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State moves to support hospitals and small businesses after years of undermining them

The COVID-19 pandemic has rightly led to high praise and support by lawmakers and state officials for hospitals that face potentially overwhelming numbers of infected patients and for small businesses that have been forced to close their doors to the public, but that support comes after years of policies that undermined those very organizations and businesses.

The Connecticut Hospital Association, small business owners, the Connecticut Restaurant Association and the Connecticut Business and Industry Association have spent years at the Capitol pushing back against new taxes, labor mandates and regulations, telling state senators and representatives in no uncertain terms that those policies will hurt their ability to operate or grow.

Had the 2020 legislative session not been suspended due to the pandemic, those same organizations would likely have faced more legislation that would inhibit their ability to survive in Connecticut.

As the state moves to temporarily waive regulations for healthcare providers and offer whatever monetary support it can for small businesses, it’s important to note the history of the Connecticut government’s often adversarial relationship with both hospitals and the business community so as to not repeat the mistakes of the past.

Hospitals

Under Gov. Dannel Malloy’s administration, the state balanced its budget on the backs of hospitals, implementing a hospital tax designed to extract more Medicaid funding from the federal government. 

The Malloy administration said the tax on the hospitals would be returned to them and the Connecticut Hospital Association went along with the plan. After that, the state government kept nearly $2 billion between 2013 and 2016 to plug budget gaps.

The Connecticut Hospital Association eventually had to file a lawsuit, which was settled by Gov. Ned Lamont just last year, resulting in a state payout of $1.8 billion. 

But even as $1.8 billion of hospital tax revenue is returned to Connecticut hospitals over the course of seven years, those hospitals are not free to spend that money as they see fit.

Even as $1.8 billion of the hospital tax revenue is returned to Connecticut hospitals over the course of seven years, those hospitals are not free to spend that money as they see fit.

That’s because Connecticut also requires Certificates of Need for hospitals to expand the number of acute care beds, build new facilities, purchase new equipment and utilize technology that has not been previously used in the state.

According to the Office of Health Strategy, “CON is a regulatory process that prevents costly duplication of services, protects access to and continuity of health care services, and ensures Connecticut’s resident have a voice regarding healthcare for the communities.”

Altogether there are 15 different reasons a hospital may require a CON from the state, which basically amounts to a government permission slip.

According to the National Council of State Legislatures, 12 states including New Hampshire and California have eliminated their CON laws after Congress repealed the CON mandate in 1987.

In 2014, Malloy and the legislature expanded CON regulations to include ownership changes of Connecticut hospitals, largely at the behest of labor unions. 

Malloy used that legislation to kill the purchase of several struggling Connecticut hospitals by Tenet Healthcare, a for-profit company based in Dallas, Texas that had partnered with the Yale New Haven Health System.

Waterbury Hospital, one of the struggling hospitals to be purchased by Tenet, had to lay off staff and reduce pay for technicians, nurses and doctors in order to survive before being purchased by Prospect Medical Holdings.

However, in response to the pandemic, Lamont issued an executive order lifting CON regulations for hospitals to increase bed capacity and suspend certain services for the length of the public health emergency. 

Lamont also allowed OHS to waive the CON requirement to “increase access to critical healthcare services for the management of the COVID-19 public health emergency.”

Before the legislative session was suspended in response to the pandemic, the Connecticut Hospital Association was again testifying in opposition to a union-backed bill put forward by Democrats.

The bill would prevent businesses from holding what are called “captive audience” meetings with employees to address unionization efforts or political issues. 

Similar legislation has died several times over the past ten years as former Attorney General George Jepsen found it was pre-empted by federal law.

Small Business

Many small businesses face closure due to the pandemic – either through the governor’s executive orders or through a steep drop in business — and many are struggling, applying for state loans in order to stay afloat, hopefully, until the crisis passes.

In an op-ed for the Hartford Courant, Sen. Norm Needleman, D-, offered regulation guidelines for businesses that are already struggling under the economic downturn and social distancing guidelines. Needleman says the guidelines will prevent the spread of the COVID-19 virus and that the governor should enforce these guidelines by executive order. Lamont quickly issued guidelines to that effect. 

Needleman concluded that “businesses need this shot in the arm to restart our economic engine.”

But over the last decade, lawmakers have passed policies that had small business owners trekking to the Capitol to unsuccessfully push back on legislation and tax increases.

Surveys conducted by the Connecticut Business and Industry Association, year over year, have shown businesses find Connecticut’s tax and regulatory structure to be overly burdensome and is preventing expansion and job growth.

The 2019 legislative session dealt a blow to businesses, as Democrat majorities in the House of Representatives and the Senate passed a $15 minimum wage increase, a paid family and medical leave act that affected any business with more than one employee and increased the tax burden on pass-through entities, known as the SALT Skim.

Businesses, particularly small businesses and restaurants who are now hit hardest in the pandemic, fought against the $15 minimum wage and paid FMLA legislation for years, saying it would ultimately hurt their ability to survive in Connecticut.

The legislation, however, passed in 2019. The state minimum wage was increased to $11 per hour and is scheduled to increase again in September to $12 per hour. It largely affects small businesses and restaurants, many of whom have had to shut their doors and lay off employees.

Connecticut had also implemented a work-around to the federal government’s limitation on the state and local tax deduction, known as SALT. The complicated change passed in 2018 ensured that pass-through entities would largely be kept whole by charging them a higher tax rate and then returning 93 percent of the tax to those businesses. 

However, in 2019 Democrats reduced the amount of the tax that would be returned to those pass-through entities from 93 percent to 87 percent, resulting in a $50 million tax increase on businesses.

However, in 2019 Democrats reduced the amount of the tax that would be returned to those pass-through entities from 93 percent to 87 percent, resulting in a $50 million tax increase on businesses.

The change resulted in an accounting nightmare for businesses who had to retroactively adjust their taxes to match the new rate.

The state has also refused efforts over the past ten years to reform its unemployment insurance taxes, maintaining lower earnings requirements than other states and some small businesses have said they don’t receive fair hearings in appealing unemployment claims.

In response to the increase in unemployment claims from the 2008 recession, the state took out a loan from the federal government and forced businesses to pay it back, increasing their unemployment tax for a number of years.

A 2017 study published by Yankee Institute found Connecticut had the 7th highest unemployment insurance costs in the country.

Connecticut’s unemployment trust fund, however, was only 50 percent funded when the pandemic hit. Now, with massive layoffs, those businesses will face higher unemployment taxes in the future as they try to recover.

A Missed Opportunity

Connecticut’s economy has struggled economically since the previous recession in 2008 and the sharp decline in economic activity and skyrocketing unemployment claims means businesses, hospitals, families and individuals will face future hardships.

Compared to what the state now faces, the past ten years have been relatively easy, but during that time Connecticut instituted policies that both hospitals and small businesses warned would hurt their ability to survive.

Now, with survival of both people and business on the line, lawmakers are rightfully trying to support hospitals and small businesses. Gov. Lamont is doing all he can but the governor cannot undo a decade of policies that left those hospitals and businesses in a weaker position moving into this pandemic.

Thus, far, the state has offered business loans, temporary regulatory waivers and tax filing deadline extensions to help – a tacit admission that both taxes and regulation hurt the very businesses and industries Connecticut now needs to weather the pandemic.

In essence, Connecticut’s lawmakers missed their opportunity to support those truly-needed businesses and industries when they had the chance and chose, instead, to knuckle down on them. 

All this can be changed in the future. It is important that lawmakers not forget that when crisis struck, it was necessary to reduce regulations and offer tax relief. If it works to help Connecticut during a pandemic, it will help Connecticut during its recovery and relative good times.  

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