State budget deal may include unpopular tax extensions

Hartford - As state budget negotiations draw close to a vote, compromises and deals are emerging that undoubtedly would not satisfy everyone.

One such provision may be that Millstone Power Station in Waterford might still have to pay an energy-generation tax, although at a reduced rate, through fiscal year 2014.

"Oh, I am not happy with that at all, no," state Rep. Betsy Ritter, D-Waterford, said on Tuesday. "We had hoped to be able to have the whole thing sunset as it was originally planned."

And although Gov. Dannel P. Malloy had said taxes wouldn't increase, the gross receipt tax at the gas pump is expected to rise to 8.1 percent from 7 percent as scheduled.

Leaders of the committees on appropriations and on finance, revenue and bonding have been meeting behind closed doors with the governor's staff to hammer out a budget deal.

On Tuesday, negotiations included how to place Medicaid spending, which is 100 percent federally funded, "off budget" without a vote on changing the language on the statutory spending cap. State officials also are considering using this year's surplus, which is expected to come from an increase in projected revenue from personal income tax and gift and estate taxes.

Kevin Hennessy, director of government affairs for New England for Dominion Resources, owner of Millstone, said it is hard to determine what the effect of the state budget would be on the company.

"We were disappointed when the governor proposed to extend the tax, happy when the legislature (finance committee) decided not to and now the two have to come together and work on the budget," Hennessy said.

He was scheduled to visit the Capitol Tuesday afternoon to speak with legislators, including state Sen. Andrea Stillman, D-Waterford. She was one of the main proponents of the finance committee bill, which proposed ending the tax as scheduled on July 1.

Finance committee co-chairman, state Rep. Patricia Widlitz, D-Guilford, said the budget is tentative at this point.

"If we do it (continue the energy-generation tax) at all, it would be at a very reduced rate and it would only be on the first year of the budget." Widlitz said.

The energy-generation tax brought in about $76 million annually, and Dominion paid about $43 million of the total. If the rate were decreased to bring in a total of $30 million a year, as some legislators have estimated, Dominion would pay $16 million to $17 million annually.

It's "obviously reduced from the almost $43 million we paid last year, but that is still a significant amount," Hennessy said.

Laurence Grotheer, Stillman's spokesman, said Stillman preferred not to answer questions about the energy-generation tax because "there are still so many moving pieces" and things might change by today.

Malloy said Tuesday that extending the tax in the upcoming two-year budget "is entirely possible."

Other taxes that might be extended in the final version of the budget include the 20 percent surcharge on the corporation tax and the cap on an insurance premium tax credit.

The finance committee's proposal to allow the gross receipt tax on gas purchased at the pump to increase to 8.1 percent also is likely to be a part of the final budget. Finance committee Republicans expressed frustration and said that if the state didn't take money out of the Special Transportation Fund and put it in the General Fund to cover operating expenses, the increase wouldn't be needed. The gross tax receipt increase was passed under Rell in 2005.

"We are allowing our gross receipt tax to go up effective July 1," House Minority Leader Larry Cafero, R-Norwalk, said Tuesday. "We are not doing a thing about it. We are going to take that extra money, which is $60 million extra a year. We are not going to see that money stay in the Special Transportation Fund because we are taking it out the back door to plug and balance the operating budget."

The public is disappointed in this practice, he said.

A projected surplus

On the spending side, there are discussions about using the projected revenue surplus from the current fiscal year as part of the upcoming budget.

The projected surplus for this fiscal year is $220 million, much of it from personal income, gift and estate taxes. It resulted from people making larger than expected taxable gifts in 2012 out of fear of the federal fiscal cliff, according to the Office of Fiscal Analysis.

"We do have a surplus," Widlitz said. "We have a projected surplus from this year's budget and all of those things go into the decision of how we develop the budget."

Malloy and the Appropriations Committee put forth budgets that would require changing what spending is counted under the state's spending cap. The statutory spending cap was put in place by the General Assembly in 1991 to tie the growth of the state's budget to personal income growth or the rate of inflation. In 1992, voters passed spending-cap requirements, and the 28th Amendment was added to the state constitution.

"We don't have the votes to amend the spending cap, it appears right now, so by taking some of these items off budget, it frees up space under the cap," Widlitz said.

Cafero said he would vote against increasing the spending cap if it came up for a vote, but at least the governor was honest about what he was trying to do, he added.

"Now they are saying we are just going to ignore it. That is a very different story," Cafero said.

The latest spending estimates for the two-year budget were $21 billion in fiscal year 2014 and $22 billion in 2015, from both the governor's and the Appropriation Committee's budget proposals.

"We have an outline of a budget in place," Malloy said. "There is still work to be done in the next day or so, but we are going to have a budget. We are not going to increase taxes as I have been telling you for nine or 10 months now, and we'll be in balance, and we will be GAAP compliant."

j.somers@theday.com

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