OFFICE OF FISCAL ANALYSIS

Legislative Office Building, Room 5200

Hartford, CT 06106 (860) 240-0200

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

SB-1801

AN ACT CONCERNING THE STATE BUDGET FOR THE BIENNIUM ENDING JUNE 30, 2011, AND MAKING APPROPRIATIONS THEREFOR.

As Amended by Senate "A" (LCO 9511)

OFA Fiscal Note

State Impact: See Explanation Below

Municipal Impact: See Explanation Below

Explanation

The bill makes appropriations and revenue changes as identified below for FY 10 and FY 11.

FUND BALANCE

 

FY 10

FY 11

GENERAL FUND:

   

Revenue Schedule (as adopted by Finance Committee 6/25/09):

$17,528,700,000

$18,048,400,000

Appropriations in the bill

17,528,437,382

18,047,806,627

Difference

$262,618

$593,373

MASH. PEQ. & MOHEGAN FUND:

   

Revenue Schedule (as adopted by Finance Committee 6/25/09):

$61,800,000

$61,800,000

Appropriations in the bill

61,779,907

61,779,907

Difference

$20,093

$20,093

CRIMINAL INJURIES COMPENSATION FUND:

 

Revenue Schedule (as adopted by Finance Committee 6/25/09):

$3,500,000

$3,700,000

Appropriations in the bill

3,407,410

3,683,598

Difference

$92,590

$16,402

Revenue Summary

The bill results in total net revenue changes of $2,999. 1 million in FY 10 and $3,119. 8 million in FY 11 due to the following:

Revenue Changes in the Bill (in millions)

FY 10

FY 11

Tax and Revenue Policy Changes

$1,313. 7

$1,080. 0

Revenue Related to Expenditures

1,224. 3

784. 1

Transfer from Budget Reserve Fund (BRF)

461. 1

920. 7

Securitization

-

335. 0

Total Net Revenue Gain

$2,999. 1

$3,119. 8

A more detailed explanation of the revenue changes is included below in sections 73 - 104.

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

$17,982,331,176

($453,893,794)

$17,528,437,382

Mash. Pequot & Mohegan

61,779,907

 

61,779,907

Criminal Injuries Comp.

3,407,410

 

3,407,410

TOTAL

$18,047,518,493

($453,893,794)

$17,593,624,699

FY 10 General Fund Lapses Identified Above:

Reduce Outside Consultant Contracts

($95,000,000)

Estimated Unallocated Lapse

(87,780,000)

Enhancing Agency Outcomes

(6,000,000)

Hard Hiring Freeze

(5,000,000)

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

(10,600,000)

TOTAL GF Lapse

($453,893,794)

FY 11 All Funds Appropriations Included in the Bill

Fund

FY 11 Gross Appropriations

Less: Lapse & Other Reductions

FY 11 Net Appropriations

General Fund

$18,551,169,717

($503,363,090)

$18,047,806,627

Mash. Pequot & Mohegan

61,779,907

 

61,779,907

Criminal Injuries Comp.

3,683,598

 

3,683,598

TOTAL

$18,616,633,222

($503,363,090)

$18,113,270,132

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)

Hard Hiring Freeze

(5,000,000)

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)

TOTAL GF Lapse

($503,363,090))

Spending Cap

The spending cap is historically calculated based upon general budget expenditures for all funds. Passage of a budget that includes only the General Fund without the Transportation Fund would put the calculation substantially below the spending cap as the Transportation Fund for FY 09 is over $1. 1 billion.

Growth Rate

The adjusted growth rate for all appropriated funds is -0. 7% in FY 10 and 3. 5% 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. All appropriated funds in the bill include: General Fund, Mashantucket Pequot and Mohegan Fund, and the Criminal Injuries Compensation Fund.

Shifting of Expenditures to the General Fund

The Budget shifts $58. 3 million (includes fringe benefits) of the Department of Environmental Protection's special fund expenditures to the General Fund (also recommended in the Governor's FY 10 - FY 11 Budget). The table below reflects an additional shift of $106. 3 million of other funds/accounts to the General Fund (also included within this budget):

Shift to the General Fund (in millions)

Other Fund/Account [1]

FY 10

FY 11

Banking Fund

$21. 6

$19. 7

Insurance Fund

24. 7

25. 5

Consumer Counsel Public Utility Fund

22. 6

23. 3

Workers' Compensation Fund

21. 5

21. 9

Soldiers Sailors & Marines Fund

2. 9

2. 9

Regional Market Fund

. 06

. 06

Commercial Recording Division Account (CRD) [2]

10. 8

10. 7

Citizens Election Fund (Administration) [2]

3. 0

3. 2

DOIT Technical Services Revolving Account [2] [3]

29. 8

30. 7

DOIT Lapse

(30. 8)

(31. 7)

Total

$106. 3

$106. 4

[1] Other Appropriated Funds (and the CRD account) shifted to the General Fund include fringe benefits that have been shifted to the Comptroller's GF fringe benefit accounts.

[2] Non-Appropriated Funds/Accounts.

[3] The Department of Information Technology (DOIT) currently operates a revolving fund that charges state agencies for information technology services provided. This budget shifts the account into the General Fund and anticipates a corresponding lapse to reflect agencies not incurring the charges for DOIT services. This also anticipates a $1 million savings.

Sections 7 - 72 are identified below:

Section

Agency

Description

7

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.

8

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.

9a

SDE

Distributes $117,721,188 in priority school district grants for FY 10.

9b

SDE

Distributes $117,721,188 in priority school district grants for FY 11.

10

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.

11(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.

12

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 $189,000.

13a

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.

13b

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.

13c

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.

14a

DOB

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

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

14b

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.

15a

OPM

In FY 10 and FY 11, $1 million of the appropriated funds for Neighborhood Youth Centers are to be used for a grant to the Boys and Girls Club, provided 100% cash match from organization.

15b

OPM

In FY 10 and FY 11, $200,000 of the appropriated funds for Neighborhood Youth Centers are to be used for a grant to Centro San Jose, Hill Corporative Youth and Central YMCA, provided a minimum 50% match from organizations.

16

DPH

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

17

OPM

Allows Operation Fuel to utilize the funds carried forward in SB 2001 in FY 10 for energy assistance.

18(a)

Various

Permits any FY 10 or FY 11 GF or TF appropriations for Personal Services to be transferred from agencies to the Reserve for Salary Adjustments account upon recommendation of the Governor and approval of the FAC.

18(b)

Various

Permits any FY 10 or FY 11 GF or TF appropriations to the Reserve for Salary Adjustment (RSA) account to be transferred to agencies upon recommendation of the Governor and approval of the FAC, for salary increases, other employee benefits, accrual payments, or other personal services adjustments authorized by this act or any other public or special act.

19(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 $27. 2 million General Fund and $9. 8 million Transportation Fund.

19(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.

20

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.

21

OPM

Up to $50,000 of the unexpended balance of funds in Other Expenses is carried forward to prevent base closures into FY 10.

22

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.

23

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.

24

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.

25

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.

26

DPH

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

27

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.

28

DMHAS

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

29

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.

30

UCHC/DSS

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

31

DVA/DSS

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

32

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.

33

DSS

Directs DSS to report on its non-formulary drug appeal process by 9/1/09.

34

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, on or after 7/1/09, who are undergoing reunification with their children.

35

JUD

Provides (effective July 1, 2009) that the governor's recommended budgets must incorporate, without change, the Judicial Department's budget requests submitted to the Office of Policy and Management (OPM).

Impact: While this policy change precludes the OPM from making adjustments to the Department's budget requests, it has no inherent fiscal impact.

36(a)

OPM/All

OPM to make recommendations for a total reduction of $14 million in expenditures for Personal Services for FY 10 & FY 11.

36(b)

OPM/All

OPM to make recommendations for a total reduction of $11 million in expenditures for Other Expenses for FY 10 & FY 11.

36(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.

36(d)

OPM/All

Directs OPM to submit plans detailing recommended reductions under sections 39a-39c.

37

Various

Permits the Governor (with Finance Advisory Committee approval) to modify or reduce allotments to achieve Personal Services savings included in the budget.

38

DAS

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

39

Various

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

40

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.

41

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.

42

DSS

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

43

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).

44

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.

45

DOC

Permits OPM to transfer funds appropriated to DOC for inmate re-entry programs (without FAC approval).

46

OLM

Extends the term of the Commission on Enhancing Agency Outcomes to 12/31/11.

47

Judic. /OLM

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

48 & 49

OPM

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

50

All

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

51

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.

52

DPH

Transfer $541,982 in FY 10 and FY 11 from E 9-1-1 Telecommunication Fund to DPH for the regional emergency medical services councils.

53(a)

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).

53(b)

DSS

DSS shall require utilization of the Easy Breathing model in the HUSKY program.

54

DCF/Judic

Allows for the transfer of positions and funds from DCF to Judicial Department with FAC approval to implement consolidation of certain juvenile justice services.

55

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.

56

DSS

Establishes a Medicaid Waiver Oversight Committee to advise DSS on Medicaid waivers.

57

DOC/Judic

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

58

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.

59

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.

60

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.

61

DAG

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

62

DAG

Changes the effective date to 7/1/09 for the community investment account for town clerks to receive a fee of $40 for each document recorded in the land records of the municipality and for town clerks to remit $36 to the State Treasurer.

63

 

Provides the City of Bridgeport with operating budget relief in FY 09, 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 is currently 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 $4 million to the pension plan. The bill has no state fiscal impact.

64

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.

65-70

OLM

Provides the Joint Standing Committee on Legislative Management with authority over staffing and personnel matters of the various legislative commissions.

71

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.

72

POST/DPS

Requires DPS to provide administrative assistance to POST and allows POST to retain independent operations.

Sections 73 – 104 (Revenue) are identified below:

Section 73 - Securitization Plan

OFA Fiscal Impact

The bill is anticipated to result in a one-time General Fund revenue gain of $335 million in FY 11. Assuming that $354. 5 million is issued ($335 million in principal and $19. 5 million in issuance costs) at a 5. 0% interest rate over a 10 year term, the total amount of debt service (principal and interest) is $427. 1 million. The table below shows the annual debt service payments between FY 12 and FY 21. It should be noted that the debt service payments represent a General Fund revenue reduction because proceeds from the state lottery will be used for debt service rather than being transferred to the General Fund.

Annual Securitization Debt Service Payments1

Fiscal Year

($ millions)

FY 12

50. 3

FY 13

48. 6

FY 14

46. 9

FY 15

45. 2

FY 16

43. 6

FY 17

41. 9

FY 18

40. 2

FY 19

38. 5

FY 20

36. 9

FY 21

35. 2

Total

427. 1

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

OLR Analysis

The bill requires the state treasurer and the OPM secretary jointly to develop a financing plan to raise up to $335 million in net general state revenue for FY 11. The plan can include “securitization” of revenue from the state lottery; issuing bonds and other debt instruments or placing them privately; or 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 plan and provide it to the chairpersons of the Appropriations and Finance, Revenue and Bonding committees by February 3, 2010.

EFFECTIVE DATE: July 1, 2009

Section 74 - Annual Marshal Fee

OFA Fiscal Impact

The annual General Fund revenue gain under this provision is approximately $120,000.

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. The fee revenue is deposited in the General Fund.

By law, state marshals are independent contractors compensated on a fee-for-service basis. They provide legal execution and service of process. The State Marshal Commission fills vacancies in state marshal positions, sets professional standards for them, reviews and audits their records and accounts, and can remove a state marshal for cause after notice and a hearing.

EFFECTIVE DATE: July 1, 2009

Section 75 - 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 bill requires that, starting August 1, 2009, the commissioner to 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: July 1, 2009

INCOME TAX (Sections 95 - 98)

Section 95 Rate Increase

OFA Fiscal Impact

The bill is anticipated to result in a General Fund revenue gain to the personal income tax of $910. 1 million in FY 10 and $612. 8 million per year 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 $500,000 for joint filers, $265,000 for single filers, $400,000 for heads of household, and $250,000 for married people filing separately. It does so by adding three higher-income brackets and increasing the marginal tax rates for income in those brackets from a flat 5. 0% to a range of 6. 0% to 7. 5%. It increases the flat tax rate for trusts and estates from 5. 0% to 7. 5%.

Table 1 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 1: CURRENT AND PROPOSED TAX RATES AND BRACKETS

TAX RATES

CT TAXABLE INCOME

Married Filing

Jointly

Single

Current

Bill

Over

But Not Over

Over

But Not Over

3. 0%

3. 0%

$0

$20,000

$0

$10,000

5. 0%

5. 0%

20,000

500,000

10,000

265,000

6. 0%

500,000

600,000

265,000

318,000

6. 5%

600,000

750,000

318,000

397,500

7. 5%

Over $750,000

Over $397,500

TAX RATES

Head of

Household

Married Filing

Separately

Current

Bill

Over

But Not Over

Over

But Not Over

3. 0%

3. 0%

$0

$16,000

$0

$10,000

5. 0%

5. 0%

16,000

400,000

10,000

250,000

6. 0%

400,000

480,000

250,000

300,000

6. 5%

480,000

600,000

300,000

375,000

7. 5%

Over $600,000

Over $375,000

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

Sections 97 and 98 – 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 delays scheduled increases in (1) their adjusted gross income (AGI) exempt from the tax and (2) income thresholds for reducing their personal exemptions and credits.

Personal Exemption - The maximum personal exemption for single filers for the 2008 tax year is $13,000. Under current law, the maximum exemption is scheduled to increase to $13,500 on January 1, 2009 and 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 2. (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 2: PERSONAL EXEMPTIONS FOR SINGLE FILERS

Tax Year(s)

Maximum Personal Exemption

(AGI)

Personal Exemption

Reduction Threshold (AGI)

Current

The Bill

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 3 shows qualifying personal credit income ranges for single filers under current law and the bill.

TABLE 3: PERSONAL CREDITS FOR SINGLE FILERS

Tax Year(s)

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

Current

The Bill

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: July 1, 2009 and applicable to income years starting on or after January 1, 2009.

CORPORATION TAX (Sections 76 – 87, 96, 104)

Sections 77 and 86 – Surcharge

OFA Fiscal Impact

The bill is anticipated to result in a General Fund revenue gain to the corporation tax of $133. 4 million in FY 10, $88. 4 million in FY 11, and $40. 8 million in FY 12.

OLR Analysis

The bill imposes a 25% corporation tax surcharge for income years 2009, 2010, and 2011. Companies must calculate their surcharges based on their tax liability excluding any credits. The surcharge is due, payable, and collectible as part of each company's total tax for the year.

The surcharge applies to all companies that pay the tax, except those owing only the $250 minimum tax. It applies both to companies that pay the tax on their net income and those that pay on their capital base.

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

Sections 76, 78 & 79 – Exemptions for Domestic International Service Companies (DISCs)

OFA Fiscal Impact

The bill is anticipated to result in a General Fund revenue gain to the corporation tax of $50. 0 million per year beginning in FY 10.

OLR Analysis

The bill eliminates corporation tax exemptions for (1) companies that qualify under the federal tax code as domestic international service companies (DISCs) and (2) dividends that other companies receive from DISCs. It also requires companies to include receipts from sales of tangible personal property to DISCs in their total receipts for interstate apportionment purposes.

Under the federal tax code, companies that meet certain conditions (see BACKGROUND) and receive most of their income from qualified exports, can elect to be treated as interest charge DISCs (IC-DISCs) for federal tax purposes. Unlike most corporations, IC-DISCs are not generally subject to federal tax on their income. Instead, their shareholders pay taxes on the income when it is actually distributed, but federal law allows the taxes on those distributions to be deferred if the shareholders pay annual interest on the deferred amounts. The IRS establishes the annual interest rate based on the 12-month Treasury bill interest rate (Internal Revenue Code, 992; 995(f)).

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

Section 87 – Preference Tax

OFA Fiscal Impact

The bill is anticipated to result in a General Fund revenue gain to the corporation tax of $5. 0 million per year beginning in FY 10.

OLR Analysis

The bill increases the maximum preference tax for groups of companies filing combined corporation tax returns from $250,000 to $400,000.

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 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 $400,000.

EFFECTIVE DATE: July 1, 2009

Section 80 – Tax Credit for Donating Open Space

OFA Fiscal Impact

The bill is anticipated to result in a General Fund revenue loss from the 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: July 1, 2009 and applicable to income years starting on or after January 1, 2009.

Sections 78 and 96 – Federal Domestic Production Activity Deduction

OFA Fiscal Impact

The bill is anticipated to result in an annual 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 domestic production activity when determining their taxable income for the state corporation and income taxes.

Federal tax law allows corporations, individuals, and pass-through companies to deduct 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 percentage deduction is 6% for 2008 and 2009 and 9% for 2010 and after (Internal Revenue Code 199).

The bill requires (1) corporations to exclude the domestic production activity 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: July 1, 2009. 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.

Sections 81 - 85 and 104 - 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 companies tax of $10. 0 million in FY 11 and $15. 0 million per year beginning in FY 12.

The bill transfers the administration of the film industry tax credit program from the Commission on Culture and Tourism (CCT) to the Department of Economic and Community Development (DECD). It is anticipated that the 4 staff and associated funding at CCT would be transferred to DECD, as DECD does not currently have the staff expertise necessary to administer the program.

OLR Analysis

Credit Administration

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 - Currently, 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 that an audit professional, which the company chooses from a list DECD compiles, provide the independent certification.

Reporting Requirement - Currently, 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 and requires that DECD report annually, starting by January 1, 2010. 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, and (c) the total production expenses or costs the taxpayer issued the credit incurred in the state.

Eligible and Ineligible Production Expenses

Minimum Qualifying Expenditure - Under current law, a company is eligible for the film or digital animation production tax credit if it incurs at least $50,000 in eligible production expenses in the state. For income years starting January 1, 2009, the bill increases the minimum expenditure for both credits to $1 million.

In- and Out-of-State Expenditures - The bill requires, for the film production tax credit, that the company (1) conduct at least 50% of its principal photography days and (2) incur at least 50% of its postproduction costs within the state.

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 will 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, for services on a film or digital media production counts as a credit-eligible expense. Anything over this amount does not. Starting January 1, 2009, the bill limits credit-eligible compensation for all star talent featured in a film or digital media production to $20 million in the aggregate.

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.

Film and Digital Animation Infrastructure Investment Tax Credit

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

Starting January 1, 2009, the bill makes the credit a flat 20% and increases the minimum qualifying expenditure to $5 million. The bill also requires that the project be 100%, rather than at least 60%, complete before it can receive a tax credit voucher.

EFFECTIVE DATE: July 1, 2009 and applicable to income years starting on or after January 1, 2009. The repeal of statutes to conform to the transfer of the film responsibilities from CCCT to DECD take effect upon passage.

Sections 88 - 90 – CIGARETTE TAX

OFA Fiscal Impact

The bill is anticipated to result in a General Fund revenue gain to the cigarette and tobacco tax of $102. 4 million in FY 10 and $93. 8 million beginning in FY 11. 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 $6. 6 million in FY 10 as a result of the floor tax.

OLR Analysis

The bill increases the cigarette tax by 75 cents, from $2 to $2. 75 per pack of 20 (from 10 cents to 13. 75 cents per cigarette), starting July 1, 2009.

The bill also imposes a 75-cent “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 June 30, 2009. By August 15, 2009, each dealer and distributor must report to the Department of Revenue Services (DRS) the number of cigarettes in inventory as of that time and date and pay the inventory 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: The cigarette tax increase is effective July 1, 2009 and applicable to cigarette sales on or after that date. The floor tax is effective on passage.

Sections 91 and 92 – TOBACCO PRODUCTS TAX

OFA Fiscal Impact

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

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, snuff, and similar products.

The bill imposes the same “floor tax” on inventory as the cigarette floor tax above, except that the rate is 7. 5% on the wholesale price of untaxed tobacco products and 15 cents per ounce or a proportional share of fractional amounts of snuff that distributors or unclassified importers have in their inventories.

EFFECTIVE DATE: July 1, 2009 and applicable to sales on and after that date. The floor tax is effective on passage.

Section 93 – ESTATE TAX SURCHARGE

OFA Fiscal Impact

The bill is anticipated to result in a General Fund revenue gain to the estate and gift tax of $42. 7 million in FY 10, $51. 2 million in FY 11, and $53. 3 million in FY 12.

OLR Analysis

The bill imposes a 30% estate tax surcharge on the taxable estates of those who die in 2009, 2010, or 2011. The estate tax applies to taxable gifts and estates over $2 million. Under the bill, the surcharge must be added to the Connecticut estate tax due and is payable in the same manner as the underlying tax.

EFFECTIVE DATE: July 1, 2009 and applicable to estates of those who die on or after January 1, 2009.

Section 94 – USE TAX TABLE

OFA Fiscal Impact

The bill is anticipated to result in an annual General Fund revenue gain to the sales and use tax of $0. 5 million in 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 (6% for most items) and the total taxes 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: July 1, 2009

Section 99 - TIRE FEE

OFA Fiscal Impact

The bill is anticipated to result in an annual General Fund revenue gain of $6. 0 million in beginning in FY 10.

OLR Analysis

The bill requires retailers of motor vehicle tires to pay a $3 fee for each tire they sell. Such retailers must register with the DRS commissioner and submit quarterly returns, starting with the quarter beginning July 1, 2009. Returns are due by the last day of the month following the end of each quarter. Fees not paid when due are subject to a penalty of 10% or $50, whichever is greater, and interest of 1. 25% per month or part of a month until paid. Tire fee revenue must be deposited in the General Fund.

The bill requires the DRS commissioner to distribute tire fee return forms widely in the state but specifies that failure to receive a form does not excuse a person from the obligation to pay the fee. The bill applies the same administrative, audit, deficiency assessment, and appeal procedures to the tire fee as already apply to admissions and dues taxes.

EFFECTIVE DATE: Upon passage

Section 100 – Plan to Sell State Assets

OFA Fiscal Impact

The bill is anticipated to result in a General Fund revenue gain of $10. 0 million in FY 10 and $102. 5 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 net general revenue of up to $10 million for FY 11 and $102. 5 million for FY 12. They must finish the plan and provide it to the chairpersons of the Appropriations and Finance, Revenue and Bonding committees by February 3, 2010.

EFFECTIVE DATE: July 1, 2009

Section 101 – Transfers from the Budget Reserve Fund

OFA Fiscal Impact

The bill is anticipated to result in a General Fund revenue gain of $461. 1 million in FY 10 and $920. 7 million in FY 11. This will also result in a corresponding revenue loss to the Budget Reserve Fund in each fiscal year.

OLR Analysis

The bill requires the state treasurer to transfer from the Budget Reserve Fund to General Fund revenue, (1) $461. 1 million for FY 10 on July 1, 2009 and (2) $920. 7 million for FY 11 on July 1, 2010.

EFFECTIVE DATE: Upon passage

Sections 102 and 103 – Economic Recovery Notes

OFA Fiscal Impact

Assuming that $1. 316 billion is issued ($1. 2 billion in principal and $116 million in issuance costs and capitalized interest for FY 10 and FY 11) at a 4. 5% interest rate over a 7 year term, the total amount of debt service (principal and interest) is $1. 499 billion. The table below shows the annual debt service payments between FY 12 and FY 16. It should be noted that the debt service payments will be made from General Fund revenues.

Economic Recovery Note Debt Service Payments1

($ millions)

Fiscal Year

Principal

Interest

Total

FY 10

0

0

0

FY 11

0

0

0

FY 12

241

59

300

FY 13

251

48

300

FY 14

263

37

300

FY 15

275

25

300

FY 16

287

13

300

Total

1,316

183

1,499

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

OLR Analysis

The bill authorizes the state to issue economic recovery notes to fund (1) the FY 09 General Fund deficit, (2) the interest payable or accrued on the notes through June 30, 2011, and (3) the costs of their issuance. The notes are state general obligations and must mature before July 1, 2016. The bill exempts the debt attributable to the notes from the statutory limit on state General Fund-supported debt (see BACKGROUND).

The bill requires the comptroller to certify the FY 09 deficit amount to the treasurer “promptly” after the bill's passage based on her most recent monthly report of the state's fiscal condition. The comptroller's certification provides conclusive evidence of the amount of economic recovery notes the treasurer can issue under the bill. When the comptroller knows the final deficit, she must certify that amount to the treasurer. If the final amount is greater than the initial amount certified, the bill authorizes the treasurer to issue addition notes to cover the difference.

The treasurer must issue the notes on or after the bill's passage and deposit the proceeds from their sale in the General Fund. In any determination of the General Fund's position for FY 10, the comptroller must reflect the amount of the note proceeds funding the FY 09 General Fund deficit, if the notes have been issued before the determination.

The bill exempts interest on, and gains from the sale of, the notes from all taxes imposed by the state or under its authority, except estate or succession taxes. It also requires the treasurer to structure the notes so their interest is excluded from federal taxes if that is appropriate or necessary to improve the notes' marketability.

The bill makes the notes legal investments for banks, insurance companies, fiduciaries, and public bodies and allows public officers to accept them for any purpose for which they may receive or deposit state notes.

Finally, the bill incorporates and applies to the economic recovery notes various statutory provisions relating to issuing state general obligation bonds and notes. These concern, among other things, the treasurer's authority to make agreements and promises relating to issuing and repaying the notes, and the procedure for, and state defenses in, any bond holder lawsuit under contracts, agreements, and covenants relating to the notes.

EFFECTIVE DATE: Upon passage

BACKGROUND

Statutory Debt Limit

State law limits the amount of state General Fund-supported debt to 1. 6 times the net General Fund tax receipts the Finance, Revenue and Bonding Committee projects for the fiscal year in which the legislature authorizes the debt. Certain types of debt are excluded from the debt limit calculation, including debts incurred for federally reimbursable public works projects, assets in debt retirement funds, and debt incurred in anticipation of revenue and some other purposes.

IC-DISCs

To be an IC-DISC, a corporation must be organized under the laws of a state or the District of Columbia and:

1. derive at least 95% of its gross receipts during the tax year from qualified exports;

2. at the end of the tax year, have at least 95% of its assets as qualified export assets;

3. have only one class of stock with a par or stated value of at least $2,500 on each day of the tax year;

4. maintain separate books and records;

5. not be a member of any controlled group of which a foreign sales corporation (FSC) is also a member (a FSC is an affiliate of a U. S. company that is incorporated in a qualifying foreign country and serves as an agent for the U. S. exporter);

6. have a tax year that conforms to the tax year of its largest shareholder in terms of voting power; and

7. elects to be treated as an IC-DISC for the tax year.

Senate “A” includes the FY 10 and FY 11 revenue estimates as adopted by the Finance, Revenue, and Bonding Committee on June 25, 2009 for the: (1) General Fund, (2) Mashantucket Pequot and Mohegan Fund, and (3) Criminal Injuries Compensation Fund.

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.