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CT Government Weekly Rundown—September 8

  • Sep 08, 2013
  • by Alexandra Forrester
CT Government Weekly Rundown—September 8

One-Off Revenue Spikes Drive FY 2013 Budget Surplus

Connecticut Comptroller Kevin Lembo announced this Tuesday that Connecticut will finish fiscal year 2013 with a roughly $400 million budget surplus.  However, Lembo also urged caution as the surplus was driven by one-off spikes in tax revenue: a temporary federal gift tax loophole incentivized major gift giving this year, bumping both gift and income tax revenues; a few extremely wealthy Connecticut residents passed away, leading to higher than expected estate tax revenues; and an increase in the federal capital gains tax effective January 1, 2013 pushed future-year sales of capital assets into the first half of fiscal year 2013.  Lembo noted that the payroll component of the income tax and the sales tax – better indicators of long-term revenue trends – declined from fiscal year 2012 and came in below expectations, respectively.

Fiscal year 2013 spending grew by $244 million, or 1.3%, over fiscal year 2012.  Under the original fiscal year 2013 appropriations, spending would have grown by more than twice that amount, but in December the Governor and General Assembly were constitutionally required to reduce spending by $252 million as fiscal analysts at the time were predicting a deficit. The fiscal year 2014 budget, passed this June, includes a 3.7% growth in spending over fiscal year 2013.

What it means for you: This year’s budget surplus is welcome news but it doesn’t say much about Connecticut’s broader fiscal outlook, which remains poor.

Bioscience Innovation Act Signed September 4th

Connecticut expanded its already significant funding of state bioscience companies Wednesday when Governor Malloy signed the Bioscience Innovation Act. The Act allocates $200 million for bioscience research and development, to be deposited in the Connecticut Bioscience Innovation Fund.  This Fund will provide grants and loans to private companies in the bioscience sector.

The Bioscience Innovation Act builds on previous state spending in bioscience, including $291 million to bring in Jackson Labs to Connecticut. As the CPI has written, state payments to companies intended to spur job growth can good or bad policy depending on the context. The Jackson Labs project failed the CPI’s three-part test for differentiating good from bad state jobs incentives due to its high cost – nearly $1 million for each of the 300 jobs Jackson Labs is committed to bringing to Connecticut. Only time will tell how each individual project funded by the new Bioscience Innovation Fund will match up against these criteria.

What it means for you: Bioscience is an industry expected to see large growth in the coming decades, so it makes sense for Connecticut to encourage bioscience companies to come to Connecticut. The question is what is the best way to do that.  As the CPI has previously noted concerning the Jackson Labs deal, bioscience companies generally look for the same things as businesses in other sectors when deciding where to locate – competitive tax rates, sound infrastructure, outstanding workforce quality, a reasonable regulatory climate, and a stable fiscal outlook.  If Connecticut became a better place to do business overall, private industries – including bioscience – would develop on their own without the need for what is essentially a state-run and taxpayer-financed venture capital fund.

CT Water Company Works for, and Gets, Lower Rates

On Tuesday September 3 the Connecticut Water Company announced that the 56 Connecticut towns it serves will see a roughly 6.4% reduction in their water service rates as of April 2014. The Company has been working with CT Office of Consumer Counsel and the state's Attorney General to take advantage of the federal Repair Tax Deduction Credit, recently clarified by the IRS.  That credit allows companies to take a deduction on capital invested in the repair and replacement of utilities infrastructure. Even with other expected increases in other costs—specifically those driven by the Water Infrastructure and Conservation Adjustment (WICA)— the savings afforded by this tax credit and future tax credits that will occur as a result of the clarification, have made officials at the CT Water Company confident that their customers will see a long-term reduction in rates. 

What It Means For You: If you live in a town served by the CT Water Company, you will shortly see a welcome reduction in your water rates.  Even if you don’t, officials at Connecticut’s Public Utilities Regulatory Authority (PURA) predict many other utilities – including gas, electric, and other water companies – will also begin to take advantage of the clarified tax credit.  The tax credit could also encourage investment in newer and better utilities systems.

About the Author: Alex Forrester is a policy analyst for the CPI