FY 2006-07 GOVERNOR’S MIDTERM BUDGET ADJUSTMENTS

1. FY 2006-07 GOVERNOR’S MIDTERM BUDGET ADJUSTMENTS M. JODI RELL, GOVERNOR CONNECTICUT FEBRUARY 8, 2006

2. BuildingConnecticut’s Future

3. Introduction • Last year Connecticut was facing a $1.1 billion GF deficit for FY 06 and a $1.4 billion GF deficit for FY 07 • We are projecting a surplus of over $500 million for FY 06 and over $250 million for FY 07

4. The FY 2006-07 Midterm Budget • Governor Rell is proposing an all funds budget of $16.05 billion for FY 07 representing an increase of $113.7 million, or seven tenths of 1% increase over the original appropriation for FY 07 • The Governor is proposing a GF budget of $14.9 billion for FY 07 which is projected to result in a $0.4 million surplus representing an increase of $165.5 million over the original appropriation for FY 07, or just 1.1% • The overall growth rate for the Governor’s midterm budget is only 4.1% over FY 06 estimated spending levels

5. The FY 2006-07 Midterm Budget • Governor Rell is proposing significant tax relief to our State’s citizens and businesses which will total $294.5 million in FY 07 • The Governor’s tax relief package includes: • Elimination of the property tax on cars • 25% reduction of the public utilities gross receipts tax on electricity and gas • Elimination of corporate surcharge • Phase-out of the estate tax • Several job creation tax credits

6. Preserving the FY 2005-06 Surplus • The Governor’s Midterm Budget anticipates that the FY 06 surplus will be utilized in the following ways: • Prefund the FY 08 and FY 09 Economic Recovery Note payments ($85.5 million) • Carryforward $91 million for FY 07 expenditures • Deposit $335.3 million in the Budget Reserve Fund “Those who cannot remember the past are condemned to repeat it” - George Santayana

7. Preserving the FY 2005-06 Surplus • The fund’s balance would rise to almost $940 million or approximately 50% higher than it has ever been

8. The Expenditure Cap • The originally adopted biennial budget was $24.3 million below the expenditure cap for FY 06 and $10.3 million below the expenditure cap for FY 07 • The Governor’s proposed budget would utilize the remaining room under the cap in the first year of the biennium while remaining $12.2 million below the cap in FY 07 • Despite the increased appropriation of $113.7 million, a slight improvement in room under the expenditure cap in FY 07 was achieved as a result of several factors. The primary factors were: • Faster personal income growth • Federal mandates and court orders • Fully utilizing FY 06 available cap room

9. Reforming State Government • Governor Rell continues to build on her past proposals to make state government more accountable and responsive to the needs of our citizens by proposing several new initiatives and supporting recent statutory changes: • Provide necessary resources for the efficient and effective operation of the new Office of State Ethics including increasing staff by 3 and increasing funding 32% over the FY 06 appropriation • Implementing the provisions of Public Act 05-5 An Act Concerning Comprehensive Campaign Finance Reform for State-wide Constitutional and General Assembly Offices by the establishment of the Citizens’ Elections Fund (CEF) and by reorganization of the State Elections Enforcement Commission (SEEC) • Calling for the passage of legislation to codify the Contracting Standards Board, Governor Rell established through Executive Order 7b

10. Transportation • Builds on last year’s $1.3 billion initiative • Most significant state commitment to new and improved public transportation in a generation. • This year’s initiative of $344 million in capital funds includes: • Commuter rail service between New Haven, Hartford and Springfield, including shuttle bus between the rail line and Bradley International Airport (8 trains each direction with 11 stops) • New Britain Busway to provide an alternative route into our capital city from the west • Rail station and parking improvements on the New Haven line and Shore Line East • Facility and service improvements on the New Haven Line’s Danbury, New Canaan and Waterbury commuter lines • Rehabilitation of up to forty locomotive pulled passenger coaches used on the commuter lines • Improved transit connections between rail stations and employment centers • State’s share of the cost of a new rail station and parking facilities in West Haven

11. Transportation • Public transportation initiatives were among the recommendations of the Transportation Strategy Board (TSB) • TSB will be involved in monitoring the progress of the initiatives and advising the Governor and the DOT on their implementation • Transportion oriented development will be encouraged as part of these initiatives • Greater Hartford area infrastructure improvements to enhance economic development in the region • Paying for the Plan • The plan is fully funded and includes presumed annual operating costs for enhanced services • $40 million a year in receipts from the Petroleum Gross Receipts Tax will be transferred from the General Fund to the Special Transportation Fund starting in FY 07. In FY 11, the transfer will increase to $60 million a year

12. Jobs • Governor’s Leadership Role • Creates a new senior policy advisor within the Governor’s office to coordinate and plan economic development policy • Governor’s liaison to the new Connecticut Finance Collaborative and to the Connecticut Housing Finance Authority • Connecticut Finance Collaborative • Merger of three existing quasi public finance entities • Connecticut Development Authority • Connecticut Innovations, Incorporated • Connecticut Health and Educational Facilities Authority • Provide one stop shopping for business financing • Coordinate more efficiently the financing needs of business • Work closely with the new Department of Business and Employment

13. Jobs • Tax Changes • Elimination of the Corporate Tax Surcharge - Estimated savings of $47 million to businesses effective income year 2007 • Energy relief tax cut – 25% across the board cut in Connecticut’s public utilities tax. This will save taxpayers $44.9 million annually, more than 50% of which benefits business • Job Creation Tax Credit - Available to companies that create significant new qualified jobs in Connecticut. A company may obtain a tax credit equal to 25% of the estimated withholding tax paid by the employees in the new jobs • Displaced Worker Credit – Companies will be able to take a credit against their corporate tax for hiring workers previously displaced • Film Industry Tax Credit - Available against the companies’ corporate income tax based on 25% of their in-state production expenses including payroll

14. Jobs • Department of Business and Employment • Programs previously administered by DECD • Office of National and International Commerce to market Connecticut to both United States and foreign businesses • Additional support for housing and community development planning • Provide better coordination of housing, economic development and transportation • Improved capacity to collect and disseminate statewide data and develop economic policy initiatives • Jobs and Workforce Initiatives • $1.5 million for Governor Rell’s 21st Century Jobs Program • Provide customized job training for employers • Employers pay 50% of cost of training • $250,000 to double the Connecticut Apprenticeship program which provides guidance and mentoring for businesses using apprentices • $150,000 for the Connecticut Career Resource Network that will provide career specific public information to state students, teachers and guidance counselors

15. Jobs • Student Loan Forgiveness Program • Encourage students to choose to work in Connecticut’s “high need” jobs • $3 million program • Half of funding ($1.5 million) dedicated to students who become math or science teachers • Economic Impact Statements • Assess the economic impact of legislation being considered by the General Assembly • Prepared by the Office of Fiscal Analysis and included in fiscal note

16. Energy • Governor Rell is proposing the creation of a new State Department of Energy to serve as a central clearinghouse for energy planning, research and oversight • Made up of new positions and positions transferred from the Office of Policy and Management this agency will: • Assist the Governor in formulating and implementing a statewide energy policy • Use its functions to increase efficiency and reduce costs • Interact with federal and other state agencies to create a centralized energy plan for the State of Connecticut

17. Energy • Governor Rell proposes to restore funding to the Energy Conservation and Load Management Fund by eliminating the $12 million transfer of earmarked money to the General Fund • This Fund will promote long term goals of conservation and energy management to improve the state’s fiscal health and our quality of life • These funds will be available to help consumers and businesses undertake conservation measures to help mitigate the dramatic increase in energy costs • State agency expenditures on energy have increased from $51.7 million in FY 00 to an anticipated number in excess of $100 million in FY 06. This budget properly funds state agency energy expenditures, eliminating a structural hole in the budget

18. Energy Tax Relief • This past year there has been a dramatic increase in all forms of energy costs straining the budgets of individuals, businesses, and governments • Governor Rell proposes a 25% across-the-board cut in the state’s public utilities tax beginning July 1, 2006 lowering everyone’s electric and gas bills, saving businesses and consumers an estimated $44.9 million in FY 07 • More than 50% of these savings will benefit Connecticut’s businesses • The Governor is also proposing the extension of the sales tax free period on energy efficient residential products until June 30, 2006

19. Elimination of the Car Tax • Each year in municipalities throughout the state: • Assessors spend countless hours creating grand lists of motor vehicles • Tax collectors send out thousands of bills • Taxpayers write out thousands of checks to pay property taxes on motor vehicles • Only to have the State of Connecticut then give many a partial credit for part of the amount that they paid in tax in the first place

20. Elimination of the Car Tax • This does not even account for the frustration and aggravation that occurs when taxpayers move or a car is sold and a glitch in the system or an error on the part of either government or an uninformed taxpayer causes a bill to go unpaid, preventing registration of a motor vehicle • To say the system is inefficient and somewhat circular is quite an understatement

21. Elimination of the Car Tax • More than inefficient and circular, the system is patently inequitable • Currently in Connecticut

22. Elimination of the Car Tax • A taxpayer in Greenwich pays $273 in property taxes for a 2005 Mercedes-Benz Sedan 4D C240 (AWD) • A taxpayer in Waterbury taxpayer pays $278 in property taxes for a 2000 Chevrolet Cavalier L-4 2D Convertible • Does it make sense for a Greenwich taxpayer to pay $5 less in property taxes per year for a new Mercedes than a Waterbury taxpayer pays for a 6-year old Chevy? • Under Governor Rell’s proposal beginning July 2006, no Connecticut resident will ever again have to pay this inequitable, regressive and frustrating tax

23. Elimination of the Car Tax • The program will exempt the property tax due on privately-owned Connecticut-registered cars and motorcycles, as well as those vehicles that individuals lease on a long-term basis • This is a bold step to eliminate a regressive tax, which will make the State of Connecticut a much more attractive place to live while reducing the financial burden on the average working family in the State • Payments of property tax on exempt vehicles would be eliminated, beginning with what would be the July 2006 payment. The proposal does not include unregistered passenger motor vehicles, the registrations of which allow commercial uses or a combination of commercial and passenger uses

24. Elimination of the Car Tax • Governor Rell’s proposal provides for a mechanism that replaces this municipal revenue stream by transferring to each municipality funding necessary to replace the lost revenue • Moreover, the Governor has constructed a fund using as a basis a 100% collection rate though many municipalities, particularly the larger cities experience a significantly lower collection rate for motor vehicle taxes • The Governor’s plan relieves the municipalities of a significant and unnecessary administrative burden that is greatly disproportionate to the tax revenue they receive

25. Elimination of the Car Tax • The Governor proposes to create a Casino Assistance Revenue (CAR) grant by intercepting 100% of Indian gaming funds received by the State • In order to fully fund this program, a relatively small portion of additional revenue will be temporarily intercepted until the casino revenue grows to a point where it pays for 100% of the grant • This additional intercept would be phased out as casino revenue grows. Any additional growth in casino revenue would continue to benefit municipalitities proportionate to the original CAR grant, thereby providing additional property tax relief in the future

26. Elimination of the Car Tax • This program is affordable due to the combination of natural revenue growth exceeding controlled spending and the elimination of the property tax credit on the personal income tax which this fiscal year provides no more than $350 in relief per household and next year, no more than $400 • This redirecting of the current property tax credit contributes $325 million of revenue in FY 07 • The vast majority of taxpayers will benefit significantly from this program because the total amount of tax relief included in this program is over 50% greater than that was encompassed by the prior property tax credit program

27. Elimination of the Car Tax • The per municipality CAR grant in the “Estimates of State Formula Aid to Municipalities” will be adjusted based upon data consistent with the legislation • The original Mashantucket Pequot and Mohegan Fund grant will be maintained but transferred to the General Fund in its entirety and renamed Supplemental Municipal Aid grant with no loss to any town including host towns

28. The Estate Tax • Under the legislation passed last year, an increase of $1.00 in the value of an estate can result in a $99,600 increase in tax liability. Governor Rell provides for an immediate elimination of this so called cliff • Governor Rell proposes an immediate doubling of the amount of an estate that is exempt from the estate and gift tax from $2 million to $4.1 million • Under the Governor’s plan, the estate tax would be phased out until it is completely eliminated by 2010 • Governor Rell’s plan will make us competitive with such taxpayer friendly states like Florida, South Carolina and Arizona, where many of our retired citizens relocate in order to protect their estates for the benefit of their loved ones

29. Public Safety • Combating Urban Violence • Division of Criminal Justice - $400,000 for 6 additional staff to utilize a vertical prosecution strategy • Department of Public Safety - $520,000 to create a state/municipal Urban Violence Task Force • Office of Policy and Management - $4.25 million for grants to municipalities to provide alternative activities for young people in urban areas • Health and Human Services – initiatives for career-based mentoring and new community diversion boards • Juvenile Justice Programs (Judicial Branch) - $1.94 million to support 12 residential beds and 449 slots for juveniles with specific program needs • Statewide Narcotics Task Force - $239,000 to continue the previously federally funded program of stipends for municipalities

30. Public Safety

31. Public Safety • Tougher Penalties/Monitoring of Sex Offenders • Increased minimum mandatory sentencing for individuals convicted of certain sex crimes against children 13 and younger • $1.3 million to the Court Support Services Division program for 15 new probation officers and lease of 250 GPS units to monitor high-risk offenders • $197,000 to the Department of Correction for 2 additional parole officers and 30 GPS units • Criminal Justice Information System (CJIS) • $2.3 million in CJIS operating funding • $485,000 for the Offender Based Tracking System to transition from consultants to state IT personnel • $1 million for the Connecticut On-Line Law Enforcement Communications Teleprocessing for upgrade and operating costs

32. Public Safety • Regional Fire Training Schools • An additional, $10 million in bonding for construction, renovation, acquisition and upgrading of these training facilities • Department of Motor Vehicles • $17 million in bonding for improvements to information systems • $400,000 for commercial vehicle safety inspectors • $600,000 to upgrade or add security measures to prevent fraud involving issuance of licenses • $730,000 to increase customer convenience through branch office expansions

33. Public Safety • Other Initiatives • $100,000 to create a Child Protection Registry • Funding for 6 positions to conduct criminal background checks on individuals and provide for registration of agencies providing homemaker companion services to the elderly/disabled • Maintenance of support for the new Criminal Justice Planning Division within OPM • $258,000 for 5 positions and the cost of kits to undertake collection, analysis and registry of DNA samples from all individuals convicted of a felony or misdemeanor • Funding of $150,000 to eliminate the significant backlog of criminal fingerprint cards, which will, in turn, reduce outstanding applicant background checks

34. Education • Job retention and creation is a pressing state goal • Tomorrow’s workers must have the education they and the state’s economy need to succeed • Academic achievement gap between advantaged/disadvantaged students must be eliminated • Governor Rell believes quality preschool education programs are critical to eliminating that gap and proposes: • Increasing the number of inner city children in preschool by 500 from 7,000 to 7,500 • Including $4 million to increase the per child School Readiness slot subsidy from $7,750 to $8,025 • Including $400,000 in scholarship funding for preschool workers • Adding funding for 5 towns to add preschool programs

35. Education • Governor’s budget also provides $400,000 to create a readiness tool to assess the academic, social and developmental skills necessary for children to succeed in kindergarten • For Charter Schools, Governor Rell is recommending: • $1.7 million for the expansion of seats in those schools with natural grade growth • In schools with more than 6 grades, increasing the enrollment ceiling from 300 to 400 thereby allowing for some 215 additional urban students to participate • To create a clear education financing strategy, the Governor has appointed a Commission on Education Finance that will recommend ways to improve how the state finances its education programs

36. Continuing Our Commitment to Connecticut’s Neediest Citizens • Meeting the Needs of DMR Clients • Continue the wait list Initiative with $12.7 million in FY 07 allowing 150 new clients to be served • Provide an additional $2.1 million for day and residential programs for high school graduates and age-outs

37. Continuing Our Commitment to Connecticut’s Neediest Citizens • Investing in Behavioral Health • Continue to implement the Behavioral Health Partnership between DCF and DSS to reduce service system fragmentation and implement more community-based programs • Maintain funding for the Next Steps Initiative to expand supportive housing by 500 units to create stability for vulnerable populations and decrease their use of acute and expensive services

38. Continuing Our Commitment to Connecticut’s Neediest Citizens • Investing in Behavioral Health • Fund Adult Mental Health Initiatives • Continue $5 million in funding for many new mental health community initiatives begun in FY 06 • Add $4 million to include Assertive Community Treatment teams and community support services under Medicaid • Provide $2.1 million to serve 3.3% more clients in General Assistance Managed Care • Add $400,000 for a Transitional Case Management Program for released offenders with substance abuse disorders • Provide funding to develop and implement a client information system including $4.7 million in bond funds and 2 positions

39. Continuing Our Commitment to Connecticut’s Neediest Citizens • Rate increases for long-term care facilities, residential care homes and private providers • Provide $19.1 million to increase rates by 2% for nursing homes, Intermediate Care Facilities for the Mentally Retarded and Residential Care Homes effective October 1, 2006 • Provide $17.1 million in funding for a 2% private provider increase effective October 1, 2006 • Combined with last year’s initiative, Governor Rell’s proposal represents an unprecedented 6% increase for these dedicated providers within a 15 month period

40. Continuing Our Commitment to Connecticut’s Neediest Citizens • Maximizing the Use of State Dollars • Provide $500,000 to implement a Premium Assistance program to help HUSKY A families access health insurance from their employers and save $5 million in FY 08 • Continue to implement Medicare Part D including a ConnPACE wraparound, covering copays for the dually eligible, covering drugs not covered under Part D, and paying $139 million clawback in FY 07 • Provide $225,000 to replace federal grant for the Nurturing Family Network, allowing state to claim $2.6 million in Medicaid reimbursement in FY 07

41. Continuing Our Commitment to Connecticut’s Neediest Citizens • Focus on Prevention • Provide additional $1.9 million in FY 07 for immunizations, including the vaccination of children against Meningococcus and a new vaccine for immunization of adolescents against Pertussis • Provide additional $155,000 to support increased costs for newborn screening activities incurred by DPH and $124,000 for additional referrals to genetic disease counselors in FY 07 • Provide funding for two new HUSKY children’s dental initiatives in FY 07, including $1.85 million for pediatricians to apply fluoride and $1.1 million to add premolar sealants as a Medicaid covered service • Provide additional $500,000 to the Elderly Nutrition Program to offset federal reduction and address increased costs and rising demand

42. Serving Connecticut’s Children • The Juan F Consent Decree • To continue the progress that has been made under the consent decree additional funding is provided for abused and neglected children, including the development of new group homes with 155 new beds in FY 06 and 91 new beds in FY 07 • Funds are provided for DCF to restructure their emergency shelter services into smaller community based assessment centers to provide more clinically appropriate services • Funding is provided to initiate a new program of intensive family reunification to prevent extensive foster care placement, expedite family reunification and provide better outcomes for families • Additional funds of $500,000 are provided to increase intensive in-home services beyond the $600,000 increase already in the budget for FY 07

43. Serving Connecticut’s Children • The Emily J Settlement Agreement • Provide an additional $3.5 million to DCF to expand the Hartford based programs statewide, bringing the total state commitment to the Emily J. settlement agreement in DCF to just over $6 million • In the Judicial Branch, the Governor’s budget includes $1.84 million to improve mental health services both in the girls’ detention facilities and alternatives to detention community-based facilities

44. Serving Connecticut’s Children • Other Improvements to the Juvenile Justice System • Funding is provided for new programs to serve girls involved in the juvenile justice system • Develop a small, self-contained, secure state-run facility to serve the most troubled girls including $1 million bond funds • Develop 3 new group homes to serve 4-6 girls each • Develop 12 new Specialized Treatment Foster Care slots • Funds are provided in the Judicial Branch to continue 3 federally funded programs with state dollars including: two 6-bed programs for a Court Diversion Initiative for Girls; 225 slots for Multi-Systemic Therapy for juvenile offenders; and 224 slots in Juvenile Risk Reduction Centers • $5 million in bond funds to initiate the planning and acquisition of new Treatment, Reintegration and Education (TREC) centers to replace CJTS

45. Valuing Our Environment • Governor Rell is continuing her commitment to preserve and enhance our environment and to maintain our state parks • Enacted FY 07 budget includes $15 million in bond funds to repair and enhance our state parks and $10 million in bond funds to preserve open space • Governor Rell is proposing to establish the Connecticut State Park Foundation in order to facilitate the creation of public/private partnerships to support the state park system

46. Valuing Our Environment • To further enhance and protect Long Island Sound and our lakes and rivers $100 million in revenue bonds and $20 million in general obligation bonds through the Clean Water Fund are available in FY 07 • Following Governor Rell’s recommendation in January 2006, the State Bond Commission allocated $87 million in Clean Water Funds – the largest single commitment in four years

47. Capital Investments • Governor Rell is committed to investing bond funds in key areas and staying well below Connecticut’s 90% statutory bond limit • Governor Rell is recommending: • An increase of $130.7 million in General Obligation (GO) Bond authorizations in addition to those already enacted by the General Assembly for a total of $1.43 billion GO bond authorizations for FY 07 • An increase of $70 million in Special Tax Obligation Bonds

48. Capital Investments • Proposed additional General Obligation Bond authorizations include: • Regional Fire Training Schools - $10 million • Remedial improvements at York Correctional Institution (Niantic) $25 million • Upgrade of DMV information systems - $17 million • Recapitalization of programs under new Connecticut Finance Collaborative - $25 million • Planning and acquisition of new Treatment, Reintegration and Education Centers (TREC) - $5 million • Developing a Hospital Information System for DMHAS - $4.7 million • Consolidated campus for Three Rivers Community College $3.8 million • Small, secure facility for girls in Juvenile Justice System - $1 million

49. Capital Investments • Total General Obligation Bond Authorizations for FY 07 include • Investing in Education • Local School Construction - $675 million, represents almost half of all GO authorizations for FY 07 • Community Technical College System - $101.7 million (includes an additional $3.8 million over previous FY 07 authorizations) • Connecticut State University System - $131.2 million • Total education-related authorizations are $921 million or 64% of total GO authorizations for FY 07

50. Capital Investments • Total General Obligation Bond Authorizations for FY 2006-07 also include: • Small Town Economic Assistance Program (STEAP) - $20 million • Open Space Preservation - $10 million • Farmland Preservation - $10 million • State Park improvements - $15 million • Housing Trust Fund - $20 million • Clean Water Fund - $20 million • Clean Water Fund will also include revenue bond authorizations of $100 million