Connecticut lawmakers chop $350 million from budget, cut business taxes

Reuters News
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Posted: Dec 08, 2015 9:37 PM

By Edward Krudy

(Reuters) - Connecticut lawmakers cut $350 million from the state budget to close a widening deficit on Tuesday and reduced corporate taxes to thwart criticism that the state is unfriendly to business.

The agreement follows weeks of bipartisan talks called by Governor Dannel Malloy in October after officials said state income tax revenues would miss forecasts, which Malloy, a Democrat, attributed to the weak stock market.

Tuesday's adjustment filled a projected $350 million budget gap in the current 2015-16 fiscal year. It also cut around $200 million from next year's budget, though not enough to meet a projected deficit of $552 million for that year. That means Malloy will likely have to cut more when he updates the budget in February.

"The legislation passed tonight is not perfect, but it helps make progress for the State of Connecticut," Malloy said in a statement. The legislation did not receive bipartisan support and was passed by Democrats who control the legislature.

Connecticut operates a $40 billion two-year budget and is heavily reliant on capital gains tax.

The state has lagged the national economic recovery since the financial crisis in 2008. It depleted its budget reserves during the recession and has one of the worst-funded state pension systems in the nation.

Cuts are being made across a range of government functions, including early-childhood programs, environmental conservation and medical services in prisons and jails.

The bill cuts business taxes after the state drew criticism for raising them in June. General Electric Co started looking for alternative locations for its headquarters after the decision and has not said if it will remain in Connecticut.

Rules requiring businesses to declare group-wide income have been loosened to exclude some investment partnerships, and tweaks to rules about carrying over losses from prior years mean companies can write off those losses faster, according to a state analysis that accompanied the bill.

GE had no comment on the budget amendments on Tuesday. The internal team it tasked to search for a new head office location met Malloy for confidential talks last Friday.

The company has not publicly ruled out keeping its headquarters in the state.

Joe Brennan, president and chief executive officer of the Connecticut Business & Industry Association, a lobby group, said the bill was a "small step" in the right direction.

(Reporting by Edward Krudy in New York; Editing by Leslie Adler)