishing touches on a gigantic bill stretching more than 800 pages that covered all state taxes, spending, and bonding for two years. Senate Republican leader Len Fasano had predicted that the Senate might not vote until 4 a.m. Friday, but lawmakers later decided to get some sleep and then return to the Capitol later Friday.
Holding only a 79-72 edge over Republicans, House Democrats have one of the slimmest leads in decades, and the Senate is split between parties for the first time in more than 100 years at 18-18. Due to the razor-thin margins, crafting a state budget this year that could pass in both chambers has created far more challenges than in years past.
Rep. Derek Slap, a freshman Democrat, said that few legislators would have predicted in recent months that the General Assembly would create a package with no broad-based tax increases that balanced the budget. He said his hometown of West Hartford would receive about 90 percent of the money that would have been cut by Malloy’s executive order, which would have reduced the town’s education cost-sharing money to zero.
For middle-class homeowners, the popular property tax credit on the state income tax would drop to a maximum of $100, down from the current $200. For the first time, the credit would be limited only to senior citizens aged 65 and over and families with dependents. Currently, almost 800,000 tax filers receive the credit, which is popular among the middle class and is limited by income to a maximum of $130,500 for joint filers. Those above that limit receive no credit at all.
Malloy had originally sought to eliminate the credit entirely, but the negotiators settled at $100 after detailed talks.
The cellphone tax would be 49 cents per month per line, which is the same rate as Massachusetts, Democrats said. Many lawmakers were caught off guard when they heard about the new idea, but negotiators said it was important to the state’s revenue stream because it is a widespread tax that would affect about 3 million cellphones and will be collected every month.
The current 15 percent hotel room tax would be increased by 1.75 percentage points to 16.75 percent, and the resulting $25 million would be set aside in a special tourism fund over two years, lawmakers said. Anyone using Uber or other ride-sharing services would pay a fee of 25 cents per ride, raising $8 million over two years. The cigarette tax will increase by 45 cents to $4.35 per pack, starting in November.
In a complicated maneuver, the compromise budget also calls for increasing the hospital provider tax to 8 percent, up from the current 6 percent. The hospitals, though, would receive money back in return, and hospital executives have agreed to the deal, lawmakers said.
Insiders said that the hospital tax would generate more federal funds that would be returned to the state in the form of Medicaid payments. About two-thirds of that federal money would be sent back to the hospitals, while one-third would be kept by the state, officials said.
Sen. Toni Boucher, a Wilton Republican, compared the long-running budget debate to the recent hurricanes that battered Houston and Florida.
“The taxpayers of Connecticut have been enduring a financial hurricane of sorts … a terrible Category 5 financial hurricane,’’ Boucher told her colleagues in the finance committee.
Sen. L. Scott Frantz, a Greenwich Republican who strongly opposed the budget, told fellow members of the finance committee that the Wall Street bond rating agencies are watching Connecticut closely because of its ongoing financial problems and the departures of major corporate headquarters like General Electric, Aetna, and Alexion.
“The brand of Connecticut is hurting,’’ Frantz said. “The budget, in general, is a commentary on the health and the leadership of the state. … This revenue plan is an admission that we are desperate — when you start to tax cellphones.’’
Also included in the enormous budget bill would be funds to support Hartford — between $40 million and $45 million, according to sources — in order to prevent the state’s capital city from seeking bankruptcy. The funds would come with strings attached, including the state seeking some type of oversight of Hartford’s finances. The state money would be part of a multi-pronged solution, including concessions from bondholders and labor unions, in an attempt to steer Hartford back onto a path of long-term fiscal stability.
“There will be no need to file bankruptcy,” Ritter said. “They will be able to pay their debts. They’ll be able to pay their legal obligations.”
Nonprofits, Towns Waiting
As of mid-afternoon, the spending side of the budget proposal remained largely shrouded in secrecy.
Gian-Carl Casa, president and CEO of the Connecticut Community Nonprofit Alliance, said he is pleased by what he’s hearing.
“Like everyone else, I have not seen details yet, but we are encouraged by reports that there have been some funding restorations — and we are hopeful that the budget fully funds vital services,” Casa said.
It remained unclear how municipalities would make out in the negotiated deal in terms of state and education aid. Connecticut Conference of Municipalities executive director Joe DeLong, who has tangled with legislators at times, had not seen the bill as of Thursday morning.
Malloy has spent months pitching plans to reallocate some of that aid in hopes of increasing funds for cities. In a more recent proposal, however, Malloy has pitched keeping aid level or slightly decreasing aid to most municipalities.
Lobbyists and legislators were scrambling for information on their issues of interest around the building — from education to hospitals to tax hikes.
Plans to tax e-cigarettes were dropped after an outcry by the vaping industry that operates out of retail shops across the state. Tax negotiators said the proposed increase in the conveyance tax for the sale of upscale homes, which had been strongly opposed by the real estate industry, has been dropped from the final bill.
Courant staff writers Daniela Altimari, Jenna Carlesso, and Christine Schmidt contributed to this story.
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