On The Record; 515

I'm Bob Douglas and welcome to On The Record Our guests are State Representative Richard Mulready Democrat of West Hartford. He's serving his third term in the state legislature and he is cochairman of the tax writing finance revenue and bonding Committee. And we welcome state senator what do you mean that person he is a Republican of Greenwich. He has served two terms in the state house and he was elected to the state Senate in November and he is the ranking Republican on the Finance Committee. And joining us today is Peter urban of the Meriden record Journal. Thank you very much for being with us. Governor Weicker I guess it's reasonable to say over the last five to 10 days has been putting out a few trial balloons as he prepares to put together and deliberate whatever he is going to deliver as his budget message on February the 20th. And I guess we have had everything from we are going to have maybe we're going to have tax reform and an income tax. Maybe we will accept some form of binding or borrowing the possibility of 900 million

dollars and some kind of cuts. A billion dollars of tax increases and probably a lot more to come. Are these trial balloons represent them already and are these the possibilities of a foundation of whatever that tax and budget package might be before you all get out. Much as the travel ins are not in the reason I say that is because I haven't. For example I haven't spoken with anybody in the governor's office about any tax proposal so I don't know if Bill has or not but. So you would think that if he were publicly floating trial balloons that he'd be talking with some of the committees that have to do with the taxation and with spending. I think it's probably more likely is that what he's really doing is trying to respond as honestly as you can when somebody asks him a question and I just don't think that he's come to any firm conclusions. To clean the area of taxation I think he's looked at number of options but hasn't made any final decisions so far.

I said you really are trouble in the ordinary sense which means a political audience floated out with the object that the guy floating it out will then listen to the vibrations that come back. I don't sense that I agree with Dick. I think he is giving the public a taste of his the process as it's evolving and I take him at face value when he said very clearly last night at the at the economic summit Yabsley has not made up his mind on an income tax. I sense that's true and I don't think he is saying that so that legislators will nudge him and say well what about this what about that. They'll do that anyway. When you're governor and you're in the position that he is in of enormous political power putting together the budget you don't really need trial balloons you. You have the authority to what you want and we'll know on the 20th you know. I have a question about you. You said that he's looking at a number of possibilities and I think the thing that's on most people's mind is what are the possibilities out there that he could be looking at the income tax certainly isn't one that's gotten the most publicity Well what else is there that he can really look at.

I don't see a lot of good possibilities other than the income tax bill may have a few ideas on that but. But let me give you some background data regarding that. If you look at the current tax structure the state of Connecticut during calendar year 1991 we're going to collect about 2.6 billion in the sales tax. About 800 million in corporate income tax and about 700 million in capital gains interest and dividends. No other tax on the general fund raises more than 100 million dollars. So you have to look at the changes in those three or some entirely new form of tax in order to raise a billion dollars say well we know that we can't impose any more taxes on business at least we believe that we can't. We know that we already drive people out of state retirees and investors with our capital gains interest and dividends tax. So if you look at the sales tax we know we also have the highest single state rate in the country. The only way to raise significant dollars other than to an income tax is probably through some fooling around with the exemptions under the. Sales tax and I'm not talking about just the children's clothing exemption which only

raises 25 million dollars or so you have to talk about taxing food which would raise 300 million in taxing sales to him by charitable organizations which would raise 500 million and taxing home heating oil which raises 100 some odd million dollars a taxing professional fees that are already tax such as lawyers which raises hundred something million. Now you're really dealing with when you talk food heating oil some political dynamite there there are no good choices we struggled two years ago to get our hands on everything we could short of an income tax in order to meet the need to state then so I don't know what a good choice is if if you can even use the word good in this context are reasonable choices are other than income tax. What interests me is his he's working towards the process by announcing what he's not going to do. Specifically he has said he is not going to long term bond any portion of the deficit. I frankly would be for a short term borrowing of it. It took us three years to get into this problem. A six hundred twenty million dollar portion of the deficit is a spillover from the last two years. I think it's fair to say it

took us two three four years to get into this problem. These That portion of it we could borrow out of it. He said No don't want do that. Secondly he said he's not going to raise and even is considering decreasing specifically mention last night decreasing the corporate tax which as Richard correctly says is our second highest tax revenue source. And thirdly he is you know he's been very doubtful about an income tax. Been back and forth on that. So with those parameters without any borrowing without any increase in the corporate tax and without an income tax which he's been negative but not conclusive about I don't know how you do it. If you add the fourth factor I should have added this and he said full comment for commendation for saying this he will not do what the legislature did last year which was one shots one shots being gimmicks by which you take in next year's revenue into this year and you push expenditures from this year off into another year legislature did that to the tune of 500 million which is another major reason we're in a financial crisis. So is this of the things we will not do.

Hasn't said what we will do but the circle that is left gets smaller and smaller and the options get fewer and fewer. What about cuts you've all been through the budget process before how deeply can a governor and how deeply can the legislature cut in a proposed budget and or in the budget that we now have on when can we cut 900 million to a billion dollars out of his budget without really seriously damaging the state local services. Well first let me let me come in on the word cut. This is a big misnomer this floating around the capital. I don't know anybody in the Capitol Republican or Democrat governor's staff or anyone who is suggesting the budget be cut. By that I mean that next year we will expend less than last year not going to happen. Revenue growth will be slower but there will be some revenue growth and everybody would agree the cost of government is going to go up. So the question is not so much are we going to quote cut to the budget as a business or as a family would understand it by comparing it to the previous year. But whether we will reduce the rate of spending that's your real

question what has driven the rate of. Not that I was going to comment then on what has driven the rate of spending in a dress that the things that are driving the rate of spending are increases in debt service in welfare AFDC in corrections and Medicaid. Now none of those are subject to except for budget debt service which is contractual are subject to men dates which are often used as a reason why we can't do the budget. So yes we have the legal authority to do it and I think unless we do some of those things not all of them but some of them and and reduce state employment reduce compensation of state employees. The governors in all states around us yesterday by coincidence all announced major reductions in state employment in New York and in Rhode Island Well I think significant reductions in the rate of growth but cuts is kind of a scare word because it implies that money will be taken away that's on the table. Well nothing is on the table until the next legislature passes a new budget. We should compare that to the last budget not to O'Neill's budget. I don't think we're going learn anything from how to draw a budget from Mr. O'Neill.

It cuts down to think of whether at the time of the pending bill of sale. I think I'll pass on that and go on. Will there be some communities for example that are getting a hundred million dollars this year which will get less money from the state next year. There will be some communities who are getting I believe the governor will propose that there will be some communities that will that might last a little bit less this year and a few communities that will get a lot more next year and I think most will stay pretty pretty constant. The expending on Bill's theme about the definition of the budget and what's really happening people should recognize it that the two point two billion dollars the alleged deficit which is now a 2.4 billion dollar alleged deficit which is a combination of last year's deficit this year's projected deficit and next year's projected deficit based upon continuation of current services so-called conservatives budget does not include

expanded programs what it does though include is existing programs would perhaps expanded case loads that budget which was put together by Bill and presented to to Governor Weicker calls for almost a 20 percent increase as I recall in the general fund portion at that level of increase cutting a billion dollars. It still gives you a reasonable increase in that budget a reasonable percentage increase and that in that budget you move through you only anticipate that when the governor delivers his budget message for go forgetting what may have been said during last year's election campaign and since then do both of you anticipate that one he will whether he likes it or not accept some form of bonding some form of borrowing and also do you anticipate tax reform and the possibility that the governor may be offering an income tax. I think that the first part of the question bonding

money. There is a considerable think that this is simply built on the majority and minority side. For some level of short term borrowing but short term three to three to five year perhaps and I would say I haven't seen him down they saw a scientific poll but. But if some proposal were ready to be put out today that the majority of the House and Senate would would pass some level bonding in a number of sort of use perhaps 500 million dollars. Because what I believe will really happen in this process is that if we have a and I've been using these numbers for two point two billion dollar projected deficit it likely will cut say nine hundred million. Getting us back to 1.3 billion that the legislature is likely to add back perhaps a couple hundred million to getting us back up to a billion and a half that we will borrow short term perhaps 500 million and therefore have to tax for perhaps a billion. That gets me to your second question I honestly don't know how we get a billion dollars in taxation or anything approaching that level on any sort of reasonable basis

without some form of tax on personal income and one of things that happens if. That in fact is part of the process is that with for example to give you one tax proposal if in fact you put a broad based personal income tax in that had a $25000 family exemption in it or a standard deduction or no other exemptions no other rigs no other deductions and so forth and did that a federal adjusted gross income which means that any family would not be taxed on the first $25000 worth of income and then had perhaps a flat rate of five and three quarter percent. You could raise about 2.5 billion dollars with 2.5 billion. You then have to take the net that we currently collect from the capital gains interest and dividends of about 700 million from that because it's double counted in the two point counted and 2.5. So now you left at one point eight. Well you need one and from the example I used before so you've got a hundred thousand dollars left over. You now have the opportunity to cut the sales tax or cut business taxes or do some other variety of cuts perhaps including

some property tax relief. Are you ready for this I think I heard Governor I'm already proposing an income tax. No I certainly won't. I have a finite that's the best that you know of course and I've opposed it as you know to answer for your first party question with regard to barn first not bonding I wouldn't suggest for any part of the deficit. Running implies long term maturity. You know the short term but I would. But to answer the question both as to that and as the income tax you have to ask a question that's not asked often enough to know how to get out of the hole you have to know how we got into it. We get into it with three years of relentless spending increases far in excess of revenue. Factor 1 2. We got into it specifically because last year only 10 months ago in May the legislature passed what by any reasonable standard was a financial debacle. Five hundred million dollars of one shots one hundred in an accelerated revenue 400 deferred expenditures. The Democratic House deputy speaker not a Republican House deputy speaker said

quoting this is very overtly going to lead us to a financial crisis. So no one should wring their hands and say Oh my gracious this was all unexpected. It was very expected. When you add the revenue increases relentlessly expanding increases revenue. And the one shots so I mentioned all that to say if that's the diagnosis and I believe it is we don't really have a revenue problem we have all that we do to some extent the bulk of it is a financial mismanagement problem. Those who say we have an income tax are generally Dick I think is an exception. Many of those who say we should have an income tax also would like to see major increases in state spending and always have. So if you say that we need an income tax you're really saying we need major increases in spending over the long term. So I think the disease has to be diagnosed to fit the remedy. I do not see a major lack of revenue. Certainly there is a degree of lack of revenue. I think it's cyclical because of the recession where it obviously is taxes corporate

taxes way off sales taxes somewhat off. But I don't think the people of the state of Connecticut are ready because of that condition this year to buy an income tax which may be on for another 50 years or 25 or whatever forever. I think that thank you for the exception but I'm not one of those who just wants to put it in in order to spend more money because I want one of the keys that I would like to see if in fact it comes in as some sort of limitation some sort of statutory perhaps constitutional limitation on spending growth and in fact I think that may be a prerequisite in order to get it. But I also think it makes sense just as a form of taxation. I don't like an income tax but I don't like any form of taxation. But in point of fact if you assume that there is some need for government spending then you have to assume that something needs to be some need of raising money so that leads to the next discussion. What's the best and most reasonable most efficient most equitable method of raising revenue.

And from a tax on that I think tend to be at least partly an income tax and one of the most it could be fairly intriguing for the Republicans who usually oppose the income tax one of the latest arguments I've heard in favor of an income tax is that. It gives you a more stable revenue source and that one of the problems that has that caused the situation we're in now is that the sales tax at a few years back brought in an enormous amount of surplus money that wasn't expected. And when all that money was there the tendency was for the politicians to spend it all. And that if you had a source of income that was more gradually grew more gradually grew more stable the tendency is for that spending all this extra money at a time when they had it would be gone. So in a sense you might get a more reasonable levels of increase instead of the large. And I think in the last four years as some 55 percent increase if you got it all up.

Well you might but if you look at went to Connecticut did with its existing revenue stream over the last four years you might not. Now Dick addresses that and I credit him for it when he mentions that an income tax should be coupled with a constitutional increase in spending. I was an ardent proponent of that. I still like the idea whether we have an income tax or not but the more I look into it the more state legislatures have proven around the country their ability to get around that put things off budgets. And Connecticut itself was great at getting around. The strictures for a balanced budget last year. So I am concerned about the coupling in the sense that well a state constitutional amendment will hold back the spending tendency that you mentioned volatility certainly it is true that our current tax system is volatile and is highly elastic in the boom years it goes way up in the off years ago is way down you measure that against However the problem of the political pressures that will be there with an income tax in any year. And the experience of our surrounding states particularly New York and New Jersey has shown that the promise of reduced spending. Overall

and caps on other taxes doesn't happen. The caps come off spending increases and they come back to my original point which I think is a very fair one I think most would agree with me. Most people who want an income tax also want major increases in spending has nothing to do with the deficit. That's a separate problem. Most income tax advocates would like to see a major jump in state spending. And if they have an income tax they'll find a way to spend in major new numbers and that will become a spicket which will open up and that and that's a valid concern. It's a very valid concern that we've now found as one of my colleagues puts it a new candy store. And so there clearly have to be controls put on that if in fact we have that we've got about 10 minutes left. What's the role of state workers state employees in all of this. They were the subject of much rhetoric during the political campaign last year. Is it going to be possible for the governor or for the legislature to raise salaries to cut back the work force to really get concessions

and how do you really deal with 27 labor unions who represents the employees. Well let's let's start with this. Let's start with the analysis of of the of the problem. State employees in terms of salary and benefits and such. Account for approximately 40 percent of the state budget. So it's a very significant number you cannot do significant cuts without some adjustment there. But how to do the cuts is in the tell a different matter because there are some 27 bargain units which comprise better than 90 percent of all state employees and most of the bargaining units are under multi-year contracts now there are a number of those that are coming up during the current year. But several many others who are going to next year new year after so without. In fact. Their willingness those that go beyond this year without their willingness to renegotiate those contracts you find yourself in a position where the only acts you have the only weapon you have I guess

is layoffs. So that becomes a very difficult issue to deal with. The I think the governor like of what I've seen so far is that has had the menopause. They didn't talk about give backs to setting the stage for some discussion of what needs to be done by asking them what they think they can do to contribute to the betterment of state government. I would be more aggressive on that issue than Dick mentions or that the so far the public record is that the governor would be I think there's no question that there will be new taxes. I equally think there's no question that if significant new taxes are to be borne by the tax payers there must be a recognition that the heyday of rapidly expanding numbers of state employees and record extending wage and benefit packages has got to be over. No way can we go to the state taxpayers and say Mr. Mrs. Taxpayer Would you please bear a burden of another billion dollars of taxes on top of the billion that you bore in 1999 only two years ago we thought we only passed about stuff and I know

but when you thought you passed it you thought it was a bill you're right you didn't get it. You're right you were put. You kept bringing the towel in there wasn't as much as there as you meant there to be but no I wouldn't give a button to continue the point. There's no way that you can ask to add this Binion to last two years or whatever it was and that's it by the way state employees they continue their hay ride. And it really has been a right there's been an enormous expansion of state employment wages benefits things like hundred percent payment of medical benefits are just not available in the private sector. Deeply concerns me that in a couple of precession issue conferences that I've been at labor leaders senior Labor leaders when this point has been broached have dug in their heels and said we quote won those rights as though you know this were a territorial war. And you you know you win this right and you hang on to it and you know give it back. This isn't a territorial war. This is a state in a financial crisis and we all have to contribute now. I don't think there's any way that you and to say that the number of bargaining

agents the number of organ agencies and the existence of collective bargaining agreements is a kind of wall that we can't breach. We threw up our hands. No way. Governor Cuomo is laying off 18000 people in the state of Connecticut state of New York excuse me. That's 10 percent of his state employment or talking about it has to be approved. He is being very aggressive about it and saying if you want the avoid the layoffs you have to have givebacks you don't want to give backs. There have to be less. Towns are doing this. One mayor has even suggested freezing contracts. Mayor of a large city in the state. So with all of these ideas around the notion that I heard very clearly from some labor leaders initial conferences that you know our heels are dug in we've won what we've won no givebacks no way. I don't see that happening and I don't see either side of the aisle approving a major tax increase without some recognition that employees have been part of the problem if you call it a problem and I do in terms of rapidly ascending expenditures they have to be part of the solution.

The couple plans one I think that one of things I proposed a couple years ago on the cover like this is just proposed what I believe is one of the post it was a coalition bargaining having contacts at the time and having a coalition bargaining unit if you will of labor unions dealing with issues so you don't have this leapfrogging provision. A second thing that we can do is some things we can do with it we can deal with workers compensation issues we can do it help deal with some health care issues and some other types of issues can't just unilaterally unilaterally want to change wages can just unilaterally go in and change some of the benefits but there are some areas that we can do things together. I want to get back on the tax issue one of the things that seems to be cropping up is it the notion of having a temporary tax fix that would go away in a few years presumably when this deficit was over I want to get your thoughts on that kind of a way of coaching a new tax increases a temporary fix.

No I don't think it's politically possible or financially appropriate I think you know that that assumes that some future legislature will acquiesce in the removal of some tax in the economic climate we don't know. Not appropriate business can't plan whether to relocate in Connecticut or expand in Connecticut with a temporary tax. When will come will come off who will make it come off. Just to comment one further Very quickly I get it when I bring up one more point I mean isn't that going to that's the point of the short term borrowing and we're talking about to take care of a temporary fix and let it ride be paid off over a few years. That's an alternative that point people. Just one comment on the labor the present AFL CIO has opposed every recommendation of the Thomas commission that you've alluded to. Coalition bargaining give backs so the public purse the public word from so for state employees is that while they say they're going to cooperate by giving ideas as to how others should save money they haven't come into the trenches and said they're willing to make a personal contribution.

I think they'll get there. But both you have been through tough budget debates and tough budget crunches in the past not as daunting as this year's. Do either of you have concern concerns about the process working this year we have the so-called grand experience experiment with an independent governor who when he goes before the General Assembly there aren't many friends out there there aren't any Connecticut Party members or very few sitting out in the General Assembly we saw some of this on opening day. Polite applause but no standing ovations when the governor came before you. It's just going to break down. Is this going to work. Do you have some concerns about that. Well no you have concerns about that I have concern about the background process in which the budget operates. Again two years ago we had an emergency certification for a budget bill that means a bill that didn't go through any committees didn't have a hearing didn't have a committee vote was allegedly an emergency. I thought that's meant for you know earthquakes and there's an independent governor to make this more difficult. Well what I'm saying is there's such a control of the budget

power in a few small hands as it is independent governor or not that is a deep concern to me in any event. Most members of the legislature don't have very much input at all. Even members of the major committees don't have a major input in the process. The budget and tax process is in the hands of a very small number of people. If they are willing to go along with the governor that the process will work if they aren't it won't. What I'm seeing is one hundred eighty seven people who were elected legislature. Very few of them will play a role in that process. But you know your lesson is this you've got concerns about those working with an independent governor or I think it's a time of great challenge at times of great challenge at times of great a great opportunity as well. Well the things I guess I am a little surprised about is that I think Governor Walker did come with some considerable feeling of goodwill on the part of the legislature and some considerable willingness to work with him. I haven't seen much in the way of him. Talking to members of the next session or spending committee yet that surprised me a little bit because he could make his road a lot easier people get a

little more that now before you just dump the budget on the table. Real trouble is you talk to people in private public trial balloons get people in a public political box it's hard to get a dialogue going in 10 seconds. Tax reform we don't have an income tax this year. I think chances are better than 50/50 right now. But if Governor Weicker doesn't bring it out it's nine to 10 again. We are out of time. Yes or no. No he doesn't know so how could I. Governor Walker doesn't know. Thank you. Our guests have been the state Representative Richard M. radio's cochairman of the state legislature's Finance Committee and State Senator what do you make us and he was the ranking member of that committee on the Senate side. Our thanks to Peter urban of the murdered reken Journal. Douglas thank you very much. Join us next time for another it if you on the record.