OFFICE OF FISCAL ANALYSIS

Legislative Office Building, Room 5200

Hartford, CT 06106 (860) 240-0200

http: //www. cga. ct. gov/ofa

sHB-6585

AN ACT CONCERNING REGIONALISM.

As Amended by House "A" (LCO 7685)

House Calendar No. : 309

OFA Fiscal Note

State Impact:

Agency Affected

Fund-Effect

FY 10 $

FY 11 $

FY 12

Department of Revenue Services

GF - Revenue Loss

None

None

See Below

Department of Revenue Services

GF - Cost

None

See Below

See Below

Note: GF=General Fund

Municipal Impact:

Municipalities

Effect

FY 10 $

FY 11 $

Various Municipalities

Revenue Gain

See Below

See Below

Various Municipalities

Cost/Savings

See Below

See Below

Explanation

The bill as amended allows two or more municipalities that belong to the same federal economic development district to enter into mutual agreements to; (1) promote regional economic development and (2) share the real and personal property tax revenue from new economic development.

This could result in a revenue impact to certain municipalities who are eligible to enter into such an agreement and choose to share property tax revenue with their partner municipality. The revenue impact is dependent on the stipulations of the agreement and the location and extent of new economic development in the participating municipalities.

The bill also requires each municipality choosing to enter into an agreement to meet various requirements including participation in at least two cooperative programs with their partner municipality. These provisions may result in an impact on the costs incurred by the municipalities.

It is anticipated that the Office of Policy and Management can approve regional economic development plans and determine whether towns that enter mutual agreements are consistent with provisions of the bill within the agency's normal budgetary resources.

The bill will result in a revenue gain to municipalities from federal Economic Development Administration (EDA) Funds to the extent; 1) the bill provides an incentive to municipalities to enter into Economic Development Districts (EDD), 2) the state approves the formation of EDD, 3) the bill requires the state to approve EDD plans, and 4) the federal government provides funding for the EDD plans.

House “A” changes the effective date of Section 4 of the underlying bill from July 1, 2010 to July 1, 2011. This will postpone for one year; 1) a significant cost to the Department of Revenue Services (DRS), 2) the potentially significant revenue loss to the General Fund from the sales and use tax, and 3) the corresponding revenue gain to municipalities from the sales and use tax.

In addition, House “A” removes section 6 of the underlying bill. This eliminates; 1) a potential revenue gain to all municipalities of $6 million to $6. 5 million per year beginning in FY 10, and 2) a cost to DRS of approximately $430, 000 in FY 10.

The Out Years

In addition, the bill requires the Department of Revenue Services (DRS) to enter into a memorandum of understanding (MOU) with each municipality participating in an approved agreement to segregate a portion of the sales and use tax derived in the participating municipalities, effective July 1, 2011. This may result in a significant annual revenue loss to the General Fund from the sales and use tax beginning in FY 12. The revenue loss to the General Fund will coincide with an equal revenue gain to municipalities participating in these agreements. The revenue loss to the General Fund is unknown because the bill does not specify an amount or a method of determining the amount.

Section 4 of the bill creates a fundamental change in the way sales and use tax is collected by both the DRS and retailers. DRS would have to make significant changes in their Integrated Tax Administration System (ITAS), their collection methods, and their audit procedures. The total cost to DRS is indeterminate but it is likely to be significant.

The annualized ongoing fiscal impact identified above would continue into the future subject to inflation.

The preceding Fiscal Impact statement is prepared for the benefit of the members of the General Assembly, solely for the purposes of information, summarization and explanation and does not represent the intent of the General Assembly or either chamber thereof for any purpose. In general, fiscal impacts are based upon a variety of informational sources, including the analyst's professional knowledge. Whenever applicable, agency data is consulted as part of the analysis, however final products do not necessarily reflect an assessment from any specific department.