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STATE OF CONNECTICUT 2009, 2010, 2011 Budget Issues

STATE OF CONNECTICUT 2009, 2010, 2011 Budget Issues. April 30, 2009. Legislature’s Budget Process (Governor Proposes, Legislature Decides). Connecticut Has a Biennial Budget Governor Submits Budget to Legislature in Odd Numbered Years

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STATE OF CONNECTICUT 2009, 2010, 2011 Budget Issues

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  1. STATE OF CONNECTICUT 2009, 2010, 2011 Budget Issues April 30, 2009

  2. Legislature’s Budget Process (Governor Proposes, Legislature Decides) • Connecticut Has a Biennial Budget • Governor Submits Budget to Legislature in Odd Numbered Years • Appropriations Committee Holds Hearings for Each State Agency • Subcommittees Review Budget Information • Subcommittees Report to the Appropriations Chairmen • Appropriations Chairmen Prepare Budget Recommendations • Budget Report Submitted to Full Appropriations Committee and Voted Upon • Finance Committee Produces Revenue Estimates and Capital Budget Bills • Appropriations and Finance Bills Submitted to House and Senate • Alternative Budgets May Be Presented by Minority Party • Legislative Leaders and Governor Negotiate Budget • House and Senate Debate and Adopt • Governor’s Signature or Veto (Returned to Legislature) 1

  3. The Spending Cap History • Legislature Passes Income Tax and Spending Limit/Cap in 1991 • Voters Approve by 4 to 1 a Constitutional Amendment to Limit State Spending in 1992 – Yet to Be Implemented by 3/5 Vote of House and Senate Key Features of the Cap • Calculated From Previous Year’s Base (Total Appropriated Funds) • Growth=Base Year Multiplied by 5-Year Rolling Average Income Growth (or Prior Year’s Inflation Rate, Whichever is Greater) • Excluded: Debt Payments, Grants to Distressed Municipalities and Federal Mandates and Court Orders (1st Year Only) Exceeding the Spending Cap • Governor is Required to Issue a Declaration of Extraordinary Circumstances or Emergency • Legislature along with the Governor Determines What Spending in Excess of the Cap Will Be Included or Excluded in the Base for Future Calculations • Legislature Must Approve Additional Spending by a 3/5 Majority. (91 Votes in the House and 22 Votes in the Senate) 2

  4. FY 09 General Fund Revenue Special Transportation Fund Not Included - $1.04 billion Total = $16,537.3 million Other Taxes, $562.1 3.4% Other Revenue, Gambling, $665.2 4.0% $697.6 4.2% Cigarette Tax, $325.0 2.0% Income Tax, $6,674.0 40.4% Federal Grants, $3,141.3 19.0% Oil Companies Tax, $81.4 0.5% Corporate and Business Sales and Use Tax, Taxes, $1,010.7 6.1% $3,380.0 20.4% 3 Data Source: Office of Fiscal Analysis Data Source: Office of Fiscal Analysis

  5. Major Budget Components for FY09 (In Millions) Legislative $76.0 0.4% Fringe Benefits $1,871.2 10.2% Other Misc. $239.4 1.3% (PILOT Grants, Workers’ Comp., Reserve for Salary Adjustment) General Govt. $607.8 3.3% Regulation & Protection $377.3 2.1% (DPS, Banking, Insurance, & others) Conservation & Development $108.7 0.6% (DEP, DECD, Tourism, & others) Health & Hospitals $1,686.5 9.2% (DPH, DDS, DMHAS, & others) Transportation $506.4 2.8% Debt Service $1,966.9 10.7% Judicial $553.1 3.0% Corrections $1,599.7 8.7% Education $3,809.8 20.8% ECS Grants $1,889.2 10.3% Higher Ed. $747.7 4.1% Human Services $4,950.4 27.0% Medicaid $3,763.8 20.1% SAGA $182.4 1.0% Temp. Assist. To Families $112.0 0.6% 4 Slide provided by the Office of Fiscal Analysis

  6. CT Income Tax Paid (2007 Income Year) Non-Fairfield County Fairfield County $2,860,778,549 $2,513,726,828 53.2% 46.8% 895,000 residents Grand Total Paid by 3.4 million State Residents = $5,374,505,377 Source: Connecticut Department Of Revenue Services 5

  7. Town Comparison and Return on Revenue(Income Year 2007) 6

  8. State revenues reflect previous 12 month economic activity 7

  9. FY 09 Tax Revenue Drop-Off$1.8 Billion Loss - $944 million current deficit 8 Data Source: OPM monthly letter to the State Comptroller

  10. General Fund Budget Projections FY 09 through FY 12As of February 2, 2009(in millions) • FY 2009 FY 2010 FY2011 FY 2012 • Revenue 15,608 14,551 14,787 15,657 • Expense 16,961 18,519 19,500 20,479 • Deficit(1,353) (3,068) (4,713) (4,822) • % of Budget 8% 21% 24% 24% 9

  11. Spending Increases (In Millions) Data Source: Office of Fiscal Analysis U.S. Bureau of Labor Statistics 10

  12. Shortfall $135.3 Proposed Rainy Day Fund $281.7 Potential Rainy Day Fund Exposure $417.0 Uncertain Measures $300.1 Total Potential Rainy Day Fund Exposure $717.1 11

  13. “State government does not need to tighten its belt. It needs to go on a permanent diet in order to sustain a longer life.” ~ Nick Perna CT Economist 12

  14. Governor Rell’s FY 2010-2011 Budget Proposal • No Tax Increases • Maintain Current Funding to Towns • Eliminate and Consolidate State Agencies and Commissions • Cancel a Significant Amount of Pending State Bonding • Seek Concessions from State Employee Unions • Eliminate Many Existing and Vacant State Employee Positions • Financial Incentives to Towns that Voluntarily Regionalize Services • Require 2/3rds Vote to Impose New, Costly Mandates • Delay In-School Suspension & “Raise-the-Age” Mandates • Suspend Binding Arbitration for Towns for 2 Years 82% of CT Residents Agree: it is time to shrink the size of state government (Quinnipiac Poll 2/10/09) 13

  15. Democrat 2010-2011 $3.3 Billion Tax Increase Proposal • Increase in Taxes: • New tiered income tax brackets increase up to 7.95% • 30% Additional Surcharge on the Corporation Tax • 30% Additional Surcharge on Estate and Gift Tax • Eliminates the Property Tax Credit • Sales Tax on Clothing • Elimination of more than 50 Sales Tax Exemptions • Other: • No Consolidations and Eliminations of State Agencies or Commissions • Accepts some of the Governor’s Spending Cuts • Borrows to pay Debt and uses all of our Rainy Day Funds 14

  16. Republican FY 2010-2011 No Tax Increase Budget Proposal • Budget Priorities: • No Tax Increases • Freezes State Employee Wages for 18 months • Requires 6 annual furlough days • Raises State employee medical co-pays: • CurrentProposed Generic Rx Drugs $3 $6 Name Brand Rx Drugs $6 $20 Doctor Visits $10 $30 • Outsources some Social Services • Levels funding for Schools and Towns • Provides some relief from State Mandates • In addition to consolidations suggested by the Governor, Republican’s Propose: • Consolidating state agencies from 23-6 • Impose a hard hiring freeze of state employees 15

  17. Governor & Union Concessions (4/24/09) • RIP: (Retirement Incentive Program) If you're otherwise eligible to retire, the RIP adds 3 years of credit.  • Three-tiered prescription drug co-pays to: $5, $10, $25. • Health care premiums increased by $350 per year. • "Preferred Plan" closed to future retirees. • Retirement age/years of service stays the same for those directly transitioning from state employment to retirement (55 with 10 years of service). • Anyone with less than 5 years of service will now pay 3% of their salaries to a retiree health care fund until they have 10 years of service.  • State may choose to self-insure. • Defers $14.5 million FY09 payment to OPEB liability, and reduces SERS payments by $50 million this year, $64.5 million in FY 10.  • No layoffs through 6/30/11. • Wage freeze for FY 10. • 7 furlough days between now and expiration of the biennium. • Triggers for further negotiations if revenues are $300 million or more below • adopted budget. 16

  18. Tax Policy Drives Connecticut’s EconomyIncome Tax Enacted in 1991 • State and Local and Tax Burden-Connecticut ranked 24th in 1977, 18th in 1991, jumped to 5th in 1992, and has been in the top 3 since 1995 (State Income Tax Enacted in 1991) • If you add the Federal Tax Burden, Connecticut ranks #1 • Connecticut’s Tax Freedom Day is April 30th- the latest in the country • Connecticut’s Population Changes: • 1980-1990 + 5.6% • 1990-1995 0.0% • 1995-2000 +3.6% • 2000-2005 +2.6% • 2005-2007 +0.45% • Connecticut’s Employment Changes: • 1980-1985 +9.20% • 1990-1995 -3.60% (Introduction of Income Tax) • 2000-2005 -1.80% • 2005-2009 +.003% 17 Sources: US Census, the Internal Revenue Service, CT Dept. of Revenue, CT Dept. of Labor, and Secretary of the State

  19. Tax Policy Drives Connecticut’s EconomyConnecticut Business Changes Business Size 1993 2006 % Change Over 1000 90 94 +4% 500-999 135 113 -16% 250-499 374 369 -1% Source: Census County Business Pattern Prepared by DECD Small Business Start Ups from 2006 – 2008 2006 2008 % Change 30,578 27,457 -10% Small Business Closings from 2006 – 2008 2006 2008 % Change 10,208 13,439 31% Nearly 3,500 Businesses Shut their Doors in the 1st Quarter of 2009 16% Increase in Closings over 2008 1st Quarter Data 18 Source: Secretary of the State

  20. Tax Policy Drives Connecticut’s EconomyRe-Introduction of Estate Tax in 2005 • Example: • Estate tax filers dropped from 2,124 in 2002 to 770 in 2007 • 1995-2000 +33.50% number of state tax filers • 2006-2007 -25.54% number of state tax filers • 893 Residents left Connecticut in 2002/2003 (before the re-introduction of the estate tax) • 12,800 Residents left Connecticut in 2005 (the year the estate tax was re-introduced into law) • 16,770 households left CT and moved to Florida between 2005-2008 (Florida has no income or estate tax) • 76% cited the income and estate tax as their reason for leaving the state 19

  21. Tax Policy Drives Connecticut’s Economy Effects on Housing in CT from 1980-2009 Housing Permits down 50% in last year, 4th Consecutive Decline (DECD) 20

  22. “The best prospects for our people are education, industriousness and self-reliance” ~ Booker T. Washington That is as true today as it was in 1901 21

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