Killing the Golden Goose: Connecticut’s Non-Profit Providers and the sad legacy of undermining what works

Another key area to watch as Governor Malloy rolls out his FY 2012 proposed budget is how he handles funding for nonprofit providers.

As a growing number of people recognize, in Connecticut, the vast majority of essential human and social services are provided by a network of nonprofit, community-based providers.

Every day thousands of people turn to these nonprofit agencies to get the help they need and deserve – services that is not only making life better for those individuals and their families – but also better and safer for Connecticut.

Being nonprofit and community based, nonprofits, these agencies are able to provide high quality critical services in a very efficient and effective manner.  If these nonprofit agencies and the services they provide were not available, the cost to Connecticut and its taxpayers would be much higher as residents were forced to seek services in far more expensive venues such as emergency rooms or other state programs.

So how has state government being dealing with its non-profit providers? 

Faced with rising demand (as a result of this Great Recession), the state of Connecticut has totally and completely failed to provide any cost of living increases over the last three years –  after an even longer period of perennial underfunding. 

The reality is, despite skyrocketing costs associated with energy, insurance and medical related costs (among other factors), nonprofits have gotten no adjustment, no increase, no support despite the obvious benefits they provide and the growing need for their services. 

Although unreported, the impact of Connecticut’s failure to properly support its nonprofit, as revealed in a recent survey of providers, has been dramatic;

40% of Connecticut’s nonprofits have delayed or refused admission for new clients

63% have been forced to reduce the level of direct services to residents

65% have reduced employee benefits

68% have further increased employee contributions for health care

80% have eliminated positions

80% have delayed hiring and kept vacancies open.

Democrats and Republicans alike continue to claim that they support vital human and social services, yet their actions speak louder than words. 

The legacy of inadequate state funding means many nonprofit providers have been forced to reduce services, expand waiting lists and cut staff and hours.  Few, if any, have been able to address the growing demand as more and more individuals and families find themselves in trouble – or even crisis – due to this bad economy

So now the question is what will happen next?

Governor Malloy pledged during the campaign to protect the state’s “safety-net” and yet his recent pronouncement that he will cut $2 billion dollars from the current services budget portends that Connecticut’s non-profits are about to get shafted again,. 

This despite the fact that we have learned from the last three state budgets  that no cost of living adjustment for nonprofit providers is nothing short of a decision to reduce the level of available services for the most vulnerable citizens among us.

The Governor says he will preserve the State’s safety-net, a goal that simply can’t be achieved if the next budget has the effect of reducing essential humans services yet again?

Malloy Administration Make More Walk the Plank (according to sources)

The news late today is that  the Malloy Administration has sent another two former Rell people packing.

The latest two are Jeff Litke and Louis Fulinello, both of whom were employees of the Department of Economic Development.  Previously Litke worked as Executive Assistant to Lisa Moody while Fulinello was a staff assistant in Rell’s Office. This brings the total of Rell staffers to be fired to at least 7.

In a post yesterday I raised questions about why the new Administration had fired Nora Duncan.  Duncan, who did work for Rell’s legislative office for two years, is much better known as a leading voice for Connecticut’s nonprofit providers of community services.

In yesterday’s post I questioned who was making these employment decisions and if Malloy or Wyman has authorized Duncan’s firing considering both have been such strong supporters of Connecticut’s nonprofits.

Things to Watch in Malloy’s Budget Proposal – Municipal Aid

Governor Dannel Malloy recently signaled that he plans to cut $2 billion dollars from Connecticut’s next state budget.

State Aid (courtesy of CT Mirror)

At the same time, he and his Administration have also pledged to do their best to refrain from dumping the state’s problems onto the cities and towns – signaling to the towns that they will not be the target of major reductions in municipal aid.

During the gubernatorial campaign Malloy even promised not to cut the Educational Cost Sharing Formula – the state’s primary mechanism for providing towns with funds to support local educational expenses.

Behind and underneath the debate about what Connecticut can “afford” to transfer to its cities and towns is the even more complex issue of how the formulas that distribute those funds are constructed.

Over the past twenty years, some of Connecticut’s most important funding formulas have been so corrupted (aka modified) by political maneuvering that they no longer reflect the underling goals for which they were created.

As discussed in earlier commentary pieces, the $1.9 billion ECS formula is a case study about how a formula can change over time to address political rather than policy goals.

With Republican Governors and increasing numbers of Democrats representing wealthier Fairfield County communities, the ECS grant has been changed significantly since it was first adopted about twenty five years ago. 

Over the past decade, Greenwich’s ECS grant has increased by 1,002 percent (from $310,000 to $3.4 million) while the grant for New London has gone up by 20.1 percent ($19 million to $23 million).

A similar pattern true across the state; 

Hartford’s ECS grant has risen by 19 percent and Windham’s is up by 25 percent

Yet Darien’s received a1,532 percent increase in the ECS grant over the past 10 years, Westport’s a1,320 percent increase, Weston’s is 858 percent higher and Wilton’s is up 3,212.

Connecticut’s poor communities still get the vast majority of state funds but wealthier towns have done a good job in ensuring that the rate of growth has favored them.

The original goal of the ECS formula was to target state aid to poorer communities so that they had the funds necessary to provide their children with a quality education (a policy that is constitutionally mandated in Connecticut). 

The amount towns received was driven by a formula that took into consideration the town’s wealth and the level of student need (as defined by the level of poverty, standardized test results and the need for English as a second language).

Widely recognized as a “national model” when it was created, Connecticut’s public officials have adopted various changed to the formula in almost every legislative session since.

The changes that were made in the late 1990s and early 2000s were “institutionalized” in 2005 when the Legislature started determining a town’s ECS grant allocation by simply adopting a set annual increase over the grant the town received in the previous year.  By applying an across the board percentage increase for each town’s grant year after year there is no longer any on-going consideration of the underlying issues that were supposed to be addressed by the formula.

Some public officials, perhaps none more than Nancy Wyman, have recognized and articulated the need to return to the fundamental issues that the ECS formula was intended to address.

Considering state government lacks sufficient state resources to maintain the present – albeit broken – educational funding system, let’s hope that the Malloy Administration uses this extraordinary opportunity to actually restructure and redirect scarce resources to where they are most needed. 

Simply capping the level of municipal aid – and maintaining the present distribution formula – disproportionately hurts the very towns that need the aid the most while protecting the towns that have the least proportional need.

When it comes to ensuring a good educational system, Connecticut’s constitution is one of the most clear and direct in the nation.  State government MUST help towns provide each child with a quality education.

As Governor Malloy tackles the state’s fiscal crisis, he has the moral and legal obligation to adopt a budget that is fair and equitable and that means going beyond simply addressing the level of municipal aid but addressing the funding formulas that distribute those funds.

Walk the Plank!

Last week, the Malloy Administration dismissed three more of the former Rell staffers who were quietly shifted out to “safer” state agency positions during the closing weeks and months of Rell’s tenure.

These most recent firings bring the total number of Rell staff that has been shown the door to five and this latest action raises even more questions about the criteria the Malloy Administration is using to decide which Rell people to keep and which dump.

Unlike the first two, who were simply not qualified for their new positions according to the Malloy Administration, this time Malloy people reported that these former Rell staff were simply the latest to go in an on-going effort to eliminate unnecessary positions.

While a number of key Rell staff remains in place, the Department of Transportation fired Philip Smith (who had served in Rell’s Office of Policy Management), David Gasior (who had served directly as an assistant in Rell’s office) and Nora Duncan who had been given the position of “legislative program manager” for the Department of Public Works after serving for two years as a  Policy and Legislative Affairs advisor in Rell’s Office.

Unlike the others who had gotten their original jobs due to their Republican campaign work and connections, Nora Duncan has a long and impressive record of advocating on behalf of essential social and human services.  Before joining the Rell administration, Nora served as Public Policy Director for the Connecticut Association of Nonprofits and Project Director for the Connecticut Nonprofit Human Services Cabinet.  In that capacity she was one of the most visible and effective voices for those who need and deserve community based services.

So the question is – why target her for dismissal.  Hardly a classic Republican, a quick check of the 2008 and 2010 Federal and State campaign contribution databases reveal that Nora Duncan did give $150 to Republican Gubernatorial and Lt. Gubernatorial candidates Fedele and Boughton but she also donated to Democrat Chris Murphy.

Dan Malloy has long articulated strong support for Connecticut’s nonprofits providers and the essential services they provide.  In fact, when he was gearing up to run for Governor he even served as the keynote speaker at the Connecticut Association of Nonprofit’s annual convention, the very group Duncan worked for.   At the time he pledged to create a cabinet level position in order to elevate support for Connecticut’s nonprofit, a promise he fulfilled when he nominated Deb Henreich to that position earlier this month.

It would certainly seem that Nora Duncan’s expertise with Connecticut’s nonprofits would be particularly valuable to the new Administration.

As discussed in earlier blog posts, it is not surprising that the new Malloy Administration is looking to divest itself of Rell political appointees but the decision to fire Nora Duncan seems out of place when compared to other Rell allies who remain in their posts.

All this raises the question, who exactly is making the decisions when it comes to these relatively high ranking political and policy jobs.

A fair question is whether Dan Malloy or Nancy Wyman approved these dismissals.  I haven’t seen the question asked yet but hopefully it will be soon.

Senators offer Malloy more power to cut budget…

Last week Brian Lockhart of the Stamford Advocate identified a 2011 proposed bill that deserves more attention – followed by a quick defeat.  

Proposed Bill No. 187, sponsored by Senators Bob Duff (Norwalk), Joan Hartley (Waterbury) and Gayle Slossberg (Milford) is called An Act Granting Power to the Governor to Balance the Budget

It is a vehicle for giving the Governor more “budget authority” by allowing him to make even deeper cuts to the state budget without legislative approval.

Our (well-meaning) elected officials would do well to remember the important words of Thomas Jefferson when considering giving the Executive Branch powers that rightfully belong to the Legislative Branch. 

 “If the three powers maintain their mutual independence on each other our Government may last long, but not so if either can assume the authorities of the others.” – Thomas Jefferson

Concepts like the line item veto or granting the governor greater ability to refuse to follow a budget that has been passed and duly signed into law is a bad idea – regardless of who serves as Governor (or President). 

I remember strongly opposing the concept when Bill Clinton asked for and received line item veto authority in 1996.  After watching the Bush years in Washington and the Rowland/Rell years in Connecticut, I’m more convinced than ever that instead of trying to duck the issue of fiscal responsibility, we do better to simply hold legislators accountable if they fail to do their job and fulfill their duties.

I’m very glad to see Governor Malloy is quoted as saying that this legislation is not needed.  The fact is, it is simply not appropriate for the Legislative Branch of Government to grant the Executive Branch this additional authority.

Brain Lockhart’s blog can be found here: http://blog.ctnews.com/politicalcapitol/2011/01/28/senators-offer-malloy-more-power-to-cut-budget/#comment-8044

This proposal mirrors the debate in Washington….where President Obama has actually asked Congress to pass a modified and more extensive line-item veto law.

Here are some other interesting thoughts about the Legislative Branch abdicating its authority by giving the Executive Branch more power (such as through the line item veto or greater rescission authority).

“…[T]he line-item veto is a convenient distraction. The vast bulk of the deficit is not the result of self-aggrandizing line items, infuriating as they are. The deficits [have been] primarily caused by unwillingness to make hard choices on benefit programs or to levy the taxes to pay for the true costs of government.”  USA Today, March 23, 2006

 “Such tools, however, cannot establish fiscal discipline unless there is a political consensus to do so…. In the absence of that consensus, the proposed changes to the rescission process …are unlikely to greatly affect the budget’s bottom line.  –Former CBO Director Donald Marron, Testimony before Congress’s House Rules Committee

 [The line item veto] “would aggravate an imbalance in our constitutional system that has been growing for seven decades: the expansion of executive power at the expense of the legislature.” – George Will, The Washington Post 3/16/06

Never underestimate the value of a good lawyer (just ask Lisa Moody and Jodi Rell)

On October 13, 2009 – more than fifteen months ago – an extremely serious complaint against Governor M. Jodi Rell, his senior staff and her campaign committee was filed with the State Elections Enforcement Commission alleging that they knowingly violated Connecticut’s campaign laws by receiving illegal campaign contributions and that her campaign illegally used public resources for political purposes. http://www.scribd.com/doc/21009985/seec-complaint-101309

The day after tomorrow – on Wednesday of this week – the SEEC is finally scheduled to take action on that complaint I filed 15 months ago;

In the Matter of a Complaint by Jonathan Pelto, Storrs File No. 2009-104

Proposed Findings and Conclusions, Proposed Consent Agreement and Order

 The controversy received widespread media coverage in the fall of 2009 after Ted Mann of the Day broke the story in series of investigative reports.  The Courant, JI and other papers also revealed key facts about the issue and a number of editorial boards weighed in against the Governor’s apparently illegal activities.

The allegations that a public official broke the law and used public resources for political purposes are among the most serious charges that can be raised against a sitting Governor.  State employees have lost their jobs for such action.  If true, Governor Rell would have become only the 2nd Governor in history to be forced to pay a fine for violating the Connecticut law. (Rowland’s earlier use of basketball tickets and other items earned him that honor).

In addition to the SEEC investigation, parallel investigations were begun by the Office of State Auditors, the Attorney General’s Office and the University of Connecticut.  It was never quite clear if the Ethics Commission was also involved or if they have been waiting for the other agencies to act.

 One would reasonably think that responding to charges such as these would be a top priority – but the wheels of justice move slowly – at least for some.

The record seems to indicate that the investigation phase moved forward fairly quickly, but official action was “delayed” for months.  According to their minutes, the Elections Enforcement Commission did take up what appeared to be a final report in executive session last fall but a final vote was delayed. 

Now, with Jodi Rell no longer Governor and her staff no longer working in the Governor’s Office File No. 2009-104 (my complaint) is on the agenda for a final vote this coming Wednesday.

The issues behind the complaint are certainly very interesting, but the fact that official action (thanks at least in part to the work of her attorney) was delayed until after she left office seems particularly noteworthy.

I know from previous experience that agencies like the SEEC prefer to go the route of a “Consent Agreement” when dealing with major complaints because it prevents the need for going to court since it includes an acceptance by the accused party that some type of violation took place.  Consent Agreements both resolve the situation and make good “case law” for future cases.

The problem with consent agreements is that it requires both sides to agree and you know how it is – the wording of a particular paragraph can take months to negotiate and work out.

Of course, maybe it is just a coincidence that the consent agreement wasn’t ready for action until Rell left office. 

Oh, and who represented Governor Rell and her campaign before the State Elections Enforcement Commission?

It was none other than Ross Garber, who readers will remember as the person Governor-elect Malloy selected to serve on his Transition Committee reviewing the names and resumes of potential appointees. 

[Funny side note, I never did hear back from the Transition Committee or its Personnel Committee when I sent in my cover letter and resume.  Maybe they are still reviewing my materials].

For those who are really interested in the issue and the charges, below are some of the highlights and links to more detail.

“Democrat accuses Rell, committee of ‘significant violations – A Democratic political consultant filed an elections complaint Tuesday against Gov. M. Jodi Rell and her political committee, charging “serious and significant violations” of state campaign financing laws in relation to Rell’s use of a University of Connecticut pollster to help craft her budget and political messaging.” (The Day Oct 14, 2009) http://www.scribd.com/doc/21053052/Democrat-Accuses-Rell-Committee-of-%E2%80%98significant-Violations%E2%80%99

 “Complaint Claims Rell Broke Election Laws – Rell and her administration have been under fire since last week, when news broke in the Day of New London that Dautrich’s $220,000, taxpayer-funded contract with Rell’s budget office – for a government efficiency study – has produced controversial political research and advice for how Rell should tailor her stances to please voters.” (Courant, Oct 13, 2009) http://www.scribd.com/doc/21051752/Complaint-Claims-Rell-Broke-Election-Laws-in-Prof%E2%80%99s-Study

 “Paying for Rell Message –At best the use of state money by the governor’s office to help frame a political strategy for managing the budget crisis shows a lack of leadership. At worst it could be a violation of law.” (The Day October 9, 2009) http://www.scribd.com/doc/21051781/Paying-for-Rell-Message

“Our view: Top Rell aide must step down – Gov. M. Jodi Rell should instruct her gubernatorial exploratory committee to immediately reimburse the state for any expenses related to the political research conducted — with taxpayers’ money.” (Norwich Bulletin Oct 9, 2009) http://www.scribd.com/doc/21051767/Norwich-Bulletin

“Taxpayers Paid $220,000 For This?  – COSTLY CONSULTANT  – Taxpayers will pony up for UConn professor’s partisan political advice to the governor …Consultants’ bills for such advice are usually paid by candidate committees out of voluntary contributions, not by taxpayers. The state treasury shouldn’t lay the groundwork for a re-election campaign if Mrs. Rell decides to bid for a second full term.” (Courant Editorial, Oct 9, 2009). http://www.scribd.com/doc/21051772/COSTLY-CONSULTANT-Taxpayers-Will-Pony-Up-for-UConn-Professor%E2%80%99s-Partisan

“Gov. M. Jodi Rell’s account of when her administration abandoned a plan to use public funds to poll voters on budget issues is directly contradicted by correspondence between officials at the University of Connecticut. “(The Day Oct 13, 2009) http://www.scribd.com/doc/21051745/Documents-Disprove-Rell%E2%80%99s-Timeline-on-Polling

“Gov. M. Jodi Rell has insisted that her staff rejected an adviser’s suggestion to use public funds to conduct a poll of voters on budgetary issues soon after the suggestion was made, and that the issue was ever discussed after the administration conducted a focus group instead in December 2008. But e-mail correspondence between University of Connecticut officials indicates that the proposal was still alive as late as Jan. 21, 2009, long after Rell has said the issue was discarded for good.” (The Day Oct 14, 2009) http://www.scribd.com/doc/21053055/E-Mails-Contradict-Governor%E2%80%99s-Contention-That-Survey-on-State-Budget-Never

“Questions continue to surround the governor’s hiring of a University of Connecticut professor who is working to streamline government but also provided the administration with possibly inappropriate political advice during the budget battle.” (Stamford Advocate Oct 17 2009) http://www.scribd.com/doc/21759303/The-Advocate

“Rell’s UConn Consulting Project Worth Investigating The highly secret project — unearthed through open-records requests — turns out to be, in part, partisan political research that could help her re-election bid if she decides to run for a second full term.” (Courant Editorial Oct 18, 2009) http://www.scribd.com/doc/21759294/Rell%E2%80%99s-UConn-Consulting-Project-Worth-Investigating

“Rell has insisted that only a single focus group was held last December to help her craft her budget message and weigh the public’s opinion of various strategies to close a looming state deficit. But the existence of two additional efforts to test the public’s opinion on taxes and budgeting will likely raise more questions for Rell, who faces inquiries from state elections officials, state auditors and Attorney General Richard Blumenthal about the scope and purpose of Dautrich’s research, which was publicly funded but included substantial advice on how to best position the governor politically and give her leverage over Democratic opponents in the legislature.” (The Day Oct 22, 2009) http://www.scribd.com/doc/21759283/More-Questions-for-Rell-Likely-Over-Budget-poll-Focus-Groups

“Moody message indicates governor approved survey Hartford – University of Connecticut professor Kenneth Dautrich conducted a $6,000 poll this spring on the orders of Gov. M. Jodi Rell’s chief of staff aimed at weighing voters’ attitudes toward tax increases, borrowing and service cuts as Rell struggled to gain an upper hand over legislative Democrats in a brewing standoff over the state budget.” (The Day, Oct.. 28, 2009) http://www.scribd.com/doc/21759272/E-Mails-Cast-Doubt-on-Rell-in-Flap-Over-Budget-Poll

Gas Prices in Connecticut – A Classic Wait, What? Moment:

As Connecticut’s political and business leaders renew their call for dramatic action to rebuild and enhance the state’s economic and job situation, state law continues to promote an exponential growth in gas prices – a situation that disproportionately hurts middle class families while increasing the cost of energy – a major cost factor limiting business and job growth in the state.

Connecticut’s growth in gas prices are a direct result of two factors – the manipulation of supply and demand by big oil and the oil-producing nations and the impact of Connecticut’s ill-conceived gas tax policies. 

As we know, the net result is that consumers are standing at the pump watching in disbelief as their vehicles swallow up more and more of their limited incomes. 

What they may not appreciate is that Connecticut gasoline tax policy is actually designed to promote an increase in gas prices. 

Perhaps even more insulting, and even less understood is that the “extra” money raised from Connecticut’s gasoline taxes do not go to support transportation or mass transit but are instead dumped into the state’s General Fund where they are used to cover other government expenditures.

 How does the Connecticut Tax System Work? 

In addition to the basic 25 cents per gallon state gasoline tax that is posted at the gas pumps, state law levies a gross receipts tax on the wholesale price of gasoline sold in Connecticut.  This tax increases the cost of gasoline by about 7.5% or, at today’s prices, about 19 cents per gallon.  As wholesale prices go up, the wholesale tax increases the retail price of gasoline exponentially.  As a result, Connecticut consumers traditionally pay some of the highest gas prices in the country.

While gas taxes are not classically “regressive” in that the burden does not automatically fall heaviest on the poor (since many urban poor do not have cars or drive greater distances to get to work), the gas tax does fall disproportionately on the working and middle class, especially in a state like Connecticut with its limited mass transit system. 

According to the US Energy Information Agency, the financial burden of gasoline expenditures falls heaviest on those making between $25,000 and $75,000 and those households with children.

With all of that, the real “Wait, What? Moment” comes back to the fact that while the state’s 25 cents per gallon gas tax is dedicated to the state’s Transportation Fund, a majority of the funds raised by the 2nd gas tax (the ever-expanding gross receipts tax) does not go to help pay for transportation related expenses.

The history dates back five years when Governor Rell proposed an expanded transportation initiative.  Rell called for increasing the gas tax by 1 cent per year for a number of years to pay for the new program.  However, rather than add to the very public (and arguably unpopular gas tax), the Democrats decided to dramatically increase the gross receipts tax on gasoline.   This strategy not only provided a revenue stream for the Transportation Initiative but generated “excess” revenues that could be diverted to other expenses.

Since Fiscal Year 2006, Connecticut’s expanded gross receipts tax has brought in more than $1.7 billion dollars but only about $700 million or so has gone to help renew Connecticut’s transportation infrastructure or help support Connecticut’s mass transit programs.  The rest – about a billion dollars – was used to fund non-transportation programs.

During last year’s gubernatorial campaign Dan Malloy made it clear that while he supports gasoline taxes he believes the funds should be used to improve Connecticut’s out-dated transportation programs.  It will be interesting to see whether the Malloy Administration follows through on those comments and re-directs all of Connecticut’s gasoline related revenues so that they actually support transportation programs.   It would actually be a relatively easy task.  The new Administration could actually shift all transportation and transportation related public safety costs to the state’s Transportation Fund and then apply all gasoline revenue to those activities.  While it wouldn’t change the overall bottom line it would ensure that consumers knew that they gasoline related tax dollars were actually going for their intended purpose.  

Finally, it would be very refreshing if upcoming Malloy budget made middle-income families a priority by dropping the complex gross receipts tax on gasoline and instead bit the bullet and went with a simple expanded flat rate gasoline tax that raised the necessary revenues.  By taking such an action Malloy could ensure that programs were properly funded while ending the state’s role as a factor in promoting the further increase in gas prices.

A Tax By Any Other Name is Still A Tax…

As the Great Storm of 2011 bore down on Hartford (not to mention the big  snow storm that hit on Wednesday night), Keith Phaneuf had a fantastic story in the ctmirror about the massive unemployment tax hike that will hit Connecticut businesses this year.

Full Story: http://ctmirror.org/story/11150/businesses-say-unemployment-tax-hike-goes-unnoticed-capitol

While some legislators and lobbyists for the business community are pointing to the issue as a reason for the state NOT TO ADOPT mandatory sick leave benefits that would impact a select number of Connecticut businesses, the mandatory increase in the unemployment tax is really a much more significant issue and should be considered as part of the overall tax debate in 2011.

Phaneuf’s article should be mandatory reading for every legislator.

The key facts are as follows:

Businesses pay a tax to the Connecticut Unemployment Compensation Trust Fund for every one of their employees.  The fund is used to pay benefits to any employee who is laid off or otherwise qualifies for unemployment benefits.

Since it is a mandated tax based on the employee’s salary, businesses appropriately consider this as part of the employee’s total wage and benefit package.

Due to the massive rate of unemployment, Connecticut’s Unemployment Trust Fund has been “insolvent” since October 2009.  When a state fund becomes insolvent it has to borrow money from the Federal Government.   

Connecticut has borrowed about $530 million to date to cover unemployment benefits for Connecticut residents. States are required to pay the Federal Government interest on any loans plus, over time,they must pay back the full loan.  In this case, due to the extent of the recession the Federal Government delayed the time period when states were required to start making interest payments on their loans.  The waiver period has ended and interest payments must begin this summer. 

The Connecticut Department of Labor has informed business that a new assessment (tax) will be implemented on August 1, 2011 to raise the funds necessary to start paying the Federal Government the interest Connecticut owes on the funds it has borrowed to date.  The new tax is expected to equal to about $40 per worker. 

As Phaneuf notes the new tax “which doesn’t even reduce the $530 million debt principal, is equal to roughly $53 million when projected over nine months. That’s about $12 million greater than the last tax hike the business community faced, a 10 percent surcharge on the corporation tax first imposed in 2009 and set to expire in 2012.” 

Making matters worse, the story goes on to report “State labor officials estimate the unemployment trust fund will need roughly $500 million more in loans over the next 12 months, despite two existing assessments on business that normally provide enough revenue to fund jobless benefits.”  This means the interest assessment will need to be increased at a later date, not to a significantly higher tax in the future to bring in the funds needed to pay the Federal Government back the $1 billion dollars Connecticut will have borrowed to pay unemployment benefits during this recession. 

Finally, in response to these issues, Phaneuf reports that Governor Malloy has said that he hopes Congress will extend the “interest waiver” since 40 other states are facing this problem.  An extension would allow Connecticut to postpone having to address this problem for year or more but the interest and loan will still need to be paid in the relatively near future.

 The bottom line is that an increase in the unemployment tax is needed – sooner or later – and elected officials, the business community and everyone involved in the budget making process must recognize that the upcoming unemployment tax surcharges are, in fact, very real tax increases and must be part of the overall tax plan to get Connecticut out of this fiscal crisis.