OFFICE OF FISCAL ANALYSIS

Legislative Office Building, Room 5200

Hartford, CT 06106 ↓ (860) 240-0200

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

sSB-1

AN ACT CONCERNING THE PRESERVATION AND CREATION OF JOBS IN CONNECTICUT.

OFA Fiscal Note

State Impact:

Note: GF=General Fund

Municipal Impact: None

Explanation

The bill provides for an exemption of the business entity tax for two years in certain circumstances, imposes a tax on bonuses awarded to employees of certain companies, and establishes a small business loan program. This results in a net General Fund revenue loss of between $7. 3 million and $9. 2 million in FY 11 and FY 12, a significant cost to the Department of Revenue Services (DRS) in FY 11, a cost of $319,459 in FY 11 and $432,566 in FY 12 (including fringe benefits) to the Department of Economic and Community Development (DECD), and an estimated $30. 5 million in future debt service costs.

Section 1 exempts certain businesses from the annual $250 business entity tax for the 2010 and 2011 tax years. This results in a General Fund revenue loss of approximately $12. 0 million per year in FY 11 and FY 12. Based on net income data reported by partnerships and pass-through entities,² it is estimated that approximately 48,000 entities will qualify for the exemption.

Sections 2 and 3 impose a higher personal income tax rate on certain bonuses paid to employees of companies receiving Troubled Asset Relief Plan (TARP) assistance. This results in a General Fund revenue gain of between $2. 8 million and $4. 7 million per year in FY 11 and FY 12.

Based on actual 2009 wage and employee data from the Department of Labor (DOL) and information gathered by the New York State Attorney General, it is estimated that fewer than 100 employees in Connecticut will receive qualifying bonuses in excess of $1. 0 million, which would be subject to the higher income tax rate.

The revenue gain is dependent upon the extent to which: 1) the data on the distribution of bonuses contained in the New York report is substantially different than in Connecticut; 2) actual individual bonus payments are significantly greater than $3. 0 million; 3) companies alter their current bonus payment plans; and 4) actions are taken to minimize the potential increase in tax liability.

Sections 1-3 also result in a significant³ one-time cost to DRS associated with modifying the business entity tax and income tax forms to capture business income, TARP information, and bonus information, as well as necessary modifications to the taxpayer service center (TSC).

Section 4 authorizes DECD to establish a direct loan and loan guarantee program for businesses with fewer than 50 employees. It is anticipated that a significant number of businesses would be eligible. Assuming 100 businesses apply, DECD would incur costs of $252,218 in FY 11 to hire three Economic Development Agents (with a salary of $65,177 each) and one Accounts Examiner (with a salary of $56,685). Fringe benefit costs would be $67,241 in FY 11 and $172,782 in FY 12.

Section 5 authorizes $20. 0 million in General Obligation (GO) bonds in FY 11 for the Small Business Assistance Program. The total General Fund debt service cost for principal and interest payments to issue this amount over 20 years assuming a 5. 0% interest rate is $30. 5 million. The first year that the state will experience costs associated with the bonds depends on when they are allocated through the State Bond Commission and when the funds are expended.

The Out Years

The revenue impact identified above is limited to FY 11 and FY 12 only. The debt service cost identified above would continue into the future for the term of issuance of the bonds; the cost to the DECD would continue into the future subject to inflation.