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Fate of hospital tax is key to a pending state budget deal

HARTFORD  — The level of any tax increases in Connecticut’s new two-year state budget could partly depend upon continuing closed-door talks between Gov. Ned Lamont and the state’s hospitals.

The new Democratic governor and the hospitals have been at odds for months over his two-year $43.1 billion budget proposal. It scrapped a three-year deal reached in 2017 to lower the state tax on hospitals. Instead of facing an expected burden of $43 million a year beginning July 1, they now face the prospect of losing $270 million annually, after accounting for various supplemental payments and rate changes, according to the Connecticut Hospital Association.

With the General Assembly’s June 5 adjournment deadline looming, all eyes on whether the two sides can reach a compromise and how that might change the projected revenue gap the General Assembly must cover to balance Connecticut’s budget.
“We don’t know where the hospitals are with the administration, so that is a game-changer in the budget,” Democratic House Speaker Joe Aresimowicz, of Berlin, said last week. Not knowing whether state lawmakers can rely on that revenue, he said, “makes it more difficult” to determine the size of the state’s projected deficit, which had previously been pegged at $3.7 billion over two years.

Various tax increases have been proposed in both Lamont’s budget proposal and the revenue package recently approved by the Democratic-controlled Finance Revenue and Bonding Committee. They range from a new sales tax on prepared meals to a 2% surcharge on capital gains income. It remains unclear exactly which tax changes will ultimately appear in the final budget deal.

The committee’s bill also jettisoned the plans to reduce the hospital tax.

Late last week, a spokeswoman for Lamont said the administration and the hospitals were still “communicating” and having “ongoing” conversations. Jennifer Jackson, CEO of the hospital association, said in a written statement that the hospitals “continue to have good faith negotiations with the Lamont Administration and appreciate their commitment to working with us to find a resolution.”

However, the hospital association has stepped up its political pressure during these final days of the legislative session, launching an electronic letter-writing campaign last week to urge Lamont and the legislators to “protect hospitals and to vote NO on any budget or legislative proposal that doesn’t protect hospital funding and hundreds of thousands of Connecticut jobs,” according to the association’s newsletter.

Connecticut began charging hospitals a so-called provider tax in 2011. It was part of a complicated arrangement to receive additional federal Medicaid funds while also increasing state payments to hospitals. The hospitals initially enjoyed a net gain, but the state began facing large budget deficits and reduced its annual supplemental payments over the years to the point where the hospitals received less from the state than what they paid in tax.

That prompted the hospital association to file a lawsuit in 2015 against the state, which is still pending. Possibly settling that lawsuit has also been part of the negotiations between Lamont and the hospitals.

“Connecticut’s fiscal crisis has challenged all hospitals to do more, and then some, with less. In the last four years, St. Vincent’s has reduced staff, closed programs and delayed important infrastructure and capital investments,” read testimony submitted to the General Assembly in March by St. Vincent’s Medical Center in Bridgeport. The hospital warned that higher taxes will ultimately reduce funding for initiatives aimed at improving public health.

Despite what happens with the hospital tax, the final overall amount of tax increases needed to balance the budget may ultimately be less than initially anticipated. Democratic House Majority Leader Matt Ritter noted last week the General Assembly’s nonpartisan

Office of Fiscal Analysis has projected state revenues to be about $350 million higher than expected in the first year of the two-year budget and $400 million higher in the second.

Meanwhile, the projected gap between spending and revenues might also be helped by yet-to-be finalized efforts to change the state’s pension payment schedules.

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