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

STATE OF CONNECTICUT

2009, 2010, 2011 2009, 2010, 2011 Budget Budget

Issues 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• 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)

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The Spending CapHistory• 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)

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Data Source: Office of Fiscal Analysis

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FY 09 General Fund Revenue

Data Source: Office of Fiscal Analysis

Special Transportation Fund Not Included - $1.04 billionTotal = $16,537.3 million

Corporate and Business

Taxes, $1,010.7 6.1%

Income Tax, $6,674.0 40.4%

Sales and Use Tax, $3,380.0 20.4%

Oil Companies Tax,

$81.4 0.5%

Cigarette Tax, $325.0 2.0%

Gambling, $665.2 4.0%

Other Taxes, $562.1 3.4% Other Revenue,

$697.6 4.2%

Federal Grants, $3,141.3 19.0%

Fringe Benefits $1,871.2 10.2%Other Misc. $239.4 1.3%(PILOT Grants, Workers’ Comp., Reserve for Salary Adjustment)

Debt Service $1,966.9 10.7%

Judicial $553.1 3.0%

Corrections $1,599.7 8.7%

Transportation $506.4 2.8%

Health & Hospitals $1,686.5 9.2%(DPH, DDS, DMHAS, & others)

Legislative $76.0 0.4%

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)

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%

Major Budget Components for FY09

Slide provided by the Office of Fiscal Analysis4

(In Millions)

CT Income Tax Paid (2007 Income Year)

Fairfield County

$2,513,726,828

46.8%

Non-Fairfield County$2,860,778,549

53.2%

Source: Connecticut Department Of Revenue Services

Grand Total Paid by 3.4 million State Residents = $5,374,505,377

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895,000 residents

Town Comparison and Return on Revenue

(Income Year 2007)

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Municipality State Aid To Municipality Income Tax Paid Sales and Use Tax PaidTotal State Taxes Paid Difference Direct Return(Fiscal Year 2007) (Income Year 2007) (Income Year 2007) (SUT + Income Tax) (Aid Received - Taxes Paid) (on Investment)

Bethel $9,160,525 $21,653,195 $7,426,452 $29,079,647 ($19,919,122) $0.32

New Canaan $2,282,746 $185,884,428 $10,073,631 $195,958,059 ($193,675,313) $0.01

Redding $1,004,861 $33,723,191 $1,809,143 $35,532,334 ($34,527,473) $0.03

Ridgefield $3,351,116 $82,838,621 $14,987,564 $97,826,185 ($94,475,069) $0.03

Weston $1,654,904 $66,341,389 $1,375,491 $67,716,880 ($66,061,976) $0.02

Westport $2,929,232 $174,016,718 $47,316,407 $221,333,125 ($218,403,893) $0.01

Wilton $3,394,519 $89,185,640 $18,550,262 $107,735,902 ($104,341,383) $0.03

Bridgeport $183,398,650 $48,583,289 $51,996,592 $100,579,881 $82,818,769 $1.82

Hartford $229,972,958 $41,620,266 $119,483,249 $161,103,515 $68,869,443 $1.43

New Haven $179,792,547 $65,671,290 $130,074,116 $195,745,406 ($15,952,859) $0.92

7State revenues reflect previous 12 month economic activity

FY 09 Tax Revenue Drop-Off

$1.8 Billion Loss

Data Source: OPM monthly letter to the State Comptroller8

$12,569.2

$12,374.0

$11,533.1

$12,694.4

$12,573.7 $12,419.0

$12,971.1

$11,191.5

$11,460.0

$11,000.0

$11,400.0

$11,800.0

$12,200.0

$12,600.0

$13,000.0

BudgetedRevenue

(June2007)

Aug-08 Sep-08 Oct-08 Nov-08 Dec-08 Jan-09 Feb-09 Mar-09

- $944 million current deficit

General Fund Budget Projections FY 09 through FY 12As of February 2, 2009

(in millions)

» FY 2009 FY 2010 FY2011FY 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

Spending Increases

FY 03 FY 09%

Increase

Medicaid $2,703 $3,764 39.3%

State Employee Salaries $2,211 $3,187 44.1%

Education Cost Sharing (ECS) $1,515 $1,889 24.7%

Debt Service $1,396 $1,967 40.9%

Health Care - Retired State Employees $240 $484 101.7%

Health Care - State Employees $288 $500 73.6%

State Employee Pensions $286 $504 76.2%

Total Inflation (Avg. Rate of Inflation 2003-2009 is 2.9%)

18.7%

Data Source: Office of Fiscal Analysis U.S. Bureau of Labor Statistics10

(In Millions)

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Shortfall $135.3Proposed Rainy Day Fund $281.7

Potential Rainy Day Fund Exposure $417.0

Uncertain Measures $300.1

Total Potential Rainy Day Fund Exposure $717.1

“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

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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)

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Democrat 2010-2011 $3.3 Billion Tax Increase Proposal

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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

Republican FY 2010-2011 No Tax Increase Budget Proposal

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Budget Priorities:•No Tax Increases•Freezes State Employee Wages for 18 months•Requires 6 annual furlough days•Raises State employee medical co-pays:

Current Proposed

Generic Rx Drugs $3 $6Name Brand Rx Drugs $6 $20Doctor 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

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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.

Tax Policy Drives Connecticut’s EconomyIncome Tax Enacted in 1991

Sources: US Census, the Internal Revenue Service, CT Dept. of Revenue, CT Dept. of Labor, and Secretary of the State17

•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%

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%

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%

Source: Secretary of the State

Source: Census County Business PatternPrepared by DECD

Nearly 3,500 Businesses Shut their Doors in the 1st Quarter of 200916% Increase in Closings over 2008 1st Quarter Data

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Example:

Estate tax filers dropped from 2,124 in 2002 to 770 in 2007

1995-2000 +33.50% number of state tax filers2006-2007 -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

Tax Policy Drives Connecticut’s EconomyRe-Introduction of Estate Tax in 2005

CT Housing Permits Issued - 1980 to 2009After 2004, total state #s no longer counted on monthly basis.

Lower #s count only 128 monthly reporting municipalities - historical data for these 128 municipalities

from 2002 show trend line; 2008, 2009 = est.

9,7

00

16,9

27

19,3

92 26,2

46

30,1

63

27,4

15

19,5

47

12,6

10

8,0

52

7,7

00

8,2

59

8,9

72

9,4

43

8,3

66

7,7

14

9,0

54

10,7

94

9,3

11

9,2

54

9,6

07

9,9

85

11,9

58

11,6

71

9,2

36

7,7

46

5,6

26

5,5

001

1,5

41

10,4

00

10,6

00

0

5,000

10,000

15,000

20,000

25,000

30,000

35,000

19

80

19

82

19

84

19

86

19

88

19

90

19

92

19

94

19

96

19

98

20

00

20

02

20

04

20

06

20

08

Tax Policy Drives Connecticut’s EconomyEffects on Housing in CT from 1980-2009

Housing Permits down 50% in last year, 4th Consecutive Decline (DECD)

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“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

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