Hartford Business Journal

20 Hartford Business Journal • May 22, 2017 www.HartfordBusiness.com OPINION & COMMENTARY EDITORIAL Lawmakers lack vision in desperate budgeting process I f you find a stranger in your home over the next few weeks fumbling through couch cushions for loose change there's a good chance it could be a desperate state legislator. As we edge closer to the end of the legislative session — scheduled for June 7 — it's becoming clearer that lawmakers will be unable to solve Connecticut's fiscal crisis without major tax increases. Democratic and GOP state lawmakers unveiled new or revised budget proposals last week that aim to close a two-year, $5 billion budget gap. But all of their plans, similar to those in years past, rely on one-time revenues, cost shifting, unrealistic policy changes or yet-to-be achieved savings that may not come to fruition. Even if legislators somehow come up with a balanced budget on paper, the likeli- hood of those projections working out favorably is slim. As we've seen in recent years, budgets adopted by the General Assembly have gone out of balance nearly as soon as they were signed into law. There is no evidence things will be different this year. The piecemeal budgeting process being undertaken by our esteemed state policymakers is the equivalent of a blind man throwing darts at a dartboard. What's lacking in any spending plan is a vision for a prosperous future. Neither Dem- ocrats nor the GOP have articulated a coherent strategy for long-term economic growth in Connecticut. That is, after all, the only solution to the state's fiscal crisis. Without stronger private-sector growth, Connecticut's tax revenues will continue to falter. Slash-and-burn budget cutting may be a necessary evil, but how will Connecticut lever- age its assets and the tax revenues it can afford to spend into a stronger-growing economy? It's a question whose answers seem to be out of reach of policymakers. To make matters worse, some legislators want to further exploit residents' vices to raise new or additional revenues. Examples of the desperate budgeting process were on full display last week. House and Senate Democrats, for example, included the legalization of recreational marijuana in their latest spending plan even though they likely don't have the votes to support it. Legalizing pot has been one of the most controversial issues in the state legislature. Earlier this year the issue was declared dead because the measure couldn't get enough support to even get out of committee. Democrats say legalization could reap $60 million in new tax revenues next fiscal year, and $180 million the following year. That's a big pot of gold, but we wonder if those projections are a bit rosy. We also oppose recreational pot legalization, especially in the context of a desperate search for new tax revenues. Meantime, Republicans pitched their own revised budget last week that included $2.2 billion in savings over two years from state employee unions. That's a far bigger number than the $1.57 billion Gov. Dannel Malloy has been trying — unsuccessfully so far — to extract from state workers since February. While we agree that state labor unions must be asked for significant givebacks, we aren't sure if achieving $2.2 billion is feasible. And if we can't reach that number, what happens to the GOP's spending plan? Can we realistically lay off enough state workers to meet the needed savings in such a short period of time? The answer is most likely no. Finally, Malloy also released a revised budget last week that may be the most realis- tic. It relies on drastic cuts to most cities and towns, new taxes on nonprofit hospitals' real estate, privatization of social services, among other cuts. No matter what, Connecticut is about to get another dose of tough medicine. We oppose any major state tax hikes, but also understand that could lead to higher property taxes on the local level or other detrimental effects to the state economy. There are no easy answers, and without a well-articulated, long-term roadmap that directs us toward a more prosperous future, solutions will be even harder to grasp. n RULE OF LAW Defending a plan to tax Yale By John Horak M y April 24th column ("Let's tax Yale — Here's why and how") created more of a dustup than I anticipated. In the column, I tried to deflect the state employee union's search for new tax revenue in Yale's direction by, in essence, mak- ing a case for taxing Yale's endowment — based primarily on the "tax-the-rich" meme unions keep recirculating. Yale is, of course, rich, as these things go. The dustup that blew back on me was all defensive of Yale — ranging from an indirect jab from a lobby- ist who suggested that this was not the kind of argument a nonprofit organization advisor (which I am) should be making, to a rock-ribbed fiscal conservative saying we should shrink gov- ernment with budget cuts instead, and finally, to a comment by my wife (Yale class of 1980) that we should be grateful to have a world-class institution of this type in the state. I agree with the fis- cal conservative and my wife, but think the lobbyist missed the point, which is the following. The uncompro- mising attitude of union leadership (in the face of a moun- tain of unfunded obligations we will never be able to satisfy in full) has finally brought us to a tipping point that has put the unions in an adversarial position relative to just about everyone else in the state — including our nonprofit organizations, of which Yale is the largest and most prominent member. This is an unfortunate and frightening development for policy reasons discussed later, and it puts the state's nonprofit organi- zations in a new (for them) and uncomfortable position in which their own economic inter- ests (and survival in some cases) may compel them to advocate for a smaller state govern- ment, union concessions, and, last but not least, pro-business regulatory and legislative changes to get the state's economy kick-start- ed so there will be more money in the system. None of our nonprofits are immune, as the traditional tax exemptions afforded to them are being tested and in some cases threat- ened with elimination. Throughout the state, local tax assessors are challenging the prop- erty tax exemptions that are vital for smaller nonprofits. The legislature has suggested eliminating the sales tax exemption nonprof- its rely upon for goods and services they pur- chase, and the state has shortchanged non- profit social-service providers for a decade, pushing their employees' compensation to near minimum-wage levels while equivalent employees at the state make twice as much. These developments are disturbing because nonprofit organizations exist (and they are policed by the IRS on this) to fulfill what the law recognizes as a charitable and public purpose, which includes everything from health care and education to social services, shelters for the homeless, the arts, and everything in between. Moreover, these organizations are precluded by law from having shareholders or owners who, as such, have a right to a share of any of the orga- nization's income or assets. In other words, to the extent our nonprofits are taxed there is less money for them to use for the charitable and pub- lic purposes for which they exist, and more for state government to use to try to make a dent in the billions of unfunded retirement and health- care promises that are not affordable. Money is fungible, so don't let anyone tell you any- thing different. Unless and until union leaders and their acolytes in the legislature prove competent to face Connecticut's "new economic reality," large nonprofits like Yale may be more of a target than one would think. There is, for example, in the state constitu - tion, a tax exemption that applies to Yale's "income," but "income" has a very precise meaning in this context; and under modern investment statutes that first became law in the early 1970s, a consti- tutional exemption for "income" would likely not preclude a state income tax on capital gains in Yale's endowment. I mention this only to suggest that Yale may have more of an interest in governmental reforms than one would think because it can- not follow General Electric to Boston, nor could the many other nonprofit organizations upon which we depend to care for our citizens and that enrich our lives in innumerable ways. n John M. Horak is the director of TANGO Nonprofit Education and Consulting. HARTFORDBUSINESS.COM POLL Should CT allow a third casino? ● Yes ● No To vote, go online to HartfordBusiness.com. Last week's poll results: Is buying a house in Connecticut today a smart investment? 21.9% Yes 78.1% No John Horak ▶ ▶ None of our nonprofits are immune, as the traditional tax exemptions afforded to them are being tested and in some cases threatened with elimination. Send Us Your Letters The Hartford Business Journal welcomes letters to the editor and guest commentaries for our opinion pages. Electronic submissions are preferred and welcome at: editor@HartfordBusiness.com.

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