Connecticut's legislature early Tuesday approved a revised $40 billion biennial budget that rolled back some new business taxes to which major corporations within the state had objected.
The House, shortly after 1 a.m. during the special session, approved the spending plan 78-65, three hours after the Senate passed it 19-17. Democrats hold a narrow majority in both branches.
Gov. Dannel Malloy, also a Democrat, is expected to sign the budget.
The new fiscal year starts Wednesday.
Under the finalized budget, the sales tax on data processing and computer services will remain at 1% rather than rising to the proposed 3%.
Major corporations that were paying $5 million a year on that tax would have seen a jump to $15 million a year. Overall, the new spending plan pulls back roughly $180 million of $1.5 billion in tax increases approved in the initial budget.
General Electric Co. and Aetna Inc. threatened to move out of state after lawmakers passed the initial budget in early June, while Travelers Cos. also voiced strong objection.
"It could be a clarion call," Alan Schankel, a managing director at Janney Capital Markets, said of the corporate pushback. "It raises concerns."
The so-called unitary reporting taxation system, a major point of contention among the major companies, was delayed for a year.
Senate Minority Leader Len Fasano, R-North Haven, accused the Democrats of enacting a "smoke and mirrors" budget. "I predict that a year from today we're going to have a deficit that we are unable to deal with," said Fasano. "It's just another blow to Connecticut's economy."
The new budget restores $30 million to hospitals and trims some of Malloy's large transportation spending package. "I'm glad to see the emphasis on transportation funding, especially where everyone in Connecticut where everyone drives or commutes somehow," said Schankel.
Moody's Investors Service rates Connecticut's general obligation bonds Aa3. Fitch Ratings, Standard & Poor's and Kroll Bond Rating Agency assign AA ratings. S&P in March revised its outlook to negative from stable. Fitch also has a negative outlook, while Kroll and Moody's assign stable outlooks.
Left untouched this session was Connecticut's unfunded pension liability. An actuarial report by Cavanaugh Macdonald Consulting LLC pegged the funding level for the Connecticut State Employees Retirement System at 41.5% as of June 30, 2014.
Making its full actuarially required contribution, or ARC payments, is a plus, according to Schankel. "Their funding level is weak, but if they keep making their ARC payments, they're less likely to fall further behind," he said.
