Budget Cuts, Malloy, State Budget, State Legislature Budget cuts, Income Tax, Malloy, State Budget
When Governor Malloy proposed his $1.5 billion tax increase last year, anyone making over $1 million dollars was spared any increase in the state income tax rate.
Concerned that the super-rich in Fairfield County might leave Connecticut – despite the fact that the income tax rate is higher in New York and New Jersey – and much higher in New York City – Malloy’s tax package only increased the income tax rate on people making LESS THAN $1 million.
In addition, he made it clear to the Democratic Legislature that he would not sign any tax package that included a higher rate on millionaires.
So while the Bush (and Obama) Tax Cuts give Connecticut’s super-rich an extra $156,000 in income tax breaks each year – these people saw no increase in their state income tax rate – while the rest of us did.
The amount lost to this give away to the rich – about $350 million. This year’s projected budget deficit – about $350 million.
So Connecticut, get ready for Governor Malloy to announce more budget cuts this week.
On top of which, despite a huge revenue shortfall for next year, the Governor announced last week that he was ruling out any tax increase on these millionaires for coming year.
Oh it’s good to be in rich…
Budget Cuts, Malloy, State Budget, Taxes Income Tax, Malloy, State Budget
Connecticut has a state deficit.
In fact, the state deficit is more than $100 million and if we assume Governor Malloy intends to keep his promise to make the $75 million down payment towards shifting Connecticut to Generally Accepted Accounting Principles, the deficit is $175 million (and even that doesn’t count one of the top 10 budget gimmicks of all time in which the Malloy Administration is quietly moving $100 million or so from an account tucked away in last fiscal year’s budget).
So, if were being painfully honest, we’d say the deficit for this fiscal year (the one that is ending on June 30, 2012) is in excess of $275 million and it’s still be growing…
A budget deficit?
Yes, that is correct.
Governor Malloy’s $1.5 billion in tax increases, combined with major budget cuts and a half-baked state employee concession deal is leaving our state with a significant deficit this year – and even more disturbing – a huge budget shortfall next year that could easily top half a billion dollars.
The arrival of this “surprise deficit” won’t actually come as a surprise to those who read Keith Phaneuf’s articles in the CTMirror or, for that matter, the regular readers of Wait, What?
Back in April 2011, you’ll find a Wait, What? post that observed that there is “simply no way that $1 billion in employee savings could be achieved in one fiscal year.” Adding the observation about the two-year budget that “the question was and remains today – why would the Governor propose a budget that he knew was destined to be as much as $500 million or more out of balance?
Readers may also remember Wait, What’s constant refrain that “this budget coddles the super rich…” and that “this tax plan still places an unfair burden on Connecticut’s middle class while not requiring Connecticut’s wealthy to pay their fair share.”
Had Governor Malloy not protected those making over $1 million from ANY income tax increase in his 2011 tax package, Connecticut would now have the money it needs to balance this year’s budget and make a big dent in next year’s shortfall.
But alas, the notion of “shared sacrifice” did not include those who were the primary beneficiaries of the Bush (Obama) tax cuts – those making over $1 million a year.
Next Tuesday, May 1, the most up to date revenue and expenditure numbers for this year’s budget will be released by Comptroller Kevin Lembo. At that point, watch for whether the Malloy Administration will try to back off their commitment to start moving Connecticut toward GAAP budgeting.
For an excellent explanation of the GAAP issue, follow this link to Keith Phaneuf’s story in yesterday’s CTMirror; http://ctmirror.org/story/16110/malloy-struggling-keep-some-portion-gaap-pledge
Ben Barnes (OPM Secretary), Malloy, State Budget, Taxes Ben Barnes, Income Tax, Malloy, SEBAC, State Budget
For months, Governor Malloy and his administration have been assuring the media and the public that this year’s budget was balanced and next year’s budget included a hefty surplus that could be used for – among other things – the education reforms that are being discussed and trumpeted in Hartford.
Last week, an independent report came out that revealed that while the State Employee Pension Fund was doing marginally better, the pension savings that the Malloy Administration had promised would come from changes negotiated in the Malloy/SEBAC agreement were not amounting to anything close to what they had promised.
In fact, it was fluctuations in the Stock Market and the state’s return on investments, and not the pension changes, that were providing the funds needed to balance that portion of the state budget.
As is their style, the Malloy Administration brushed away concerns and criticisms about their inaccurate estimates and stayed true to their rhetoric saying that everything was fine, all the Malloy/SEBAC savings would be achieved and the budget was balanced.
Yesterday we learned that the problems go much deeper than simply getting it wrong on the pension fund savings.
Early this month, the Governor’s Office of Policy and Management projected that the state was on track to have an$80 million dollar surplus. Yesterday, that same office, in a joint report with the General Assembly’s Office of Fiscal Analysis, revealed that tax revenue was down at least $95 million in this fiscal year (FY12) and would be down another $139 million next year.
Connecticut went from a surplus to a deficit in one day.
Of course, the problem has been known for a while, but the Administration chose to keep the information secret hoping that something would change.
OPM has claimed that they could not project income tax revenues until January 15, 2012, the date the last quarter income tax withholding reports were due.
Yet, as every accountant and business owner knows, a company and individual’s overall tax situation is almost always evident by the quarterly report that was due on September 15, 2011. That date was moved and as information came in OPM simply decided that they would not share their tax information with the rest of us.
The first victim of this budget collapse appears to be the Governor’s promised effort to shift the state toward GAAP (Generally Accepted Accounting Principles).
For More information about this development check out CTNewsjunkie: http://www.ctnewsjunkie.com/ctnj.php/archives/entry/balanced_budget_forecast_begins_to_unravel/ and CTMirror: http://ctmirror.org/story/15087/budget-hovers-brink-deficit-malloys-fiscal-cushion-erodes-quickly..
Meanwhile, let’s return for a moment to the news about the State Employee Pension Fund because it is such a perfect example of this Administration’s approach to state budgeting.
As I wrote in yesterday’s blog, in February 2011, Governor Malloy announced that in addition to tax increases and budget cuts he would balance the state’s upcoming bi-annual budget with $2 billion in savings from state employees.
As one of the loudest critics of the governor’s approach, I’ve been writing about this topic on a regular basis, going so far as to state that there was no way those savings could be achieved.
When the Malloy/SEBAC agreement was reached, the parties announced that it would save the state $1.6 billion over the next two years rather than the promised $2 billion. [The difference was made up by sliding a larger than expected surplus in FY11 to FY12].
The Malloy/SEBAC savings were scheduled to come from a variety of different areas including the freeze in state employee wages, the elimination of longevity payments, changes to the state employee healthcare and pension system and a number of targeted budget reductions. The non-partisan Office of Fiscal Analysis could only confirm the value of about one-third of the savings.
But the Malloy Administration remained adamant that it would get all the savings it projected.
The changes to the state employee pension system were calculated to save the state $237 million this year.
Late last week, Keith Phaneuf of the CTMirror, explained the latest development with the pension fund in his “must read” article – see: http://ctmirror.org/story/15039/pension-report .
In order to balance the state budget in 2009-2010, Governor Rell negotiated an agreement with the state employee unions that allowed the state to reduce its payments to the Connecticut State Employee Pension Fund.
Rell and the Democratic Legislature decided to forgo about $314 million in pension fund contributions.
The impact from the reduced payments and drop in the stock market left the State Employee Pension fund with assets of about $9 billion and long-term obligations of $21 billion (or a funded ratio of 44.4 percent – one of the lowest ratios in the country – the appropriate funding ratio is in the range of 80 percent).
Last week, a new actuarial report on the Connecticut’s State Employee Pension Fund has determined that the fund now has assets of $10 billion dollars with long-term obligations of $21 billion (or a funded ratio of 47.9 percent).
The immediate effect of this development is that this year Connecticut will have to make a pension contribution of $926 million instead of the $939 million that was part of this year’s approved budget. (A savings of $13 million)
Thanks primarily to the bizarre ups and downs of the US stock market, the State Employee Pension Fund got over 21 percent on its investment over the last year compared to the 8.25% that was expected.
Although the expected pension savings from the Malloy/SEBAC” agreement did not materialize, this piece of the budget balanced thanks to the incredible return the Fund received.
The new actuarial report is vague but it appears that about $67.5 million of the $237 million expected savings (about 28 percent) was the result of the pension agreement while well over 70 percent of the goal was achieved due to the return on investments.
In what has now become a classic response, Ben Barnes, the Secretary of the Office of Policy and Management, told the CTMirror “thank heaven it was with us [the stock market growth], but market timing wasn’t really a factor for us.”
The state projected that it would save $237 million in pension costs as a result of the Malloy/SEBAC agreement.
It failed to do that, but thanks to the stock market and investments, the state got that money that it needed; which is good news.
Sticking to his political “talking points”, and despite the recent evidence, Secretary Barnes said that he remains confident that the Malloy/SEBAC agreement will, in fact, save the state $700 million this year and $900 million next year.
And for the record, I remain convinced that the Malloy/SEBAC agreement will not achieve the amount of savings that have been projected and along with the “new” news that revenues are down, Connecticut’s State Budget is far from balanced.
Taxes Income Tax, Malloy
Cross-posted from Pelto’s Point (New Haven Advocate)
As more detailed analysis of Governor Malloy’s income tax proposal takes place, the public is learning that some may consider his pledge of “shared sacrifice” as a bit more rhetoric than reality.
If adopted as is, the public will learn that the plan isn’t quite as “fair” a distribution of burden as middle-income families might have hoped.
The Malloy Plan shifts the state income tax from 3 to 8 progressive tax brackets, eliminates the property tax credit and changes (phases out) the amount of income that is taxed at the lowest 3 percent rate.
The net impact is that those making between about $50,000 and $120,000 will be surprised to learn that their income taxes will be going up by a much higher percent than those who make $120,000 to $250,000.
It’s complex to be sure, but when all the various calculations are made the impact for a the average Connecticut couple is as follows;
Amount Percent Increase in Taxes
$60,000 38% increase in their income tax
$80,000 18% increase
Keith Phaneuf at the CTMirror has a lengthy story on the complicated changes the Malloy has proposed. The Legislature’s Office of Fiscal Analysis has also done some preliminary work on the impact Malloy’s plan will have on Connecticut households.
Take a look at Phaneuf’s article to learn more: http://www.ctmirror.org/story/11598/malloy-hopes-cut-through-confusing-tax-math. His story also includes some great charts that provide addition examples of the impact Malloy’s Plan would have.
Corporate Viewpoint, Taxes Income Tax, Taxes
Mark Bertolini, CEO Aetna
(Cross-posted from Pelto’s Point at www.newhavenadvocate.com)
Of course, when it comes to the term entitlement many Americans think of government entitlement programs like Medicare or Medicaid. Entitlements are those government services or benefits that people receive when they meet the necessary legal criteria in order to receive such services or benefits.
However, here in Connecticut (in the year 2011), the notion of entitlement seems to be taking on a new and far more ominous meaning.
First Robert Burton wanted his $3 million dollars back from UConn and his name removed from the $48 million dollar Burton Family Football Training Complex because he was left out of the loop on the selection of a new football coach.
Now, Mark Bertolini, the CEO of Aetna announces at a recent Middlesex Chamber of Commerce meeting that whether his company will add or eliminate jobs in Connecticut will depend in part on how the state resolves its budget crisis.
See the Hartford Courant story – http://www.courant.com/business/hc-aetna-bertolini-0212-20110211,0,659887.story
Bertolini reports that “we’ve done the analysis, and, quite frankly, Connecticut falls very, very low on the list as an environment to locate employees . . . in large part because of the tax structure, the cost of living, which is now approaching, all in, the cost of locating an employee in New York City,”
That is quite a threat from Aetna – A Connecticut creation that has called our state home for 158 years.
This comes from the CEO of Aetna, whose 2010 operating earnings were $1.6 billion, up 43% from 2009.
Aetna – a major multinational corporation that proudly declares that it does business in 160 countries around the world.
Aetna – whose 2010 pre-tax operating margin was up to 8% and their post-tax margin as up to 5.2% – an increase of 1.5%.
Aetna – whose stock closed yesterday at 37.65, up from about 29 a year ago.
This past year, Mark Bertolini’s Annual Cash Compensation was $1.5 million, plus short term compensation of $932 thousand plus long term compensation of $7.2 million. His total 2010 compensation package was worth $12.6 million
Although Bertolini fails to make clear what his specific demands are we can safely assume that his worry relates to increased taxes for his company or himself. Does he mean that ANY TAX INCREASE will send his company fleeing? (Has he taken into consideration the huge windfall that he and his executive team received thanks to the extension of the Bush Tax Cuts)?
Is Bertolini saying he’ll lay off his 7,000 experienced workers if Connecticut raises taxes?
Is he saying he’ll sell the company’s huge property holdings here in Connecticut?
Is he saying that he and his senior management team will pull their kids out of school, sell their homes and move out of state because Connecticut tries to balance its budget by asking those among us who can pay a bit more to pay their fair share and help ensure Connecticut remains a great place to live and raise a family.
There is something truly shocking about the arrogance that flows from comments like his.
As we face the greatest economic challenge since the Great Depression, it is amazing that this “corporate leader” uses his prestige and privilege to tell us that as our elected officials finally work to put Connecticut back on track, their actions might very well lead Aetna to turn its back on its own state..
It is comments like Bertolini’s that make me worry about the very future of our Nation.