OFFICE OF FISCAL ANALYSIS

Legislative Office Building, Room 5200

Hartford, CT 06106 (860) 240-0200

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

HB-6602

AN ACT CONCERNING DEFICIT MITIGATION MEASURES FOR THE FISCAL YEAR ENDING JUNE 30, 2009.

As Amended by House “A” (LCO 4212),

and House “B” (LCO 4241)

OFA Fiscal Note

State Impact:

Agency Affected

Fund-Effect

Various State Agencies

General Fund; Other Funds - See Below

Municipal Impact: See Below

Explanation

The bill makes modifications and revenue adjustments to the FY 09 budget. The various changes will result in a $134. 3 million net reduction in the anticipated FY 09 General Fund deficit. The table below identifies $73. 7 million in expenditure reductions and $60. 6 million in increased revenue to the General Fund:

Fiscal Impact of General Fund (GF) Expenditures and Revenue Changes

 

Amount

Expenditure Savings:

 

Reduction to Carry Forwards (FY 07 surplus appropriation)

$3,500,000

Reduction in FY 09 Appropriation

8,859,370

Contract Cancellation Savings

50,000,000

Other Savings

11,343,500

Subtotal Expenditure Savings

$73,702,870

Increased Revenue:

 

Transfer from Funds/Accounts

54,322,000

Other Revenue

6,300,000

Subtotal Increased Revenue

$60,622,000

   

Total Impact

$134,324,870

Further Explanation - OFA's projected FY 09 deficit as of 2/2/09 was $1,353. 2 million. Passage of this bill would reduce this deficit by $134. 3 million to $1,218. 9 million. The bill also identifies a potential $220 million or more transfer of non-appropriated funds to the General Fund, which, if achieved, could further lower the deficit to $998. 9 million (assuming $220 million is transferred). Subsequent deficit mitigation actions including federal revenue assumptions, Governor's additional recisions and lapses, and potential union concessions requiring negotiations, along with this bill could lower OFA's deficit estimate to $417 million assuming savings/transfers are available in certain categories and will be achieved.

As a result of changes to the FY 09 all funds appropriations contained in the bill, the state budget is under the spending cap by $60. 8 million.

Below is a section by section explanation of the fiscal impact of the bill.

Section 1 reduces the General Fund appropriation for FY 09 by $8,859,370. Reductions are made to various agencies and accounts identified in the bill. This section also increases the Legislative lapse by $1,070,500.

Section 2 requires the Appropriations Committee to review all nonappropriated funds and accounts and make recommendations to the General Assembly on or before March 25, 2009 concerning the transfer of available balances to the General Fund of not less than $220 million. It also requires state agencies to report information as determined by the committee before March 11, 2009 and requires the recommendations to be voted on by the General Assembly by June 30, 2009.

OFA has identified a total of $1. 6 billion (in FY 08 balances) reflected in the state comptroller's reports, not including appropriated funds, retirement funds, the budget reserve fund and federal or restricted funds. To date OFA has reviewed $717. 0 million of the $1. 6 billion total and has identified $200. 0 million in projected FY 09 fund balances that have been generally maintained for the last three fiscal years. It should be noted that the last two deficit mitigation plans (PA 08-1 NSS and PA 09-1), removed $34. 4 million of this total for a net projected balance of $165. 6 million.

OFA is currently reviewing the remaining $911. 4 million to identify additional fund balances that may exist from year to year. Although OFA is unable to estimate how much in additional balances may be available, it is not unreasonable to expect that the total end of year FY 09 fund balances would exceed $200. 0 million.

Section 3 requires the Secretary of OPM to reduce contract expenditures by $50. 0 million and defer purchases, including equipment, by $8. 0 million in executive branch agencies in FY 09.

Section 4 limits State Police meal allowances to that which is required by collective bargaining contracts. This results in an estimated savings to the Department of Public Safety of $71,828 in FY 09 and $278,313 in FY 10 (savings reflected in section 1).

Section 5 removes the statewide narcotics task force from the list of entities eligible to receive grants via the Office of Policy and Management's Drug Enforcement Program (DEP). That program has not been funded since FY 04 and no funds are contained within the Governor's proposed budget for FY 10 and FY 11. To the extent that the DEP is funded in future years, passage of this provision would preclude grant awards through the DEP to the statewide narcotics taskforce. Note that in the current year, funding, in the amount of $238,800, to a line item within the Department of Public Safety supports the statewide narcotics task force. The Governor's recommended 2009 – 2011 biennial budget eliminates this funding.

Section 6 eliminates General Fund support for tobacco prevention and enforcement positions. Funding for these positions will be provided through the Drug Asset Forfeiture account (a restricted non-lapsing account). Section 1 reduces the Department of Mental Health and Addiction Services' Personal Services account by $69,544 for these positions.

Section 7 merges the administrative functions at River Valley Services and the Middletown Campus of the Connecticut Valley Hospital. Section 1 reduces the Department of Mental Health and Addiction Services' Personal Services account by $56,841 to reflect this change.

Section 8 requires the Department of Social Services (DSS) to mirror federal policy concerning non-payment for certain hospital-acquired conditions under the Medicaid program. This change is expected to save $425,000 in FY 09, with an annualized savings of approximately $1. 7 million (reduction reflected in section 1).

Section 9 establishes a Commission on Enhancing Agency Outcomes, which is responsible for: 1) identifying functional overlaps and redundancies among state agencies and 2) examining the mergers of the Departments of Social Services and Mental Health and Addiction Services, as well as the Connecticut Commission on Culture and Tourism, portions of the Office of Workforce Development, and the Department of Economic and Community Development. Staff from the General Assembly will serve as administrative staff for the Commission. It is anticipated that the state agencies involved with the Commission will incur minimal administrative expenses related to their participation.

Section 10 requires the Commissioner of Correction to examine earned credit and risk reduction programs in other states and report various criteria concerning the study of these programs to the judiciary committee by April 1, 2009. This section also requires the commissioner to report on the reestablishment of reentry furloughs to the same committee by the same date. The study and formulation of these reports has no fiscal impact.

Section 11 carries forward $165,000 into FY 10 under the Department of Education for the Early Childhood Advisory Cabinet for the purposes of research and evaluation.

Section 12 transfers $54. 3 million from various funds/accounts to the General Fund. This will result in a revenue gain to the General Fund in FY 09 and a corresponding reduction in available resources of the funds/accounts identified in the following table.

Fund Account

Amount

Local Bridge Revolving Fund – loan program

$28,000,000

Citizen's Election Fund (CEF)

$1,000,000

Connecticut Health and Educational Facilities Authority

$12,250,000

Transportation Strategy Board Fund projects account

$4,000,000

Client Security Fund

$2,000,000

Criminal Injuries Fund

$1,000,000

Insurance Fund

$1,000,000

Tobacco and Health Trust Fund

$572,000

Consumer Counsel and Public Utility Fund

$1,500,000

Workers' Compensation Fund

$3,000,000

Total Funds Transfer

$54,322,000

Section 13 eliminates General Fund support for the Department of Mental Health and Addiction Services' Regional Action Council account and the Governor's Partnership to Protect Connecticut's Workforce account. Funding for these accounts will instead be provided through the Pre-Trial Alcohol and Education account (a restricted non-lapsing account). Section 1 reduces the Department of Mental Health and Addiction Services' Regional Action Councils account by $50,000 and the Governor's Partnership to Protect Connecticut's Workforce account by $80,000 to reflect this change.

Section 14 reduces the Department of Public Health's carry forward funding by $1. 3 million for an electronic vital record registry system.

Sections 15 and 16 require the Department of Social Services (DSS) to increase the income disregards for Medicare Savings Programs to income limits in effect for the ConnPACE program. This change will allow certain people currently eligible for ConnPACE (a 100% state funded program) to access pharmaceuticals under the Low Income Subsidy portion of the federal Medicare Part D program.

DSS currently pays the monthly Medicare Part B premiums, co-pays and deductibles for most of the clients in the Medicare Savings Program. These costs are funded through a combination of Medicaid (50% federal/50% state) and a federal block grant under the Additional Low-Income Medicare Beneficiary (ALMB) Program. It is anticipated that through an increase in the income disregard (and a related elimination of asset requirements under the Medicare Savings Programs that is assumed to be mandated by the federal government), enrollment in the Medicare Savings Programs may increase by 39,000 clients annually. Through a full utilization of the ALMB block grant and the federal share under Medicaid, adding these clients will result in net increased programmatic costs to the state of $76 million. Assuming the enhanced federal match (60%) implemented under the federal American Recovery and Reinvestment Act of 2009 (ARRA), this would result in a net state cost of $30. 4 million.

This cost will be offset by the elimination of the ConnPACE costs for up to 20,700 clients who may choose to move to the Medicare Savings Program. The ConnPACE savings is estimated to be $35 million annually. Therefore, it is estimated that the eligibility changes in this bill, by shifting current state-only costs to a combination of federal and state funds, will have a net state programmatic saving of approximately $4. 6 million annually.

This savings will be partially offset by additional administrative expenses related to the initial transfer of people from the ConnPACE program to the Medicaid Savings Program. This cost is expected to be $450,000 annually.

It is expected the DSS will incur approximately one quarter of the projected administrative costs, $112,500, during FY 09. Assuming the department can expedite implementation of the policy, it is expected that they will realize only one month worth of savings for FY 09 of $383,333. Therefore, this proposal is expected to have a net savings of $270,833 in FY 09.

Sections 17-21 expands the beverage container redemption law to include water, flavored water, and nutritionally enhanced water, effective April 1, 2009. This is anticipated to result in a General Fund revenue gain of $3. 8 million in FY 09 (partial year) and $17. 1 million beginning in FY 10 due to an increase in unclaimed bottles deposits that are anticipated to be transferred to the state. The estimates are based on: (1) additional total annual deposits of $28. 5 million from these beverage containers, (2) annual refunds of $11. 4 million to consumers (a redemption rate of 40%), which would result in (3) annual total unclaimed deposits of $17. 1 million.

It should be noted that the bill permits the Governor or the Secretary of the Office of Policy and Management to delay implementation of the bill's requirements for noncarbonated beverage containers until October 1, 2009. Any such delay would result in a revenue loss with respect to the estimates provided above.

To the extent that the bill expands the beverage container redemption law to certain types and sizes of water, the Department of Environmental Protection (DEP) could incur costs of $30,000 in FY 09 for additional revisions to their accounting systems.

Section 22 requires the Secretary of OPM to notify the General Assembly if any portions of this bill adversely affect the state's ability to draw down federal funds under ARRA. This requirement has no associated fiscal impact.

Section 23 reduces from 5% to 4% the sales commission paid to lottery agents, effective April 1, 2009. This is anticipated to result in a reduction in expenses to the Connecticut Lottery Corporation and an increase in revenue transferred to the General Fund1 of $2. 5 million in FY 09 (partial year) and $10 million beginning in FY 10.

It should be noted that if the reduction in the sales commission paid to retailers has a negative impact on lottery sales then this would result in a corresponding reduction in the amount transferred to the General Fund.

Section 24 reduces funds carried forward from the FY 07 surplus to FY 09 by $2. 0 million under the Department of Environmental Protection for Clean Diesel Buses.

Section 24 also reduces funds carried forward from the FY 07 surplus to FY 09 by $200,000 for the School Security Grant Program. PA 08-1 and PA 09-1 previously reduced this amount by $3. 0 million.

Section 25 transfers $1. 8 million of School Security Grant funding from the Department of Education to the Department of Emergency Management and Homeland Security to be distributed to eligible towns no later than April 1, 2009.

Section 26 corrects an error related to WACE Technical Training Center in Waterbury. Section 98 of PA 07-1 JSS included language making WACE eligible to receive $300,000 under the Adult Education Grant. The language included in Section 98 incorrectly referenced 2007 and 2008 rather than 2008 and 2009. The money is available within the Adult Education Grant; therefore this section does not result in a fiscal impact.

Section 27 repeals the High School Technology Initiative. The initiative involves in the use of technology in providing computer-assisted writing, instruction and testing in the 9th and 10th grades. It is anticipated that eliminating the initiative will result in a state savings of approximately $850,000 in FY 09, which reflects a revenue loss to local and regional school districts. The agency's FY 09 appropriation for this purpose is reduced by this amount in Section 1.

Section 27 also repeals an FY 09 appropriation of $2 million for weatherization. It is anticipated that federal funding for weatherization available under ARRA will be used for this purpose.

House “A” strikes the underlying bill and replaced it with the provisions and associated fiscal impact identified above.

House “B” eliminates a transfer from Connecticut Development Authority to the General Fund in FY 09 and will result in a corresponding reduction in revenue. The amendment increases the amount transferred from $200 million to $220 million in nonappropriated funds to the General Fund. Since this transfer is dependent upon action by the General Assembly, the extent to which additional funds will be recommended to be transferred is unknown.

The amendment makes further technical changes that will not result in a fiscal impact.

The Out Years

The ongoing fiscal impact associated with the bill is anticipated to exceed $44. 2 million in deficit mitigation in FY 10. The extent to which other unidentified savings are achieved in the out years is unknown. It should be noted that any reduction to certain other funds may have an ongoing impact to investment interest earnings.

Source: Governor's Deficit Mitigation Plan for Fiscal Year 2009 dated February 19, 2009; CORE-CT Financial Accounting System; OFA February 2, 2009 FY 09-FY 12 General Fund and Transportation Fund Budget Projections and Fiscal Information; OFA Budget Book 2007 – 2009 Biennium; Department of Social Services caseload information.

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.

1 The Connecticut Lottery Corporation transfers proceeds from lottery sales net of expenses to the General Fund.