Hartford Business Journal

20 Hartford Business Journal • June 10, 2019 • www.HartfordBusiness.com EDITOR'S TAKE The good, bad and uncertainty of CT's $43.4B budget D oes the recently passed $43.4 billion state budget have your head spinning? If it does, that's not surprising given the complexity of the two-year spending plan. Are businesses winners or losers in this budget? I guess that's in the eyes of the beholder, but overall a number of businesses will see higher costs and/ or fees and there's no signifi- cant new tax breaks, although policymakers did eliminate the pesky $250 business entity tax companies must pay every other year. However, they also increased the registration fee by $60, so the actual savings is basically chump change. In adopting the budget, state lawmakers had to figure out how to close an estimated $3.7 billion deficit over two years. To get there they avoided an in- come tax increase, but still raised hundreds of millions of dollars in new tax revenues by broadening the sales tax and increasing other taxes and fees on businesses. Is Connecticut poised for economic growth under this budget? Well, I certainly wouldn't describe it as an economic stimulator because it takes more money out of people's pockets and does little to boost the state's cost competitiveness. Overall, I'd argue lawmakers didn't do enough to rein in spending, especially from state employees. Still, it could have been worse given Connecticut's fiscal condition. Here's an initial take on the good, bad and uncer- tainty created by this new state budget. The Good Maybe the best news in the budget is that lawmak- ers are projecting higher-than-expected revenue collections from state income taxes, casinos and other places, which shows the strong U.S. economy is having a positive impact on Connecticut, even though the state lags the rest of the nation in job growth. That helped reduce the overall budget hole law- makers needed to fill. The budget also leaves in place the state's $2 billion rainy day fund, which may actually grow in the years ahead. That will be an important cushion should the next recession hit anytime soon, or if budgetsetters' revenue projections are too rosy. Lawmakers also didn't increase the income tax or adopt a capital-gains surcharge, which means the state will maintain one of its few competitive edges over its high-tax neighbor, New York. Hospitals may be getting some relief from a state tax that has cost the industry hundreds of millions of dollars in recent years, but the details are still murky. The state's angel-investor tax credit has also been extended for five years, while the capital-base tax, a nuisance to the state's bioscience startups, is now scheduled to be phased out. The Bad The budget over two years raises about $705 million in new tax revenues or fees from various sources. Several exemptions from the state's 6.35 percent sales tax have been lifted so it will now cost more to park, get your clothes dry cleaned or renovate your home. The sales tax on digital downloads has increased from 1 percent to 6.35 percent and stores will now be required to charge a dime for every plastic bag you use. Restaurants and other prepared-food establish- ments will see their 6.35 percent sales and use tax increase by 1 percentage point. There is also a new "mansion tax" surcharge on home sales valued at more than $2.5 million. The biggest gripe from businesses — besides the minimum-wage hike and paid family medical leave laws, which were passed but not part of the bud- get — is the reduction of a pass-through entity tax credit that will cost small and midsize employers $50 million annually. Large employers got hit too because lawmakers once again cancelled the phase out of the corporate tax surcharge. There are also some new tax credit restrictions and eliminations. Finally, there was a lackluster attempt at cutting spending and reducing the size of state government, though the governor's office tells me they will be rolling out several initiatives this summer that will reduce expenses and improve efficiencies within state agencies. We'll see. One of the biggest cost savings essentially comes from a refinancing of the teachers and state em- ployees pension funds that will stretch out taxpayer contributions for years. The Uncertain The biggest uncertainty around the state budget is whether or not it's actually balanced. Only time will tell if it is, but I have a hunch it will require law- makers to tap a portion or all of the rainy day fund. Tolls is another uncertainty. Lawmakers could meet in special session later this summer to vote on tolls, which would present a major tax increase to businesses and residents alike. Finally, tucked away in the budget is a mandate for the Department of Revenue Services to study the adoption of a payroll tax that could one day eliminate the income tax. Employers should keep an eye out for that potential major reform in 2020 or later. Opinion & Commentary Greg Bordonaro Editor BIZ BOOKS Tips for solving complex problems more quickly By Jim Pawlak "Cracking Complex- ity — The Break- through Formula for Solving Almost Anything Fast" by David Benjamin and David Komlos (Nicholas Brealing Publishing, $29.95). Complexity (n.): the state of having many parts and being difficult to un- derstand or find an answer to. In busi- ness, the "many parts" include the indi- viduals and groups involved in trying to find an answer. Without focus, the larger the number of people involved creates a sizeable amount of interac- tions, which creates a Gordian Knot of perspectives, opinions and ideas. When processes and other stakeholders are woven in, analysis becomes difficult. Like Alexander the Great, who cut through the Gordian Knot rather than trying to unravel it, the authors begin cutting by first separating the complicat- ed (i.e. "Technical in nature, mechanistic, orderly, linear and completely predict- able" paint by numbers) and complex (i.e. "Creative in nature, unscientific, messy, unstable and unpredictable" blank can- vas.) The number of "unknowns" dictates the separation. The more there are, the greater the complexity. Problem-solving always involves asking good questions. Questions about the complicated solve the challenge; those about the complex define the challenge. Ex- ample: "What do we want in a new customer relation- ship management system?" differs from "What can we do to enhance the customer experience?" The compli- cated usually takes fewer people to solve problems because there's some semblance of roadmap to follow. The complex, however, takes a larger group because the number of unknowns requires a broader perspective. To help shape special-purpose group selection for complex issues, the authors provide a fill-in-the-names "variety matrix" that involves cross-referencing experience and personality traits. Getting your trailblazers on the same page begins by ensuring they have the same baseline information from which to do their pre-read. The information should flow from the "good question" and cover what's known about the business and the inside and outside stakeholders who could be affected. As the breaking-trail process unfolds, it's important that teammates readily share all information that builds from the baseline into action plans. "Many- to-many" communication also estab- lishes personal relationships needed to work through divergent views. The authors weave the user-experi- ences of three organizations into the chapters. Jim Pawlak Book Review

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