OFFICE OF FISCAL ANALYSIS

Legislative Office Building, Room 5200

Hartford, CT 06106 (860) 240-0200

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

HB-6802

AN ACT CONCERNING EXPENDITURES AND REVENUE FOR THE BIENNIUM ENDING JUNE 30, 2011.

As Amended by House "A" (LCO 9648) and House “C” (LCO 9659)

OFA Fiscal Note

State Impact: See Explanation Below

Municipal Impact: See Explanation Below

Explanation

The bill makes appropriations, revenue, and other budget related changes as identified below for FY 10 and FY 11.

FUND BALANCE

 

FY 10 $

FY 11 $

General Fund

   

Revenue

17,375,400,000

17,591,900,000

Appropriations

17,374,582,736

17,591,035,710

Difference

817,264

864,290

Transportation Fund

   

Revenue

1,106,500,000

1,173,200,000

Appropriations

1,106,420,335

1,172,189,514

Difference

79,665

1,010,486

Banking Fund

   

Revenue

22,100,000

20,600,000

Appropriations

19,641,148

20,573,086

Difference

2,458,852

26,914

Insurance Fund

   

Revenue

25,700,000

26,700,000

Appropriations

25,652,871

26,617,652

Difference

47,129

82,348

Consumer Counsel & Public Utility Fund

   

Revenue

24,600,000

25,200,000

Appropriations

23,229,776

23,957,386

Difference

1,370,224

1,242,614

Workers' Compensation Fund

   

Revenue

22,700,000

23,100,000

Appropriations

22,614,564

23,072,391

Difference

85,436

27,609

Mashantucket Pequot and Mohegan Fund

   

Revenue

61,800,000

61,800,000

Appropriations

61,779,907

61,779,907

Difference

20,093

20,093

Soldiers, Sailors and Marines Fund

   

Revenue

3,000,000

3,000,000

Appropriations

2,978,468

2,997,543

Difference

21,532

2,457

Regional Market Operations Fund

   

Revenue

1,000,000

1,000,000

Appropriations

928,942

957,073

Difference

71,058

42,927

Criminal Injuries Compensation Fund

   

Revenue

3,200,000

3,500,000

Appropriations

3,132,410

3,408,598

Difference

67,590

91,402

Revenue Summary

The bill results in a net General Fund revenue gain of $2. 9781 billion in FY 10 and $2. 585 billion in FY 11.

The bill results in a net Special Transportation Fund revenue gain of $69. 6 million in FY 10 and $112. 6 million in FY 11.

The revenue identified above reflects policy changes, federal revenue changes reflected in the budget, and transfers from other funds. Further detail on the revenue policy provisions are included below in sections 88 - 126.

Appropriations Summary

FY 10 All Funds Appropriations Included in the Bill

Fund

FY 10 Gross Appropriations

Less: Lapse & Other Reductions

FY 10 Net Appropriations

General Fund

$17,847,876,530

($473,293,794)

$17,374,582,736

Transportation

1,127,648,314

(21,227,979)

1,106,420,335

Banking

19,641,148

 

19,641,148

Insurance

25,652,871

 

25,652,871

Cons. Counsel & Public Utility

23,229,776

 

23,229,776

Workers' Compensation Com.

22,614,564

 

22,614,564

Mash. Pequot & Mohegan

61,779,907

 

61,779,907

Soldiers, Sailors and Marines'

2,978,468

 

2,978,468

Regional Market

928,942

 

928,942

Criminal Injuries Comp.

3,132,410

 

3,132,410

TOTAL

19,135,482,930

(494,521,773)

18,640,961,157

FY 10 General Fund Lapses Identified Above:

Reduce Outside Consultant Contracts

($95,000,000)

Estimated Unallocated Lapse

(87,780,000)

Enhancing Agency Outcomes

(3,000,000)

General Personal Services Reduction

(14,000,000)

General Other Expenses Reduction

(11,000,000)

Personal Services Reduction

(190,977,440)

Legislative Unallocated Lapse

(2,700,000)

DOIT Lapse

(30,836,354)

Management Reduction

(10,000,000)

Reduce Other Expenses to FY 07 Levels

(28,000,000)

TOTAL GF Lapse

($473,293,794)

FY 11 All Funds Appropriations Included in the Bill

Fund

FY 11 Gross Appropriations

Less: Lapse & Other Reductions

FY 11 Net Appropriations

General Fund

18,121,398,800

($530,363,090)

17,591,035,710

Transportation Fund

1,193,603,042

(21,413,528)

1,172,189,514

Banking

20,573,086

 

20,573,086

Insurance

26,617,652

 

26,617,652

Cons. Counsel & Public Utility

23,957,386

 

23,957,386

Workers' Compensation Com.

23,072,391

 

23,072,391

Mash. Pequot & Mohegan

61,779,907

 

61,779,907

Soldiers, Sailors and Marines'

2,997,543

 

2,997,543

Regional Market

957,073

 

957,073

Criminal Injuries Comp.

3,408,598

 

3,408,598

TOTAL

19,478,365,478

($551,776,618)

18,926,588,860

FY 11 General Fund Lapses Identified Above:

Reduce Outside Consultant Contracts

($95,000,000)

Estimated Unallocated Lapse

(87,780,000)

Enhancing Agency Outcomes

(50,000,000)

General Personal Services Reduction

(14,000,000)

General Other Expenses Reduction

(11,000,000)

Personal Services Reduction

(193,664,492)

Legislative Unallocated Lapse

(2,700,000)

DOIT Lapse

(31,718,598)

Management Reduction

(12,500,000)

Reduce Other Expense to FY 07 Levels

(32,000,000)

TOTAL GF Lapse

($530,363,090)

Spending Cap

The budget, on an all funds basis, is under the spending cap in FY 10 by $852. 4 million and $587. 0 million in FY 11.

Growth Rate

The adjusted growth rate for all appropriated funds is -1. 1% in FY 10 and 1. 9% in FY 11. Adjustments include carry forward funding anticipated to be expended in each fiscal year and the shifting of costs to and from other funds or fiscal years.

Section

Agency

Description

21

SDE/DDS

Permits $1 million of federal IDEA funds to be transferred to DDS for the Birth-to-Three Program in FY 10 & FY 11.

22

SDE

Up to $300,000 is available for spending by WACE Technical Training Center under Adult Education Grant.

Impact: Technical change in order to distribute funding.

23a

SDE

Distributes $117,237,188 in priority school district grants for FY 10.

23b

SDE

Distributes $117,237,188 in priority school district grants for FY 11.

24

DHE

The amount of funds available for expenditure from the student protection account shall be $245,000 in FY 10 & $257,000 in FY 11.

25(a)(b)(c)

DHE

CT Independent College Student Grant distribution; up to $500,000 shall be transferred from CT Independent College Student Grant to Opportunities for Veterinary Medicine in FY 10 & FY 11.

26

DMV

Carries forward the unexpended balance of funds for Commercial Vehicle Information System and Networks Projects for FY 10 & FY 11.

Impact: Estimated amount carried forward in the Transportation Fund is $193,000.

27a

DMV

Carries forward the unexpended balance of funds for DMV's registration & drivers license data processing systems for FY 10 & FY 11.

Impact: Estimated amount carried forward in the Transportation Fund is $1,205,000.

27b

DMV

Up to $7 million of the unexpended balance of funds previously appropriated to DOT for Personal Services is carried forward and transferred to the DMV reflective license plates account for registration & drivers license data system for FY 10 & FY 11.

Impact: Estimated amount carried forward in the Transportation Fund is $7,000,000.

27c

DMV

Up to $8. 5 million of the unexpended balance of funds previously appropriated for Debt Service is carried forward and transferred to the DMV reflective license plates account for registration and license data system for FY 10 & FY 11.

Impact: Estimated amount carried forward in the Transportation Fund is $8,500,000.

28a

DOB

Carries forward up to $750,000 in Other Expenses funds for the Department of Banking for new office lease improvements for FY 10.

Impact: Estimated amount carried forward is $750,000.

28b

DOB

Carries forward up to $250,000 Department of Banking Equipment for new office lease improvements for FY 10.

Impact: Estimated amount carried forward is $250,000.

29a

OPM

In FY 10 and FY 11, $1,100,000 of the appropriated funds for Neighborhood Youth Centers: 1) $1 million for the Boys and Girls Clubs of CT, and 2) $100,000 to the Boys and Girls Club of Bridgeport. These organizations are required to provide 100% cash match.

29b

OPM

In FY 10 and FY 11, $387,000 of the appropriated funds for Neighborhood Youth Centers is to be used for grants to Centro San Jose, Hill Corporative Youth Services, Central YMCA, up to $87,000 for Trumbull Gardens in Bridgeport, $50,000 for Valley Shore YMCA, $25,000 for Rivera Memorial Foundation, and $25,000 for Willow Plaza Neighborhood. These organizations are required to provide 50% match.

30

DPH

Permits $150,000 to be transferred from the Tobacco Health Trust Fund to DPH for a pilot asthma awareness program in FY 10.

31

OPM

Allows Operation Fuel to utilize the funds carried forward in PA 09-2 June 19th Special Session in FY 10 for energy assistance.

32(a)

RSA/OPM

The unexpended FY 09 balance of funds related to collective bargaining is carried forward into FY 10 and FY 11.

Impact: Estimated amount carried forward is $17. 1 million General Fund and $10. 1 million Transportation Fund.

32(b)

RSA/OPM

Carries forward the unexpended balance of FY 10 GF and TF funds appropriated by this act for collective bargaining agreements into FY 11.

33

OPM

Carries forward the unexpended balance of Other Expenses funds for a health care and pension consulting contract into FY 10 & FY 11.

Impact: Estimated amount to be carried forward is $180,000.

34

OPM

Up to $250,000 of the unexpended balance of funds in Other Expenses is carried forward to prevent base closures into FY 10.

35

OPM/DOIT

Carries forward unexpended funds from OPM and transfers these funds to DOIT to implement a common Licensing/Permit issuance service for state agencies in FY 10.

Impact: Estimated amount carried forward is $752,741.

36

OPM

Carries forward the unexpended balance of funds for the Criminal Justice Information System into FY 10.

Impact: Estimated amount carried forward is $1,900,000.

37

DOL

$30 million of the amount credited to the Unemployment Trust Fund is deemed to be appropriated to the Department of Labor for administrative infrastructure in FY 10 & FY 11.

38

DPH

Increases from $500,000 to $800,000 the amount collected pursuant to CGS 19a-55 to be credited to the newborn screening account for technology upgrades and testing expenses in FY 10 and FY 11.

Impact: A corresponding General Fund revenue loss of $300,000 will result.

39

DPH

Up to $200,000 from the Stem Cell Research Fund is made available to DPH for administrative expenses in FY 10 & FY 11.

40(a)

DMHAS

Up to $1,100,000 from Pre-Trial Alcohol Substance Abuse Program is made available for Regional Action Councils in FY 10 and FY 11.

40(b)

DMHAS

Up to $510,000 from Pre-Trial Alcohol Substance Abuse Program is made available for Governor's Partnership to Protect CT's Workforce in FY 10 and FY 11.

40(c)

DMHAS

Up to $100,000 from Pre-Trial Alcohol Substance Abuse Program is made available for substance abuse prevention programs in FY 10 and FY 11.

40(d)

DMHAS

Up to $125,000 from Pre-Trial Alcohol Substance Abuse Program is made available for the Regional Youth/Adult Substance Abuse Project in Bridgeport in FY 10 and FY 11.

41

DSS/DMHAS

Directs DSS to make Disproportionate Share (DSH) payments to hospitals in DMHAS for operating expenses and related fringe benefits. This allows DSS to maximize federal revenue under DSH & other federal matching programs but does not alter the intent of the original appropriation of funds.

42

UCHC/DSS

Permits UCHC appropriations to be transferred to DSH - Medical Emergency Assistance account within DSS to maximize federal reimbursement.

43

DVA/DSS

Permits DVA appropriations to be transferred to the DSH - Medical Emergency Assistance account within DSS to maximize federal reimbursement.

44

OPM/DOIT/various

Reduces agency allotments for IT services funded through the General Fund by $30. 8 million in FY 10 and $31. 7 million in FY 11.

45

DSS

Directs DSS to report on its non-formulary drug appeal process by 12/1/09.

46

DCF

Directs expenditure of appropriated funds for Support for Recovering Families to give priority to reunification of families. Requires DCF to report by 1/1/10.

Impact: An FY 11 reduction of $2. 5 million has been incorporated under DCF's budget to reflect anticipated savings due to reduced caseloads and averted out-of-home placement made possible by maximizing, to the extent feasible, the enrollment of families into the supportive housing for families program who are undergoing reunification with their children.

47(a)

OPM/All

OPM shall recommend reductions of $14 million in expenditures for Personal Services for FY 10 & FY 11.

47(b)

OPM/All

OPM shall recommend reductions of $11 million in expenditures for Other Expenses for FY 10 & FY 11.

47(c)

OPM/All

Requires OPM to make recommendations for a total reduction of $95 million in expenditures for contracts & personal service agreements for FY 10 & FY 11.

47(d)

OPM/All

Directs OPM to submit plans detailing recommended reductions under sections 47(a) – (c).

48

Various

Permits the Governor to modify or reduce allotments to achieve Personal Services savings included in the budget.

49

DAS

Limits the total number of positions to 124 that may be filled by DAS from the General Services Revolving Fund.

50

Various

Any General Fund appropriation may be transferred between agencies with FAC approval in order to maximize federal reimbursement.

51

Various

Any General Fund appropriation may be transferred between agencies with FAC approval in order to maximize federal stimulus funding. Governor shall present a plan for any such transfer.

52

Various

Permits any General Fund appropriation to be adjusted by the Governor, with FAC approval, to maximize federal funding. A plan must be submitted by the Governor.

53

DSS

Directs DSS to establish a receivable for anticipated federal reimbursement from the development of a data warehouse in FY 10 & FY 11.

54

DSS

Permits DSS to make advance payments to nursing home facilities for FY 10 & FY 11.

Impact: This allows DSS to assist homes in managing cash flow (has no net fiscal impact to state).

55

DCF

Suspends rate adjustments for residential treatment centers licensed by DCF.

Impact: Reductions of approximately $2. 2 million in FY 10 and an additional $2. 4 million in FY 11 have been incorporated under DCF's budget to reflect the suspension of single cost accounting rate adjustments over the biennium.

56

OLM

Extends the term of the Commission on Enhancing Agency Outcomes to 6/30/10.

57

Judic. /OLM

Restricts the Governor's recision authority over the Judicial and Legislative branches.

58 & 59

OPM

Directs a total of $500,000 from State Owned PILOT to two towns for the tax loss on certain federally owned property.

60

All

Agencies' filled positions can't exceed the number included in the OFA Budget Book (except upon FAC approval).

61

DMHAS

CT Lottery Corp. transfers $1,900,000 to the chronic gamblers treatment rehabilitation account in DMHAS in FY 10 and FY 11.

Impact: This reflects an increase of $400,000 from FY 09.

62

DPH

Transfer $541,982 in FY 10 and FY 11 from Tobacco and Health Trust Fund to DPH for the regional emergency medical services councils.

63

DPH

Transfer $800,000 from Tobacco and Health Trust Fund to DPH in FY 10 and FY 11 for Easy Breathing Program ($300,000 for adult; and $500,000 for children).

64

TRB

Eliminates the state contributions toward retired teacher health insurance for FY 10 and FY 11 and allows the OPEB Teacher Fund to pick-up the state share for this period.

65

DOC/Judic

Allows for the transfer of funds from DOC to Judicial to achieve efficiencies in the transportation of inmates.

66

DPS

Provides meal allowance to be paid to police personnel who are not covered by collective bargaining agreement.

Impact: Funding of $287,313 in FY 10 and FY 11 is included in the budget to provide the meal allowance.

67

UCHC

$500,000 shall be transferred in FY 10 and FY 11 from the Tobacco and Health Trust Fund to the UCHC for CT Health Information Network.

68

DPH

$100,000 of the funding provided to DPH in the AIDS Services account shall be used to support a grant to AIDS Interfaith Network in FY 10.

69

DAG

Provides for quarterly (instead of annual) distribution of funds from the Department of Agriculture through the Community Investment Act.

70

 

Provides the City of Bridgeport with operating budget relief in FY 10 and FY 11 by suspending its contributions to the pension fund for policemen and firefighters in those fiscal years if the city provides the Office of Policy and Management (OPM) and the Office of the State Treasurer (OST) with an acceptable long-term plan for financing the pension fund.

Impact: Bridgeport was scheduled to make a $4. 5 million contribution in FY 09. It appears that the FY 10 contribution will be $7 million, and between $25 and $30 million in FY 11. If the plan submitted by Bridgeport is not approved by OPM and OST, the bill requires the city to make a minimum contribution of $6 million to the pension plan. The bill has no state fiscal impact.

71

SDE

Clarifies that when expanding the number of grades at a charter school, for the purposes of meeting the goals of the 2008 stipulation and order for Milo Sheff, et al. v. William A. O'Neill, et al. , the funds must be distributed from funds appropriated for the purposes of the Sheff Settlement.

72

SDE

Provides a town by town distribution of the education equalization grant.

Impact: Distributes approximately $1. 9 billion to municipalities for the purposes for education cost sharing.

Section 73 transfers $1,062. 0 million in FY 10 and $319. 7 million in FY 11 from the Budget Reserve Fund (BRF) to the resources of the General Fund. This will result in a General Fund revenue gain and corresponding reduction to the BRF.

Sections 74 transfer $57. 2 million in FY 10 and $45. 3 million in FY 11 from various funds/accounts to the General Fund as identified in the table below. This will result in a revenue gain to the General Fund and a corresponding reduction in the available resources of the funds/accounts.

Fund Account

FY 10

FY 11

Section

UConn Health Center Medical Malpractice

$10,000,000

$10,000,000

(a)

Citizens' Election Fund

18,000,000

7,000,000

(b)

Tobacco & Health Trust Fund

10,000,000

10,000,000

(c)

Biomedical Research Trust Fund

4,500,000

4,500,000

(d)

Public/Education, Govt. Programming

2,000,000

2,000,000

(e)

Criminal Injuries Compensation Fund

2,275,000

1,275,000

(f)

Pre-Trial Alcohol & Drug

500,000

500,000

(g)

Agriculture Viability

500,000

-

(h)

Animal Population Control Account

500,000

-

(i)

Siting Council Fund

-

500,000

(j)

New Automobile Warranties Account

-

500,000

(k)

UConn Reserves

3,000,000

5,000,000

(l)

CT State University System Reserves

1,000,000

3,000,000

(m)

Regional Comm Tech Colleges Reserves

1,000,000

1,000,000

(n)

DOIT Technical Services Revolving Fund

4,000,000

-

(o)

Traumatic Brain Injury & Prevention Services (DSS) - transfer from DOIT Technical Services Account

(100,000)

-

(o)

Total Funds Transfer

$57,175,000

$45,275,000

 

Section 75 limits the amount that the Tobacco and Health Trust Fund's (THTF) Board of Trustees may recommend disbursement of in FY 11 to a maximum of the projected FY 11 end of year unobligated balance in the Fund. Under current law, the Board is entitled to recommend the disbursement of up to one-half of the disbursement to the THTF from the Tobacco Settlement Fund in the prior fiscal year (up to $6 million) plus the net earnings from the Fund's principal in the prior fiscal year. A maximum disbursement of approximately $5 million is anticipated in FY 11.

Sections 76 and 77 require judges and other excluded (non-union) employees of the Judicial Department to take 3 furlough days in each fiscal year of the biennium in accordance with the SEBAC Agreement. The associated annual savings of approximately $1 million is reflected in the Personal Services lapse budget reduction.

Section 78 allows the Probate Court to expend up to ten percent of dollars appropriated for the Kinship Fund, Grandparents and Relatives Respite Fund, and Extended Family Guardianship and Assisted Care Program for related administrative costs. A combined total of $1,050,000 is appropriated for the Kinship and Respite Funds, and $100,000 is appropriated for the Extended Family Guardianship and Assisted Care Program within the Judicial Department's Other Expenses account. This section would allow up to $105,000 to be expended for administrative purposes associated with the Kinship and Respite Funds. Historically, the entire appropriation for these Funds has been distributed to or for the benefit of participant families. This section would also allow up to $10,000 to be expended for administrative purposes associated with the Extended Family Guardianship and Assisted Care Program. Any such expenditure will correspondingly decrease the amount available for grants.

Section 79 transfers the Small Business Innovation Research (SBIR) Initiative from the Office of Workforce Competitiveness to Connecticut Innovations Incorporated (CII), a quasi-public agency. The program is currently administered by two individuals for a total of $250,000.

Section 80 provides for the unexpended balance of funds appropriated to the Department of Education for Magnet Schools to be carried forward into FY 10. It is anticipated that $1. 1 million will be carried forward for Magnet Schools, to reimburse the Capitol Region Education Council (CREC) for transportation costs related to interdistrict magnet schools.

Section 81 requires the Department of Social Services (DSS) to amend the definition of medical necessity for the Medicaid program, by July 1, 2010. The FY 11 appropriation for the Medicaid program included in this bill assumes a savings of $4. 5 million related to this definitional change. This section further establishes a Medical Necessity Oversight Committee to assist DSS in making this change. It is anticipated that the agencies involved will incur minimal administrative costs related to their participation.

Section 82 requires the Department of Public Works to survey all state-owned and leased property to determine available capacity. This has no fiscal impact.

Section 83 - the settlement agreement between the State of Connecticut and the Mashantucket Pequot and Mohegan Tribes is anticipated to result in: 1) a one-time General Fund revenue gain of $25 million in FY 10 and 2) an on-going General Fund revenue gain of $3. 0 million per year beginning in FY 10.

Section 84 provides a per pupil reimbursement of $2,500 for students who previously attended J. M. Wright Technical School in Stamford to be bused to Henry Abbott Technical High School in Danbury. The anticipated cost of the per pupil reimbursement is minimal.

Section 85 repeals Section 7(b) of PA 09-186 and does not result in any fiscal impact.

Section 86 deletes the allocation of $2. 3 million in FY 10 and FY 11 for the administrative costs for the Citizens' Election Program (CEP). Since the transfer will not occur, the funds remain as revenue in the General Fund. The budget includes a General Fund appropriation to support the administrative costs associated with the CEP.

Section 87 deletes the allocation to the Commercial Recording Division account within the Secretary of the State because the administrative expenses are now budgeted through a General Fund appropriation. This will result in a General Fund revenue gain of $11. 8 million in FY 10 and $11. 6 million in FY 11.

Section 88 - Securitization Plan

OFA Fiscal Impact

This section is expected to result in a one-time General Fund revenue gain of $1. 3 billion in FY 11. Assuming that $1,443 million is issued ($1. 3 billion in principal and $143 million for issuance costs and the reserve fund) at a 5. 0% interest rate over a 10 year term, the total amount of debt service (principal and interest) is $1. 7 billion. The table below shows the annual debt service payments between FY 12 and FY 21. It should be noted that the debt service payments may represent a General Fund revenue reduction if the proceeds from the securitized revenue stream would otherwise be transferred to the General Fund.

Annual Securitization Debt Service Payments1

Fiscal Year

($ millions)

FY 12

216. 5

FY 13

209. 2

FY 14

202. 0

FY 15

194. 8

FY 16

187. 6

FY 17

180. 4

FY 18

173. 2

FY 19

165. 9

FY 20

158. 7

FY 212

7. 2

Total

1,695. 5

1The estimates assume that the same amount of principal would be paid off in each year that the bonds were outstanding.

2Only $7. 2 million in interest will be paid from the securitized revenue stream because the $144 million principal payment will be made from the reserve fund.

OLR Analysis

The bill requires the state treasurer and the Office of Policy and Management (OPM) secretary jointly to develop a financing plan to raise up to $1. 3 billion in net general state revenue for FY 11. The financing plan can include (1) “securitization” of revenue from the state lottery; (2) issuing bonds and other debt instruments or placing them privately; or (3) the purchase of state debt instruments by public pension and trust funds, such as the state, municipal employees', and teachers' retirement funds. “Securitization” allows the state to borrow against a future revenue stream.

The treasurer and secretary must finish the financing plan and provide it to the chairpersons of the Appropriations and Finance, Revenue and Bonding committees by February 3, 2010.

EFFECTIVE DATE: Upon passage

Section 89 – Tax Settlement Initiative Program

OFA Fiscal Impact

The bill is anticipated to result in a one-time General Fund revenue gain of $75. 0 million in FY 10. However, much of the revenue anticipated in FY 10 would likely have been collected over the next few years, even without the settlement initiative program. As a result of shifting revenue from future periods into FY 10, collections in future years are anticipated to be less by the following amounts; FY 11 $15. 0 million, FY 12 $15. 0 million, and FY 12 $11. 2 million.

OLR Analysis

The bill requires the DRS commissioner to establish a tax settlement initiative program for anyone who owes state taxes (other than motor carrier road tax), interest, or penalties for any taxable period for which:

1. DRS imposed interest or penalties for late payment or underreporting of taxes, or

2. DRS imposed interest or additional tax because the taxpayer failed to file a return and DRS filed one for him.

The bill authorizes the commissioner to send written statements to such taxpayers, notifying them of their eligibility for the settlement program. If, within 60 days after receiving the statement, the taxpayer pays all the taxes he owes for the applicable tax period, the commissioner must waive (1) civil penalties and (2) 50% of the remaining interest due. By making the required payment, the taxpayer relinquishes all unexpired administrative and judicial appeal rights as of the payment date.

A taxpayer's failure to pay the full taxes due by the deadline makes the taxpayer ineligible to participate in the settlement initiative program. The commissioner must retain any partial payments and apply them against any taxes the taxpayer owes, plus the full interest and penalties.

Under the bill, a taxpayer is not entitled to receive any refund or credit of tax settlement payments or of any amounts paid prior to the date of the commissioner's written notice.

It authorizes the commissioner to take necessary actions to implement the program in a timely manner.

EFFECTIVE DATE: Upon passage

Sections 90 & 91 – Economic Nexus for Corporation and Income Taxes

OFA Fiscal Impact

The bill is anticipated to result in a General Fund revenue gain to the corporation tax of $10. 0 million per year beginning in FY 11.

OLR Analysis

The bill establishes “economic nexus” as the basis for determining whether an out-of-state business is subject to the Connecticut corporation tax, if it is a C corporation, or whether nonresident partners or members of a partnership or S corporation are subject to Connecticut income tax on income from the business. This change could, for example, extend tax liability to such out-of-state financial services companies as credit card companies, mortgage lenders, automobile finance companies, and online financial services companies.

Under current law, an out-of-state corporation that has no physical presence in the state (i. e. , no property or payroll here) is not liable for the state corporation tax. To the extent allowed by the U. S. Constitution, this bill subjects such a company to the corporation tax if, instead of a physical presence, it has a substantial economic presence here or derives income from sources in the state. The bill requires such a corporation to apportion its gross income between Connecticut and the other states where is does business according to Connecticut law.

Likewise, under current law, members and partners in an out-of-state S corporation or partnership are not subject to the Connecticut personal income tax if they derive no income from sources within or connected to Connecticut. This bill, to the extent allowed by the U. S. Constitution, subjects such members or partners to the state income tax if their company is doing business here. Under the bill, having a substantial economic presence in Connecticut is deemed to show that a partnership or S corporation is doing business here.

Under the bill, a company has “substantial economic presence” in Connecticut if it purposefully directs business towards the state. Its purpose can be determined by such measures as the frequency, quantity, and systematic nature of its economic contact with the state.

EFFECTIVE DATE: Upon passage and applicable to income and taxable years starting on or after January 1, 2010.

Section 92 - Annual Marshal Fee

OFA Fiscal Impact

The bill is anticipated to result in a General Fund revenue gain of approximately $120,000 per year beginning in FY 10.

OLR Analysis

Starting October 1, 2009, the bill increases the annual fee each state marshal must pay from $250 to $750. The fee is payable by October 1 each year to the State Marshal Commission and is deposited in the General Fund.

EFFECTIVE DATE: Upon passage

Section 93 - Department of Social Services Deadlines for Service of Process

OFA Fiscal Impact

This policy change could increase the Department of Social Services' recovery of certain costs.

OLR Analysis

The bill requires the Department of Social Services (DSS) commissioner to send any subpoena, summons, warrant, or court order related to department-initiated proceedings to a state marshal for service if (1) no action has been taken on it within the preceding 14 days and (2) the underlying proceedings are unresolved. In addition, to resolve any backlog, the plan requires that, starting October 1, 2009, the commissioner forward up to 150 such documents per month to state marshals for service, if no action has been taken on them within the preceding 30 days.

EFFECTIVE DATE: Upon passage

Sections 94 & 102 – Corporation Tax Surcharge

OFA Fiscal Impact

The bill is anticipated to result in a General Fund revenue gain to the corporation tax of $74. 1 million in FY 10, $41. 1 million in FY 11, and $22. 1 million in FY 12.

OLR Analysis

The bill imposes a 10% corporation tax surcharge for income years beginning in 2009, 2010, and 2011. The surcharge does not apply to companies (1) with less than $100 million in annual gross revenues for any of these years or (2) whose tax liability does not exceed the $250 minimum tax. Companies that file combined or unitary returns for the income year are not eligible for the gross revenue exemption.

A company must calculate its surcharge based on its tax liability excluding any credits. The surcharge is due, payable, and collectible as part of each company's total tax for the year and applies both to companies that pay the tax on their net income and those that pay on their capital base.

EFFECTIVE DATE: Upon passage and applicable to income years starting on or after January 1, 2009.

Sections 95, 120 & 121 – Federal Qualified Domestic Production Activities Deduction

OFA Fiscal Impact

The bill is anticipated to result in a General Fund revenue gain to the corporation tax of $27. 5 million per year beginning in FY 10.

OLR Analysis

The bill bars companies and individuals from using the federal tax deduction for income from qualified domestic production activities when determining their taxable income for the state's corporation and income taxes.

Under federal tax law, corporations, individuals, and pass-through companies can deduct from their gross income a percentage of qualifying income they earn from eligible production activities taking place wholly or mostly within the United States. Eligible production activity includes manufacturing, construction, engineering, energy production, computer software, films and videotape, and agricultural products processing. The deduction is 6% of qualifying income for 2008 and 2009 and 9% for 2010 and after (Internal Revenue Code 199).

The bill requires (1) corporations to disregard the qualified domestic production activities deduction when calculating net income for purposes of the state corporation tax and (2) individuals to add back any such deduction included in their federal AGI when calculating Connecticut AGI for state income tax purposes.

EFFECTIVE DATE: Upon passage. The corporation tax change applies to income years starting on or after January 1, 2009 and the income tax change applies to tax years starting on or after January 1, 2009.

Section 96 – Tax Credit for Donating Open Space

OFA Fiscal Impact

The bill is anticipated to result in a General Fund revenue loss to the corporation tax to the degree that it allows companies to use credits that they would otherwise lose. As under current law, the carry forward applies only to credits allowed for any tax year starting on or after January 1, 2000. The extension of the carry forward period will not have any fiscal impact until FY 16, which would be the first year in which the extension would be applicable.

OLR Analysis

The law provides a credit against the corporation tax for donations or discounted sales of open space land or interests in land to the state, a political subdivision, or a nonprofit land conservation organization when the land will be permanently preserved as open space. The credit equals 50% of the (1) donated land's market value at its highest and best use or (2) value of the discounted sales price of the land or interest in the land.

The bill extends the period for which a company may carry forward unused credits from 15 to 25 years. As under current law, the carry-forward applies only to credits allowed for any tax year starting on or after January 1, 2000.

EFFECTIVE DATE: Upon passage and applicable to income years starting on or after January 1, 2009.

Sections 97 - 101 & 485 – Film and Digital Animation Production and Infrastructure Investment Tax Credits

OFA Fiscal Impact

The bill is anticipated to result in a General Fund revenue gain to the insurance premiums tax of $10. 0 million beginning in FY 11 and $15. 0 million beginning in FY 12.

The bill transfers the administration of the film industry tax credits from the Commission on Culture and Tourism (CCCT) to the Department of Economic and Community Development (DECD). The bill appropriates funding for the CCCT film division staff to DECD, and requires a reasonable administrative fee to cover the costs associated with DECD's review of applications.

OLR Analysis

Credit Administration

Transfer of Powers and Duties The law establishes tax credits against the corporation and insurance premium taxes for film and digital animation production and infrastructure investment related to both. The bill transfers the administration of the credits from the Connecticut Commission on Culture and Tourism (CCCT) to the Department of Economic and Community Development (DECD). It transfers to DECD the CCCT's powers and duties concerning digital media and motion picture promotion activities. It also requires state agencies and institutions that contract for digital media or film productions to send copies of their requests for proposals to DECD, rather than CCCT.

Interim Film Production Tax Credit The bill eliminates a company's ability to obtain an interim film production tax credit. It does this by eliminating the process that allows a company to apply for a tax credit voucher while a production is in progress, starting three months after submitting its eligibility application, for its expenses up to that time. It continues to allow a production company to apply for and receive credits on an annual basis or after it incurs its last production expense.

Cost Certification A film production or digital animation company must provide independent certification of the amount of its production expenses and costs when it applies for a tax credit voucher. The bill requires the production company to use an audit professional, chosen from a list DECD compiles, to provide the independent certification.

Administrative Fee The bill requires the DRS Commissioner to charge a reasonable administrative fee for the film production, digital animation, and infrastructure tax credits. The fee must be sufficient to cover the DECD's costs in analyzing applications. (COMMENT: Although tax credit applications are submitted to DECD, the bill requires the DRS Commissioner to charge a fee sufficient to cover DECD's costs. )

Reporting Requirement CCCT must report to the General Assembly every two years on its digital media and movie production promotion activities, the economic impact of all productions, and the impact of each state-assisted production. The bill transfers the reporting requirement to DECD; requires that DECD report annually, starting by January 1, 2010; and requires the department to submit the report to the Commerce and Finance, Revenue and Bonding committees instead of the whole General Assembly.

It eliminates a requirement that the report include the impact of each state-assisted production and instead requires that it include (1) an analysis of all three credits and (2) for each project or production issued a tax credit, (a) a description of the project, (b) the amount of the credit, (c) the total production expenses or costs the taxpayer issued the credit incurred in the state, and (d) any other information the Commerce or Finance committee chairpersons request.

Explanatory Guide As part of its film-related powers and duties, CCCT must prepare an explanatory guide for producers that shows the impact of relevant state and municipal tax statutes, regulations, and administrative opinions on typical production activities, and includes an explanation of the film production tax credit. The bill transfers this duty to DECD, along with CCCT's other film-related powers and duties, and additionally requires that it include an explanation of all three credits.

Limits on Post-Certification Remedies Under current law, once CCCT issues a film production, digital animation, or infrastructure tax credit voucher, CCCT and the DRS Commissioner cannot require a post-certification remedy. This means that credits cannot be recaptured, disallowed, recovered, reduced, repaid, forfeited, decertified, or subject to any other remedy that reduces or limits the credit amounts stated on the voucher.

Current law limits CCCT's and the DRS Commissioner's power to further audit or examine the expenses on which the credits are based unless there is the possibility of material misrepresentation or fraud. If the company made material misrepresentations or committed fraud in its expense report and those actions resulted in inflated or inaccurate tax credits, currently CCCT and the DRS Commissioner have the sole remedy of recovering the amount of the credits from the production company itself and not from any other company to which the production company transferred the credits.

The bill restricts this limit on post-certification remedies and audits to transferred credits. Consequently, it allows DECD and the DRS Commissioner to apply a post-certification remedy to credits that have been issued. The bill gives DECD and the DRS Commissioner the sole remedy of recovering the amount of the credits from any entity that committed the fraud or misrepresentation.

Under current law, any qualified production company that willfully submits false or fraudulent information for purposes of the film production and digital animation credits is liable for a financial penalty equal to the credit amount, in addition to any other penalties already provided by law. The bill eliminates the requirement that the production company be liable if it willfully submits the false or fraudulent information.

Qualified Productions

The bill makes infomercials ineligible for the film production tax credit.

Tax Credit Amounts

Film and Digital Animation Production Current law gives qualifying companies tax credits against the corporation and insurance premium taxes equal to 30% of the eligible costs they incur in Connecticut for film and digital animation productions. Currently, a company is eligible for the credits if it incurs at least $50,000 in eligible production expenses in the state.

For income years starting January 1, 2010, the bill increases the minimum expenditure for both credits to $100,000 and makes the credit amount dependant on the production's total expenses or costs. Production companies incurring production expenses or costs (1) between $100,000 and $500,000 are eligible for a 10% credit, (2) between $500,000 and $1 million are eligible for a 15% credit, and (3) over $1 million continue to be eligible for a 30% credit.

Infrastructure Investments Under current law, the credit amounts for infrastructure investments in the film and digital media industry depend on the project's cost. Projects costing at least (1) $15,001 qualify for a 10% credit, (2) $150,000, a 15% credit, and (3) $1 million, a 20% credit.

Starting January 1, 2010, the bill makes the credit a flat 20% and increases the minimum qualifying expenditure to $3 million. It also requires that the project be 100%, rather than at least 60%, complete before it can receive a tax credit voucher.

Eligible and Ineligible Production Expenses

In-State Expenditures In addition to minimum expenditure requirements, starting January 1, 2010, the bill requires that a production company conduct at least 50% of its principal photography days in the state to be eligible for the film production tax credit.

Out-of-State Expenditures Current law allows a company to count 50% of the production expenses it incurs outside the state and 100% of the expenses it incurs in the state towards the film production credit if they are used in the state. This applies from January 1, 2009 to January 1, 2012, after which no out-of-state expenses count towards the credit. The bill moves up the phase-out date, to January 1, 2010, for out-of-state production expenses.

Star Salaries Under current law, the first $15 million paid to a single person, or the person's representative (i. e. , star talent), for services on a film or digital media production counts as a credit-eligible expense. Anything over this amount does not. Starting January 1, 2010, the bill limits credit-eligible compensation for all star talent featured in a film or digital media production to $20 million in the aggregate and requires that the compensation be subject to Connecticut personal income tax.

Audit Costs The bill excludes any costs related to an independent audit of film or digital animation production project costs and expenses that DECD requires before certification.

EFFECTIVE DATE: Upon passage and applicable to income years starting on or after January 1, 2010.

Section 103 - Corporation Combined Reporting Preference Tax

OFA Fiscal Impact

The bill is anticipated to result in a General Fund revenue gain to corporation business tax of $9. 0 million per year beginning in FY 10.

OLR Analysis

The bill doubles, from $250,000 to $500,000, the maximum preference tax for groups of companies filing combined corporation tax returns.

By law, any company subject to the Connecticut corporation tax and that is included with one or more affiliated corporations in a consolidated federal income tax return can choose to file a combined Connecticut return as well. The Department of Revenue Services (DRS) commissioner may also require a corporation to file a combined return with its affiliates under certain circumstances. In either a case, a corporate group filing a combined Connecticut corporation tax must pay a supplemental tax in addition to that calculated using the group's combined net income or capital base. This so-called “preference tax” is the difference between the sum of the amounts that would have been due if each member of the corporate group filed separately and the amount due under the combined return, but no more than a maximum amount. The bill increases this maximum amount from $250,000 to $500,000.

EFFECTIVE DATE: Upon passage

Sections 104 - 106 - Cigarette Tax Increase

OFA Fiscal Impact

The bill is anticipated to result in a General Fund revenue gain of $99. 3 million in FY 10 and $117. 6 million beginning in FY11. The estimates include the impact to: 1) the cigarette excise tax, 2) the sales and use tax, and 3) a one-time revenue gain of $8. 8 million in FY 10 as a result of the floor (inventory) tax.

OLR Analysis

The bill increases the cigarette tax by $1, from $2 to $3 per pack of 20 (from 10 cents to 15 cents per cigarette), starting October 1, 2009.

It also imposes a $1 “floor tax” on each pack of cigarettes that dealers and distributors have in their inventories at the later of the close of business or 11: 59 p. m. on September 30, 2009. By November 15, 2009, each dealer and distributor must report to DRS the number of cigarettes in inventory as of that time and date and pay the floor tax. If a dealer or distributor does not report by the due date, the DRS Commissioner must file the report, estimating the number of cigarettes in the dealer's or distributor's inventory using any information the commissioner has or obtains.

Failure to file the report by the due date is grounds for DRS to revoke a dealer's or distributor's license, and willful failure to file subjects the dealer or distributor to a fine of up to $1,000, one year in prison, or both. A dealer or distributor who willfully files a false report can be fined up to $5,000, sentenced to one to five years in prison, or both. Late filers are also subject to the same interest and penalties as apply to other late cigarette tax payments.

EFFECTIVE DATE: Upon passage. The cigarette tax increase applies to cigarette sales on or after October 1, 2009.

Section 107 - Tobacco Products Tax Increase

OFA Fiscal Impact

The bill is anticipated to result in a General Fund revenue gain to the cigarette and tobacco tax of $1. 6 million in FY 10 and $2. 0 million beginning in FY 11.

OLR Analysis

The bill increases the tobacco products tax from 20% to 27. 5% of the wholesale price and the tax on snuff tobacco from 40 cents to 55 cents per ounce. The tobacco products tax applies to cigars, cheroots, pipe tobacco, and similar products.

EFFECTIVE DATE: Upon passage and applicable to sales on and after October 1, 2009.

Sections 108 - 113 - Sales and Use Tax Rate Reduction

OFA Fiscal Impact

The bill is anticipated to result in a General Fund revenue loss to the sales and use tax of $129. 5 million in FY 10 and $268. 0 million beginning in FY 11.

The bill is also anticipated to result in a Transportation Fund revenue loss of $2. 4 million in FY 10 and $4. 9 million beginning in FY 11.

OLR Analysis

Starting January 1, 2010, the bill reduces the sales and use tax rates applicable to most taxable items and services from 6% to 5. 5%. The reduction does not take effect if, before January 1, 2010, the comptroller's monthly statement indicates that General Fund tax revenue for FY 10 is at least 1% less than the FY 10 revenue estimate adopted by the Finance, Revenue and Bonding Committee and included in the bill.

If the reduction takes effect and any of the comptroller's monthly statements issued between January 1, 2010 and June 30, 2010 show estimated General Fund revenue for FY 10 at least 1% below the adopted revenue estimate, the sales and use tax rate must be restored to 6% on July 1, 2010.

The bill does not reduce rates for items and services that are currently taxable at rates other than 6%, such as hotel room rentals (12%), motor vehicle sales to out-of-state residents on full-time active military duty in the state (4. 5%), and computer and data processing services (1%).

The bill also makes conforming changes.

EFFECTIVE DATE: January 1, 2010. The sales tax changes apply to sales on or after that date.

Section 114 - Real Estate Conveyance Tax on Foreclosures

OFA Fiscal Impact

The bill is anticipated to result in a General Fund revenue gain to the real estate conveyance tax of $8. 5 million in FY 10 and $16. 2 million beginning in FY 11.

The bill is also anticipated to result in a revenue gain to municipalities of approximately $4. 0 to $5. 0 million in FY 10 and $8. 0 million to $9. 0 million beginning in FY 11.

OLR Analysis

This bill applies the real estate conveyance tax to property that is foreclosed by sale through a court-order. Current law exempts such properties from the tax.

Under a foreclosure by sale, any party can ask the court to force a sale of the property. The court appoints a committee to sell the property, after which the court grants the deed to the purchaser. The borrower whose home is being foreclosed may stop the sale by paying up his or her mortgage. (A “foreclosure by sale” is distinct from a “strict foreclosure” or bank foreclosure through which a lender asks the court for the deed. )

With some exceptions, Connecticut law requires a person who sells real property for $2,000 or more to pay a real estate conveyance tax when he or she conveys the property to the buyer.  The tax has two parts: a state tax and a municipal tax.  The applicable state and municipal rates are added together to get the total tax rate for a particular transaction.

The state tax rate is either 0. 5% or 1% of the total sales price, depending on the type of property. The tax is 0. 5% on (1) residential dwellings sold for $800,000 or less, (2) other types of residential property, (3) unimproved land, and (4) a bank foreclosure on real property that has a mortgage that has been delinquent for up to six months. The 1% rate applies to (1) sales of nonresidential property other than unimproved land (e. g. , farm, forest, open space) and (2) any portion of a residential dwelling's sale price that exceeds $800,000.

The municipal tax rate is 0. 25% for all towns until July 1, 2010 and 0. 11% thereafter for all towns. In addition, 18 specific towns have the option of levying an additional tax of up to 0. 25%. The 18 towns are: Bloomfield, Bridgeport, Bristol, East Hartford, Groton, Hamden, Hartford, Meriden, Middletown, New Britain, New Haven, New London, Norwalk, Norwich, Southington, Stamford, Waterbury, and Windham. Thus, the municipal tax rate can range from 0. 25% to 0. 5%, depending on where the property is located.

EFFECTIVE DATE: January 1, 2010 and applicable to conveyances on or after that date.

Section 115 – Use Tax Table

OFA Fiscal Impact

The bill is anticipated to result in a General Fund revenue gain to the sales and use tax of $0. 5 million beginning in FY 10.

OLR Analysis

The bill requires the DRS Commissioner to include a use tax table on state income tax forms. The table must show the Connecticut use tax rate and the total taxes that would be due for various amounts spent.

By law, when someone buys a taxable item or service for use in Connecticut and does not pay sales tax to the retailer at the time of the purchase, the buyer must remit the equivalent use tax directly to DRS. Use tax is generally remitted along with personal income tax payments.

EFFECTIVE DATE: Upon passage

Sections 116-118 – Estate and Gift Tax

OFA Fiscal Impact

The bill is anticipated to result in a General Fund revenue loss to the gift and estate tax of $5. 9 million in FY 10 and $70. 3 million beginning in FY 11.

The bill is also anticipated to result in a one-time General Fund revenue gain to the gift and estate tax of $44. 0 million in FY 10 from reducing the filing period from nine months to six months.

OLR Analysis

Starting with deaths occurring and gifts made on or after January 1, 2010, this bill (1) increases, from $2 million to $3. 5 million, the threshold for the value of an estate or gift subject to the estate and gift tax; (2) reduces marginal tax rates on estates and gifts valued at $3. 5 million to $10. 1 million by 25%; and (3) eliminates the tax “cliff.

Under current law, an estate or gift valued at $2 million or less is not taxed while the full value of any estate or gift valued more than $2 million is taxable. This structure produces a “cliff” in which a $1 increase in the value of a gift or estate from $2,000,000 to $2,000,001 increases tax liability from zero to $101,700. The bill eliminates the requirement that, once an estate's or gift's taxable value exceeds the taxable threshold, the tax applies to the entire value and instead applies the tax only to the marginal value over the threshold.

Current and proposed tax rates are shown in Table 1.

TABLE 1: CURRENT AND PROPOSED ESTATE AND GIFT TAX RATES

VALUE OF GIFT

OR ESTATE

CURRENT TAX

(Add cols.

C & D)

PROPOSED TAX

(Add cols.

E & F)

Col. A:

Over

Col. B:

But not over

Col. C:

Tax on

Col. A

Col. D:

Tax rate on

excess

over Col. A

Col. E:

Tax on

Col. A

Col. F:

Tax rate on

excess

over Col. A

0

$2,000,000

NO TAX

NO TAX

$2,000,000

2,100,000

5. 085% of the total over 0

2,100,000

2,600,000

$106,800

8. 0%

2,600,000

3,100,000

146,800

8. 8%

3,100,000

3,500,000

190,800

9. 6%

3,500,000

3,600,000

190,800

9. 6%

0

7. 2%

3,600,000

4,100,000

238,800

10. 4%

7,200

7. 8%

4,100,000

5,100,000

290,800

11. 2%

46,200

8. 4%

5,100,000

6,100,000

402,800

12. 0%

130,200

9. 0%

6,100,000

7,100,000

522,800

12. 8%

220,200

9. 6%

7,100,000

8,100,000

650,800

13. 6%

316,200

10. 2%

8,100,000

9,100,000

786,800

14. 4%

418,200

10. 8%

9,100,000

10,100,000

930,800

15. 2%

526,200

11. 4%

Over $10,100,000

1,082,800

16. 0%

640,200

12. 0%

The bill also reduces the time an executor has to file an estate tax return by making the filing deadline six, rather than nine, months after the date of death, starting with deaths on or after July 1, 2009.

EFFECTIVE DATE: The change in the estate tax filing deadline takes effect July 1, 2009 and applies to taxes payable on or after that date. The other changes take effect January 1, 2010 and apply to estates of those who die, and to gifts made, on or after that date.

Section 119 – Income Tax Rate Increase

OFA Fiscal Impact

The bill is anticipated to result in a General Fund revenue gain to the personal income tax of $594. 0 million in FY 10 and $400. 0 million beginning in FY 11.

The expected revenue gain for FY 10 is for 18 months (January 2009 through June 2010).

OLR Analysis

The bill increases income taxes for those with taxable incomes over $1 million for joint filers, $800,000 for heads of households, and $500,000 for single filers and married people filing separately. It does so by adding a third, higher-income tax bracket and increasing the marginal tax rate for income in that brackets from 5. 0% to 6. 5%. It also increases the flat income tax rate for trusts and estates from 5. 0% to 6. 5%.

Table 2 shows tax rates and brackets under the current law and the bill. (Note: The tax rates shown apply only to the taxable income in the applicable bracket, not to all of a taxpayer's income. )

TABLE 2: CURRENT AND PROPOSED INCOME TAX RATES AND BRACKETS

TAX RATES

CT TAXABLE INCOME

Married Filing

Jointly

Single

Current

Proposed

Over

But Not Over

Over

But Not Over

3. 0%

3. 0%

$0

$20,000

$0

$10,000

5. 0%

5. 0%

20,000

1,000,000

10,000

500,000

6. 5%

Over $1,000,000

Over $500,000

TAX RATES

Head of

Household

Married Filing

Separately

Current

Proposed

Over

But Not Over

Over

But Not Over

3. 0%

3. 0%

$0

$16,000

$0

$10,000

5. 0%

5. 0%

16,000

800,000

10,000

500,000

6. 5%

Over $800,000

Over $500,000

EFFECTIVE DATE: Upon passage and applicable to tax years starting on or after January 1, 2009.

Sections 122-124 – Delay in Scheduled Income Tax Reductions for Single Filers

OFA Fiscal Impact

The bill is anticipated to result in a General Fund revenue gain to the personal income tax of $23. 9 million in FY 10, $30. 2 million in FY 11, $36. 4 million in FY 12, $30. 8 million in FY 13, $18. 9 million in FY 14, and $6. 3 million in FY 15.

OLR Analysis

The bill delays scheduled income tax reductions for single filers for three years. It does so by delaying scheduled increases in (1) their adjusted gross income (AGI) exempt from the tax and (2) income thresholds for phasing out their personal exemptions and credits.

Personal Exemption

The maximum personal exemption for single filers for the 2008 tax year was $13,000. Under current law, the maximum exemption increased to $13,500 on January 1, 2009 and is scheduled to rise in five more annual steps to $15,000 on January 1, 2012. The bill instead maintains the $13,000 personal exemption for three more years, through the 2011 tax year, delaying the increase to $13,500 and each subsequent increase by three years. It also delays scheduled increases in the exemption reduction thresholds to correspond, as shown in Table 3. (The income tax personal exemption is reduced by $1,000 for each $1,000 of AGI over a specified threshold, which varies according to filing status. )

TABLE 3: PERSONAL EXEMPTIONS FOR SINGLE FILERS

Tax Year(s)

Maximum Personal

Exemption

(AGI)

Personal

Exemption

Reduction

Threshold (AGI)

Current

Proposed

2008

Through 2011

$13,000

$26,000

2009

2012

13,500

27,000

2010

2013

14,000

28,000

2011

2014

14,500

29,000

2012 and after

2015 and after

15,000

30,000

Personal Credit

The bill also delays by three years scheduled increases in income ranges that allow single filers to qualify for personal credits against their income tax. Personal credits range from 1% to 75% of tax liability depending on AGI. Filers with AGIs above specified levels, which vary depending on filing status, do not qualify for any credit. Table 4 shows qualifying personal credit income ranges for single filers under current law and the bill.

TABLE 4: PERSONAL CREDITS FOR SINGLE FILERS

Tax Year(s)

Qualifies for 1% to 75% Personal Credit (AGI)

Current

Proposed

Over

But Not Over

2008

Through 2011

$13,000

$56,500

2009

2012

13,500

58,500

2010

2013

14,000

60,500

2011

2014

14,500

62,500

2012 and after

2015 and after

15,000

64,500

EFFECTIVE DATE: Upon passage and applicable to tax years starting on or after January 1, 2009.

Section 125 - Plan to Sell State Assets

OFA Fiscal Impact

The bill is anticipated to result in a General Fund revenue gain of $15. 0 million in FY 10 and $45. 0 million in FY 11.

OLR Analysis

The bill requires the state treasurer and the OPM secretary jointly to establish a plan to sell state assets to raise up to $15 million of net general revenue for FY 10 and up to $45 million for FY 11. They must finish the asset sale plan and provide it to the Appropriations and Finance, Revenue and Bonding committee chairpersons by February 3, 2010.

EFFECTIVE DATE: Upon passage

Section 126 – Transfer to Special Transportation Fund

OFA Fiscal Impact

The bill will result in a General Fund revenue loss of $72. 0 million in FY 10 and $117. 5 million in FY 11 and a corresponding revenue gain in each year to the Special Transportation Fund.

OLR Analysis

The bill requires the comptroller to transfer the following amounts from the General Fund to the Special Transportation Fund: (1) $72 million for FY 10 and (2) $117. 5 million for FY 11.

EFFECTIVE DATE: Upon passage

Sections 127 & 128 – School Construction Bond Authorizations

OFA Fiscal Impact

The total General Fund debt service cost for principal and interest payments to bond $191 million over 20 years assuming a 5. 0% interest rate, is $291. 3 million. It is expected that the bonds will be allocated through the State Bond Commission (SBC) in FY 10 and the state will begin paying debt service on the bonds in FY 11.

The school construction authorization will result in a municipal revenue gain of $191 million in FY 10.

OLR Analysis

The bill authorizes an additional $188. 35 million in state general obligation (GO) bonds for local school construction projects and an additional $2. 6 million in such bonds for school construction interest subsidy grants.

The state reimburses school districts for between 20% and 80% of the eligible costs of local school construction projects. The reimbursement rate depends mostly on town wealth but districts may receive a higher reimbursement for certain types of projects, such as those involving space for school-readiness programs or full-day kindergarten. In addition, certain types of interdistrict projects (vocational agricultural centers, regional special education facilities, and interdistrict magnet schools) are reimbursed at the rate of 95% of eligible costs. Districts also receive a 10-percentage-point bonus for projects undertaken in cooperation with one or more other districts.

EFFECTIVE DATE: Upon passage

Sections 129 - 132 - Bonds Conforming to Federal ARRA Programs

OFA Fiscal Impact

The statutory changes permit: (1) the state and (2) municipalities to utilize financing options provided in the federal American Recovery and Reinvestment Act of 2009 (ARRA) for various types of capital projects. This will result in debt service savings for: (1) the state's General and Special Transportation Funds and (2) municipalities to the degree that these entities are able to take advantage of the ARRA options to reduce the cost of borrowing. The magnitude of these savings cannot be determined at this time because it is unknown which of the options will be used.

OLR Analysis

The bill authorizes the State Bond Commission or municipality, as appropriate, to make any agreements and representations needed to ensure that bonds, notes, and other debt obligations they issue are eligible for any applicable federal payments, tax credits, or other desired federal income tax treatment. Current law already allows the commission and municipalities to make whatever agreements and representations are required to ensure that interest on state and local debt obligations is exempt from federal income taxes. The bill's expanded representation authority for the State Bond Commission applies to both state general obligation and special tax obligation bonds.

The bill's changes enable the state and municipalities to take advantage of the federal “Build America Bonds” (BABs) program authorized by the federal American Recovery and Reinvestment Act (ARRA) of 2009. Under the program, the federal government subsidizes debt service costs on taxable bonds issued by state and local governments between February 17, 2009 and December 31, 2010. It is designed to increase the marketability of state and local bonds, while lowering capital financing costs for issuers.

Federal law allows state and local governments to issue taxable BABs to pay for any capital project for which they may issue tax-exempt bonds. The federal government subsidizes 35% of the interest costs for such bonds. An issuer can choose to have the interest subsidy can be paid in either of two ways.

The first option gives the bondholder a nonrefundable federal tax credit of 35% of the interest paid on the bond each year. Thus, for a taxable bond paying 6% interest per year, a bondholder would accrue federal tax credits equal to 2. 1% (35% of 6%) for an effective yield of 8. 1% on the bond. Unused federal credits may be carried forward to future years.

The second option gives the subsidy to the issuer rather than the bondholder. An issuer choosing this option receives a federal payment equal to 35% of the annual interest it pays on the bonds, thus allowing an issuer to, for example, finance taxable bonds yielding 8% to the bondholder at an effective rate of 5. 2%. Because the taxable issuer BABS have a higher yield than the tax-free bonds state and local government normally issue, they could be marketed to purchasers with no federal tax liability, such as pension plans, nonprofit organizations and institutions, and foreign entities.

Starting July 1, 2009, the bill credits to the Special Transportation Fund all money received or collected by the state as the issuer of transportation bonds under the issuer subsidy option.

EFFECTIVE DATE: Upon passage

Section 133 - Bonding for Town Aid Road (TAR) Program

OFA Fiscal Impact

The bill specifically adds the Town Aid Road (TAR) Program to the list of purposes for which Special Tax Obligation (STO) bonds may be issued by the state. There will be a cost to the Special Transportation Fund (STF) for debt service and a revenue gain to towns to the degree that STO bonds are authorized and allocated to fund the TAR Program. The program has been funded with $30 million in each of the last 5 years through combination of appropriated funds from the STF and budget surplus funds.

OLR Analysis

The bill allows the state to issue special tax obligation bonds to make payments to towns under the TAR Program. Under current law, the state appropriates funding for the program.

EFFECTIVE DATE: Upon passage

Section 134 - Technical Correction

Section 134 implements the intent of Sec. 12a of PA 09-2 by making a technical change that corrects a section reference. The PA 09-2 section transfers $28 million from the Local Bridge Revolving Fund to the General Fund on June 30, 2009.

OLR Analysis

The bill makes a technical correction to a statutory reference in a provision of PA 09-2 that transfers $28 million from the Local Bridge Revolving Fund (loan program) to the General Fund as revenue for FY 09.

EFFECTIVE DATE: Upon passage

Sections 135 - 139 - Superior Court Fee Increases

OFA Fiscal Impact

The bill is anticipated to result in a General Fund revenue gain of $4. 8 million in FY 10 and $6. 4 million beginning in FY 11.

OLR Analysis

The bill increases the fees for filing with the Superior Court:

1. a case in which the sole claim for relief is damages and the amount, legal interest, or property in demand is less than $2,500 and for summary process, landlord and tenant, and paternity actions from $120 to $175;

2. a small claims case from $35 to $75;

3. a motion is filed to transfer a small claims case to the regular docket, from $75 to $125;

4. a motion to open, set aside, modify, or extend any civil judgment rendered in Superior Court for any (a) housing matter from $35 to $75, and (b) small claims matter from $25 to $75; and

5. an application from a judgment creditor requesting enforcement of an unsatisfied judgment, including debts due from any financial institution to a judgment debtor from $35 to $75.

EFFECTIVE DATE: Upon passage

Sections 140 - 391 - Various State Fee Increases

OFA Fiscal Note

The bill is anticipated to result in a General Fund revenue gain of $52. 1 million in FY 10 and $45. 1 million in FY 11.

OLR Analysis

This bill raises state fees by:

1. increasing fees to at least $15;

2. doubling fees under $150;

3. increasing fees between $150 and $1,000 by 25%; and

4. adding $250 to fees of $1,000 or more.

Please refer to the OLR bill analysis for a complete list of fee increases in these sections.

EFFECTIVE DATE: Most increases are effective October 1, 2009

Sections 392 - 484 & 486 – Department of Environmental Protection Fee and Fund Provisions

OFA Fiscal Note

The bill is anticipated to result in a General Fund revenue gain of $70. 5 million in FY 10 and $73. 5 million beginning in FY 11.

OLR Analysis

This bill increases a number of Department of Environmental Protection (DEP) fees. It eliminates a number of DEP funds and accounts, and transfers the revenue from those funds to the General Fund. It eliminates specific uses of several of these accounts (e. g. , the emergency spill response account).

The bill doubles all DEP fees set by regulation at less than $150. It increases all such fees that are currently between $150 and $1,000 by 25%, rounded up to the nearest $5; and those of more than $1,000 by $250.

It eliminates (1) the Clean Air Act account in the General Fund, (2) a $2 million annual allocation to DEP from the Underground Storage Tank (UST) Petroleum Clean-Up Account, and (3) a requirement that $3 million be credited annually to the Clean-Up Account from the Petroleum Products Gross Earnings Tax, and (4) a requirement that the revenue services commissioner deposit $3 million from motor boat fuel sales to the Conservation Fund.

Please see the OLR bill analysis for a detailed section-by-section summary of the DEP changes.

EFFECTIVE DATE: October 1, 2009

Sections 501 – 503 of House “C” Additional Carry Forward Provisions – Department of Labor $500,000 for mortgage crisis job training; unexpended balance of Home CT for the Department of Economic and Community Development; and the unexpended balance of funds remaining in the fuel oil conservation account.

Section 504 of House “C” - implements savings included in the budget of $15,399,207 for FY 10 and $16,207,665 for FY 11 which are achieved within the Judges, Family Support Magistrates, and Compensation Commissioners Retirement System. These savings represent the actuarially determined pension contribution being withheld for the biennium.

Section 505 of House “C” distributes $25,000 of funds provided to the Department of Economic and Community Development for Main Street Initiatives to Ansonia Nature and Recreation Center.

Section 506 of House “C” distributes $75,000 to the Department of Social Service's Nutrition Assistance for Manchester Areas Conference of Churches Food Pantry.

Section 507 of House “C” requires that any unappropriated General Fund surpluses that exist at the end of the fiscal year between FY 10 - FY 17 be used to pay off: (1) the Economic Recovery Notes that will be issued under the provisions of HB 6801 and (2) the securitization bonds issued under Section 88 of the underlying bill, prior to their maturity. This may result in a debt service savings depending on the provisions of the bond indenture.

House “A” includes the FY 10 and FY 11 revenue estimates as adopted by the Finance, Revenue, and Bonding Committee on August 31, 2009 for the: (1) General Fund, (2) Special Transportation Fund, (3) Mashantucket Pequot and Mohegan Fund, (4) Soldiers', Sailors', and Marines' Fund, (5) Regional Market Operations Fund, (6) Banking Fund, (7) Insurance Fund, (8) Consumer Counsel and Public Utility Control Fund, (9) Workers' Compensation Fund, and (10) Criminal Injuries Compensation Fund.

House “C” includes various provisions incorporated above in addition to technical adjustments.

Sources: Appropriations Committee Budget Document (www. cga. ct. gov/ofa); Core-CT Financial Accounting System; Department of Revenue Services; Office of the State Treasurer.

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.