1. The budget: revenue overview
Let´s start with the obvious: new revenue means taxes. The Finance Committee budget brings in more money, so it is taxing more stuff, and they are doing this in a pretty smart way that deserves some attention.
If you look at this numbers, you will immediately see that this is a lot of money - more than the amount the Appropriations budget actually calls for. There are two main reasons for that.
First, some of the new revenue raised will not go to the state coffers, but to municipalities. Paired with the new revenue package, the Committee passed S.B. 1, a fairly ambitious property tax reform bill. This proposal includes some clever ideas on property taxes, and instructs that part of the sales tax money will go to municipalities. More on this below.
Second, because the sales tax will cover more services and products, the state will actually lower the rate.This will leave enough room to cover the additional spending on the Appropriations side while avoiding some of the impact from the tax increase.
To sum up, the total new revenues add up to just shy of one billion. Of that money, $294 million would go to municipalities, and $253 are used to lower the overall sales tax rate. With Appropriations adding $289 million in spending, the budget actually ends up having a small surplus.
Now let´s look at the numbers with some detail.
2. The budget: the sales tax
So let´s take a closer look at the sales tax: what are the exact changes included in the Finance proposal?
The Finance Committee proposal is based on broadening the tax base.
In non-jargon, the current sales tax is far from comprehensive: there are a lot of products that are not taxed (they are exempt), and services are only taxed if included explicitly in legislation. The Finance Committee´s plan eliminates quite a few exemptions (some of them were already included in the Governor´s budget proposal) and adds to the list of taxable services. This is similar to the recommendations offered by CT Voices in their March revenue proposal.
What exemptions are eliminated?
The two big items are clothing and footwear under $50 (raising $137 M) and computer and data processing (raising $162 M).
What services are now taxed?
The list is fairly long - you can find it here. The ones that raise the most revenue are engineering services, public accountants and consulting services. Most of the changes are items that really never made much sense to be tax exempt, like interior designers, golf courses, country clubs and direct mail advertising,
All in all, it does add up to a good amount of money: $322 Million.
What will be the sales tax rate now?
By the end of the year, 5.85% for the state portion of the sales tax; 0.5% for municipalities. The state rate would be reduced to 5.35% in 2016, leaving the combined rate at 5.85% next year.
Are these changes regressive?
The sales tax is indeed fairly regressive, however the slightly lower rate actually should favor lower income households. The services added and most exemptions do not affect poor families all that much, although the clothing exemption does. It is too early to tell how this will impact families without running some numbers.
The municipal .5%, however, will be used to lower another tax that it is really regressive: car taxes. More on that in a bit.
3. Other taxes: income and capital gains
The changes on income and capital gains are a bit more straightforward: just a slight increase in rates.
The top marginal rate (for individuals making more than $500,000 a year or couples filling jointly making more than $1,000,000) will go up from 6.7% to 6.99%. Note this is the marginal rate - that is, for each dollar that an individual makes over $500,000 he would pay about 6.99 cents instead of 6.7. The top tax rate will still be well below New York, New Jersey and Massachusetts, so we are still competitive in this regard.
Although small, the change raises significant amounts of money: $102.4 Million.
Taxpayers in the highest income bracket (more than $500,000 for individuals, $1,000,000 for couples) will pay a 2% additional tax on all capital gains. This will put Connecticut in line with New York for top earners, and still below New Jersey.
The new supplemental tax would raise $167.6 million.
4. Other taxes: odds and ends
There are quite a few minor changes in the Finance proposal, the most relevant being tweaks on the hospital tax, closing some loopholes by introducing combined reporting for corporations (basically preventing businesses from claiming that they made profits in another state), the elimination of the business entity tax and Keno.
Yes, Keno again. It really does not raise that much revenue ($13.6 M in the first year, $30 M in the second), but it is again in there, somehow.
5. Property tax reform: S.B. 1 and the sales tax
We have been talking about property taxes quite a bit for the past few weeks. The current system is not only terribly regressive but steers investment away from poorer cities.This has been an area that the FESC wanted to address.
The Finance Committee is tackling this issue with S.B.1, adding a few very interesting tweaks. We mentioned that the sales tax now has a 0.5% portion that goes to municipalities; this bill actually details how the money would be used. It has four main components:
Motor vehicle tax changes:
The car tax is now capped at a mill rate of 29.36. There are 57 municipalities with taxes above that threshold - part of the money from the sales tax will be used to compensate them for the lost revenue.
This change would limit (but not close completely) the gigantic disparities in rates that the same car can pay if registered in a different town, a very positive reform.
Changes to PILOT grants:
PILOT stands for "payment in lieu of taxes". This is a grant that compensates towns with a lot of non-taxable property (state buildings, non profits hospitals, etc.) for the loss of revenue. S.B.1 tweaks the formula to give priority to the towns with the most non-taxable property. They also happen to be the poorest cities, so it is also a positive change.
Regional revenue sharing:
An idea we have described earlier, although with 20% of new commercial/industrial revenue growth shared instead of the 40% of the original bill. It is a bit less effective, but still a very good reform.
Regional program incentives:
About 10% of the funds coming from the sales tax would be used to establish cooperative regional programs to create efficiencies and reduce costs.
All in all, these are good changes - maybe a bit less ambitious than the bill that came out of the Planning Committee, but positive changes nonetheless. The car tax change will represent a hefty tax cut to city residents and many inner ring suburbs, PILOT will dedicate more resources to poor towns, the revenue sharing will help balance growth and regionalization incentives can help reduce the costs of providing municipal services.
The bill has strong support from the leadership, so it has a good chance to make it to the floor. If you have not talked with your legislators about property tax reform, it is time to start.
6. What´s next?
Still a long way to go until the budget is done. The Finance package includes quite a few big ideas, so once it gets to the floor, expect some back and forth discussion.
What it is important to do now is to contact your legislators in the Finance Committee and thank them for their efforts. This is a very difficult budget that needed some tough budget choices. The budget includes new revenue and some significant reforms on how we pay education (remember- that´s what property taxes are for!) in the state. Our legislators made the hard choices, and they deserve some recognition.
We had some very good news in the budget process this week. We are not done yet, but we are moving the needle - things are going in the right direction. Stay tuned, as there is more to come.
1. The budget: a general overview
The Governor´s budget proposal included $590 million in spending cuts. As you probably recall, many of them were painful, with some deep cuts to programs like Husky A and education. The Appropriations budget (HB 6824, for those looking for it), in comparison, would spend $470 million more than the Governors proposal - that is, it only has $120 million in cuts.
The result is a budget that although it still includes quite a few cuts (and no inflation adjustments) it does much more to preserve essential services. Appropriations deserve a good deal of praise for this document; if you legislators sits in the committee, you should give them a call and thank them for their efforts. It still is a tough budget year, but the committee members have stepped up in many ways to make things better.
Of course, there is something that needs some discussion: the spending cap. Appropriations considers that long term payments to the state´s many pension funds (teachers, state workers...) should be consider debt, not spending, and consequently should not be counted as spending under the spending cap. The CT Mirror has an excellent overview on this subject here. We support the actions that the committee has taken in this regard; pension obligations are debt, and should be considered as such.
For a good bird´s eye view of what is on the budget, the Mirror has an excellent tracker - you can find it here. With all that said, let´s have a look at the changes that are relevant to our agenda.
2. The budget: social programs
There are quite a few very positive changes in this area - I will list the most relevant ones, both from the perspective of how many low income families are affected and based on our agenda.
The most important change is, by far, the restoration of funding for Husky A parents and pregnant women. Under the Governor´s proposal, parents of kids in households between 138% and 200% of the federal poverty line would have lost coverage and be shifted to the health exchange. Pregnant women would be forced to the Access Health CT website, as well. All in all, 34,000 people would have had their coverage severely reduced.
The Appropriations budget proposal reverses these changes ($44 million), and also reduces some of the cuts in Medicaid reimbursement rates ($27 M). Both are welcome changes.
Funding is partially restored for Cradle to Career and STRIVE. Cuts remain on I-BEST funding (although part of it would be redirected through other line items) and Youth Service Prevention Grants.
3. The budget: Education
A lot of good news in this area, as well. We have not looked at the funding streams for K-12 in the municipal side of things, but many programs are back on the budget, and there is even room for some very pleasant surprises.
Two Generation Strategies:
CAHS has been talking about two-gen strategies a lot for the past few months, working with many of our FESC and Early Childhood Alliance partners on this area (more information on these programs here).
The budget includes $2 million to launch pilot programs in several communities, following the recommendations of the state task force.
We will be talking a lot more about two-gen strategies in the coming weeks, so stay tuned!
The budget includes $5 million of additional funding for full year school readiness. It also partially restores several key programs:
-Community plans for early childhood ($712,000)
-Head Start Link ($720,000)
-Children Trust Fund, including Help Me Grow and Family School Connection ($882,000)
-Early literacy ($142,000)
Some changes here, as well, although not everything is additional funding. Charter and magnet schools actually lost some money ($7.7 and $3 million, respectively); some programs did not get restored, like Wrap Around services (only got $25,000), Parent Universities and School to work.
A few key programs were partially restored: LEAP, Neighborhood Centers and the Parents Trust Fund program.
Of all the changes the most relevant for us is the restoration of almost $14 million to the Board of Regent´s Transform SCSU grant, and more specifically, the fact that the budget earmarks $27 million for remedial education, including the new partnerships with adult education providers.
Besides that, Uconn gets some of its funding restored ($26M), and the Governor´s Scholarship program can now cover some private universities.
4. The budget: Property Tax Reform
One thing that should be getting more attention: the budget includes $41 million in funding for S.B.1, the property tax reform bill that is currently being discussed on the Finance Committee.
We have talked about the bill in a couple of policy briefs (here and here); it is a very good reform that would greatly help poor cities and towns. The car tax portion will likely see some significant changes and we will likely see tweaks to the PILOT reform and regional revenue sharing, but the bill seems to have quite a bit of support.
If you care about education funding or urban economic development in the state (and you should!), it is time to start bringing up that you support S.B.1 to legislators, especially if they sit on finance.
One final note:
I mentioned at the beginning of this post l that it would be a good idea to reach out to your legislators in the Appropriations Committee and thank them for their work on the budget.
The list of changes is impressive, and they will be getting quite a bit of flak on some issues like the spending cap. The same way we have been hounding them to reverse the cuts for the past few weeks, it is time to call or e-mail them and support their work. We are still quite far from a final budget, so we will need all the allies we can get.
Property car taxes in Connecticut are collected at the local level. Each municipality determines its own mill rate for the tax, creating significant disparities. The same car can be taxed in two towns at completely different levels – and the poorer cities often are the ones that bear the heaviest burden.
To pay as the same taxes as a Hartford Resident for a 2007 Corolla, a Greenwich resident needs to own a 2015 BMW M3 (worth $60,000).
Senate Bill 1 seeks to reform this disparity by creating a statewide car tax system with a uniform mill rate with a $3,000 exemption. Under S.B.1 municipalities would be held harmless, and all taxpayers in the state would face the same tax burden.
You can download a one pager on CT´s property tax and the car tax here.
We have been following SB1 with some interest these past few days, as it introduces some significant long term reforms to our tax system. Although the car tax portion of the bill has received more attention (here is a one pager on the issue. We like it), the really interesting part is the regional property tax sharing.
Here is what SB1 does:
A regional property tax revenue sharing system for new commercial and industrial development. Under this framework each community contributes 40 percent of the growth of its commercial and industrial property tax base after a specific year (2013 under S.B.1) to a regional pool. That is, the new property tax income is split - 60% stays in the town to cover infrastructure and traffic costs, and 40% is shared region-wide. The funds are redistributed based on a formula that takes into account a jurisdiction's population and fiscal capacity, as defined as per capita real property valuation
Why it is important for low income families:
One thing to keep in mind: right now, the poorer a city is, the higher are their property taxes. Poor cities have smaller grant lists, so they need higher mill rates to cover their costs. Higher mill rates makes them less attractive to business, as they prefer to wealthier towns with lower taxes. The less business you get in, the more you need to tax what you have, so cities end up being left behind.
Has anyone else done something similar?
Yes! A very similar law has been in operation in Minnesota with very good results. Property taxes are one of the most regressive taxes in the state, and they are set up in a way that actively penalize development and growth in our poorest cities. This reform is a very good step to reverse that.
SB1 was voted out of Planning, and it is currently sitting on the Finance committee. The bill has very strong support from the leadership, so it is likely to go to the floor, but once there things get dicier.
If you want to get involved in an effort to bring some real, long term change to the state in one of its most dysfunctional policy areas, e-mail me. This is an area where not many people are paying much attention right now, and we can make a big difference.
A sharp racial/ethnic divide has emerged within the world of low-income working families, posing a critical equity and economic challenge to Connecticut and the nation, a new study concludes
Unless lawmakers in Connecticut are willing to pursue policies that would improve conditions, African-Americans and Latinos will continue to emerge as a larger - but under-prepared and underpaid - segment of the workforce.
The disturbing portrait of America's low-income working families was sketched by the Working Poor Families Project based on new analysis of the most recent data from the U.S. Census Bureau. The Project's study sheds a fresh light on what's happening inside the world of the working poor, where adults are working hard but find it difficult if not impossible to get ahead. And within this world at the bottom of America's economic spectrum, a stark divide has emerged between white and Asian families compared to black and Latino families.
"In 2013, working families headed by racial/ethnic minorities were twice as likely to be poor or low-income compared with non-Hispanic whites, a gap that has increased since the onset of the Great Recession in 2007," the authors write. "The significant differences among racial/ethnic groups present a critical challenge to ensuring economic growth and bringing opportunities to all workers, families and communities across the United States."
In Connecticut, there are 77,161 low-income working families, meaning their total income fell below 200 percent of the official poverty rate. Of that total, 38.6% percent are minorities compared to only 11.5% percent who are white. Some 37% percent of all black working families fall into the low-income category, as do 48.1% percent of all Hispanic working families.
These disparities impact our economy but they also harm the fabric of our communities here in Connecticut. It's past time that we address these problems at the state level.
Latinos are particularly at risk because so many of their low-income working families include at least one immigrant parent, the data show. Despite a high work ethic, Latino immigrants are among the most disadvantaged with lower earnings, less education and little healthcare. Nationally, some 14 million of the 24 million children who live in low-income working families belong to racial or ethnic minorities. This bodes poorly for the nation's future as children who grow up in low-income families face the very real prospect of never escaping poverty, the study found.
Disparities cannot be erased overnight, but policymakers can start to reduce the gaps with a two-pronged approach that simultaneously increases access to education and training while enacting policies that "make work pay," the researchers assert. State governments have demonstrated success with policy initiatives including:
- Raising the minimum wage.
- Increasing need-based financial aid for postsecondary education and expanding child care assistance and other supports for students with children.
- Supporting programs that link education to career opportunities and helping English language learners.
- Extending Medicaid benefits to all who are eligible.
- Encouraging employers to provide paid sick leave for all workers.
Providing all low-income families with the tools they need to succeed is critical to the long-term health of our state and nation. said Senserrich. Our state's leaders must take action to ensure the American Dream is once again accessible by all.
CAHS and CT Voices for Children hosted today a short webinar giving a quick overview of the Govenor´s budget proposal. This was part of our work in the Family Economic Success Coalition; we are looking forward to host more of these events in the future, giving periodical updates during the legislative session.
Here is what we talked about:
You can download the slides here.
We referenced quite a few things during the presentation and during the Q&A. The most important bits are the following:
- From CT Voices for Children: Impact of the Governor´s budget on children. The figure of 54% of the cuts falling on kids come from this report; a must read. Their budget visualization tool is great, and lets you track how each program has fared since the early nineties.
- We mentioned two generation education strategies - here is a primer.
- CT Voices has also published a report on the impact on early care and education programs. Not as bad, but still significant.
- Tax incidence study: this report from the Department of Revenue Services explains who bears most of the burden of each tax in the state. This is why I kept talking about tax reform, by the way.
- Tax expenditure report: this is where we are looking for new revenue - all the taxes the state does not collect due to (sometimes outdated) tax breaks.
For those looking to testify, a few links:
- Calendar with all Appropriations Committee hearings. To testify, you have to go to the LOB (9 am to 10 am in the atrium, 10.15 until 1 pm on room 2700) to draw a number. The order is decided by lottery, so depending on how many people are speaking and your luck, you might testify very early or very late. More details about the whole process in the link.
- General Assembly Calendar. Each committee does things a bit differently, so make sure to click on the hearing to check instructions specific to each hearing.
- Remember: all committees accept written testimony, and legislators do read what is submitted. So if you don´t have time to drive up to Hartford, you can still be part of the process.
Expect more webinars soon, as the session advances. If you have questions, just ask!
It is finally here - Governor Malloy just presented his budget proposal. We knew it was going to be a tough budget year, so there are plenty of things to talk about and discuss. We have a FESC meeting this Friday, 9.30 to 11,30 am, specifically to go over the whole thing and plan ahead. Make sure to come, and there is a lot to talk about.
On to the budget, then. Let´s start with the basics:
- Text of the Governor´s budget address
- Full budget details
- Slides covering the main points.
- Press release
That said, some very early, very quick takes on the budget:
The deficit is still a bit north of $1 billion. To close the gap, the Governor is relying in a mix of spending cuts ($590 million) and revenue increases (not exactly taxes, but close enough), mostly tax cuts promised for this year that will not happen, some tweaks to the sales tax that will increase revenue and money from a settlement with Standard & Poor´s from the financial crisis.
- No layoffs, but a good deal of attrition in the states labor force; 300 positions, or a 2% workforce reduction in two years.
- Full day kindergarten for all children in the state.
- If you like transportation (and you should) the budget has some very good news; the New Haven-Hartford-Springfield rail line is still on track, and there is quite a lot of investment fixing up Metro North, as well as some road projects. More information here and here.
- Second Chance Society Initiative: some significant changes in criminal justice, including eliminating minimum sentences in some areas, reducing penalties for simple drug possession to misdemeanour and streamlined parole proceedings for non violent offenders.
- The State EITC is not restored to 30% of the federal credit, and remains at 27.5%
- Many important line items remain frozen: municipal aid and ECS funding, for instance, have not seen a nominal increase for the past few budgets, what amounts to a fairly real cut in the past few years.
- Significant program cuts in the department of labor: STRIVE, Jobs Funnel and youth employment, among others, lose more than $5 million in funding.
- The Department of Social Services got hit with big cuts:
- Husky A adults earning above 138% of the Federal Poverty Line will be shifted to Health Access CT, and will have to pay premiums with federal subsidies (a $44.6 million cut).
- The biggest hit, however, was on Medicaid reimbursement rates: $43 million to providers, $5.1 million to low cost hospitals, $4.3 million to ambulance services.
- Healthy Start got zeroed out, among other programs, cutting $8.1 million.
- The overall budget cut looks smaller because they are getting $55 million from new revenue: an update on the Hospital Provider Tax.
- The Office of Early Childhood saw a slew of programs cut, including Help Me Grow, the Community Plans for Early Childhood and Family School Connection (about $2 million)
- Some cuts on higher education: the Uconn block was reduced by $27 million, and Board of Regents saw cuts both on Transform CSCU ($12 million) and their block grant ($4 million). Remedial education pilots and funding are also being cut; we are trying to see exactly by how much.
The budget really does not add up unless one assumes an increase in revenue to appear in the April budget report. It might be there (the economy is actually doing fairly well), but still. We will see.
Despite an improving national and state economy, new data released today by the Corporation for Enterprise Development (CFED) show many Connecticut residents are still struggling to afford the state’s high cost of living. CFED’s 2015 Assets & Opportunity Scorecard ranked the state among the lowest across various measures of housing affordability, including homeownership by income (47th), housing cost burden for renters (44th), housing cost burden for homeowners (43rd) and overall affordability of homes (39th).
harder for many Connecticut residents to keep up. It ranked Connecticut dead last (51st) among all states and the District of Columbia for average credit card debt and 36th for its high rate of underemployed residents, defined as part-time workers who want full-time jobs and discouraged workers who have stopped searching for employment. The report also found that 14.9% of jobs were in occupations with low wages.
These findings are included in the 2015 Asset and Opportunity Scorecard from CFED, part of a comprehensive nationwide analysis on American´s ability to save, build wealth, and become financially secure. Connecticut is ranked 27th in the nation, down from 25th last year.
All this is despite some very strong state policies on the areas covered by the report, many of them very recent. The state was ranked in the top ten of all states in policies designed to promote Financial Assets & Income (3rd), Health Care (6th) and Education (5th). On the remaining two issue areas, Businesses & Jobs and Housing & Homeownership, Connecticut remained in the top half of states, ranking 17th and 13th, respectively.
The Connecticut Asset Building Collaborative´s Peer Learning Network second workshop hosted its second workshop last Thursday. We had a very good, lively debate, with many good comments, suggestions and ideas. Julia Brown gave a truly excellent presentation that really opened up the discussion, with plenty of things to talk about and revisit.
As promised, here you have a link to her presentation, as well as many of the studies and projects that were referenced during the workshop:
- Here is a link to her Powerpoint presentation.
- A brief on general principles on behavioral economics.
- Here is more information on the Household Finance Initiative.
- You can find more about Julia´s work and research on the Innovations for Poverty Action website.
- Two books that were referenced during the discussion: "Hand to Mouth. Living in Bootstrap America" by Linda Tirado and "Scarcity: Why Having Too Little Means So Much" by Sendhil Mullainathan and Eldae Shafir.
- The Family Independence Initiative, a non-profit that was referenced in the discussion that uses peer groups to promote financial empowerment.
- Two articles on check cashing stores: "The High Cost, for the Poor, of Using a Bank" (New Yorker) and "The Real Reason the Poor Go Without Bank Accounts" (CityLab)
That’s why the IRS started EITC Awareness Day, a day dedicated to encouraging organizations to bring attention to the EITC and free tax filing assistance. This year, EITC Awareness Day will take place on Friday, January 30.
The EITC is a refundable federal tax benefit for lower- and moderate-come workers that can be worth up to $5,143. To find out how much money a worker might receive, check out this quick EITC estimator.
To claim the credit, one must file a tax return. Free tax filing assistance is available through the IRS sponsored programs VITA (Volunteer Income Tax Assistance) and TCE (Tax Counseling for the Elderly). Click here to find a site in your area.
No sites nearby? There’s another option! MyFreeTaxes allows taxpayers with household income less than $60,000 to file federal and state tax returns online for free. Visit www.myfreetaxes.com to learn more.