OFFICE OF FISCAL ANALYSIS

Legislative Office Building, Room 5200

Hartford, CT 06106 (860) 240-0200

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

sHB-5435

AN ACT CONCERNING THE RECOMMENDATIONS OF THE MAJORITY LEADERS' JOB GROWTH ROUNDTABLE.

AMENDMENT

LCO No.: 4884

File Copy No.: 415

House Calendar No.: 213

OFA Fiscal Note

State Impact: See Below

Municipal Impact: None

Explanation

The amendment strikes the language of the underlying amendment and the associated fiscal impact.

Sections 1-3 of the amendment establishes a green technology, life science, and health information technology loan forgiveness program for Connecticut residents, and requires that the Department of Higher Education (DHE) administer the program. Section 2 transfers $3.0 million from the State of Connecticut Health and Educational Facilities Authority (CHEFA) for the purposes of the loan forgiveness program1.

Additionally, DHE would require a part-time Senior Associate position to operate the program, at an annual salary of approximately $35, 000 plus fringe benefits, for the duration of the program. DHE currently does not have the staff available to oversee an additional loan forgiveness program, as they lost approximately 20% of their staff to retirement and have not refilled the positions.

Section 4 of the amendment results in an estimated cost of $500, 000 as it requires the Regional Community-Technical Colleges (RCTCs) to develop a program to meet the educational and training needs of unemployed state residents by providing access to short-term noncredit programs of study. These costs are the result of additional instructional staff needed to provide course content.

The section also requires the establishment of an advisory committee to identify workforce needs with a subsequent report on its recommendations by November 1, 2010. There is no cost to the RCTCs associated with the advisory committee.

Finally the section results in a potential revenue gain to the state as it requires the RCTCs to leverage state funds in its application for federal funds contained in the Student Aid and Fiscal Responsibility Act and other available grants.

Section 5 authorizes $1.0 million in General Obligation (GO) bonds in FY 11 for the Community-Technical Colleges program described in Section 4. 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 $1.5 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.

Sections 6 and 7 authorize the Department of Economic and Community Development (DECD) to establish a direct loan and loan guarantee program for businesses with less than fifty 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 7 provides $15.0 million in funding from the Manufacturing Assistance Act (MAA) for the small business assistance account. To the degree that this causes General Obligation (GO) bond funds to be expended more rapidly than they otherwise would have been, there will be an increase in General Fund debt service costs in future years. The unallocated balance for MAA as of 5/1/10 is $59.0 million.

Sections 8 through 10 will result in a revenue loss to the General Fund of approximately $7.0 million in FY 11 and $8.0 million per year beginning in FY 12. The revenue loss will be from the personal income tax, the corporation business tax, and the insurance premiums tax. The revenue loss is a result of the creation of job creation tax credits of between $200 per month for each new job.

The credits are subject to the same limit as the already existing job creation tax credit (CGS 12-217ii) which is increased from $10 million to $11 million per year. The revenue loss indicated above assumes the current job creation credit accounts for $3.0 million of the $11.0 million cap in FY 11 and FY 12. The revenue impact of the amendment may be more or less depending on the use of the existing tax credit but the total impact of the three credits is estimated to reach the $11.0 million per year cap beginning in FY 12.

Section 8 requires businesses seeking credits to apply to the Department of Economic and Community Development (DECD) . It is anticipated that a significant number of businesses would be eligible. Assuming 100 businesses apply, DECD would incur costs of $246, 392 in FY 11 to hire two Economic and Community Development Agents (with a salary of $64, 511 each) , and two Account Examiners (with a salary of $58, 685 each) . Fringe benefit costs would be $65, 688 in FY 11 and $168, 793 in FY 12.

Section 9 requires businesses seeking credits to apply to the Department of Economic and Community Development (DECD) . The agency will incur costs of $123, 196 in FY 11 to hire one Economic and Community Development Agents with a salary of $64, 511 each, and one Account Examiners with a salary of $58, 685 each. Fringe benefit costs would be $32, 844 in FY 11 and $84, 395 in FY 12.

Section 11 of the amendment will result in an annual revenue loss to the General Fund of $900, 000 beginning in FY 11. The revenue loss is a result of a renewable energy and clean energy industries sales and use tax exemption.

Sections 12 and 13 establish a Preseed Financing Account, as a separate non-lapsing account, to provide funding to Connecticut businesses and permits the Connecticut Innovations Incorporated (CII) 2 to enter into a contract with a nonprofit corporation to operate the program.

Section 13 authorizes $5.0 million in General Obligation (GO) bonds in FY 11 for a preseed funding 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 $7.6 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.

Section 14 1) eliminates the sunset date of December 31, 2015 for the current Insurance Reinvestment Fund Program, 2) requires that after June 30, 2011 all eligible investments under the credit exceed $1 million, and 3) creates a new Insurance Reinvestment Fund Program going forward.

Eliminating the sunset date for the current program may result in a revenue loss to the General Fund from the Insurance Premiums Tax after FY 15.

Requiring investments to exceed $1 million to qualify for the existing credit may preclude a revenue loss to the General Fund from the insurance premiums tax to the extent fewer investments are eligible for the credit.

The new Insurance Reinvestment Fund Program will result in an annual General Fund revenue loss to the Insurance Premium Tax starting in FY 13 with a cap of $40 million per year and a total of $200 million over the life of the credit. In order to be eligible for the Insurance Reinvestment Fund Program tax credit the fund manager must have their investment plan certified by DECD as being revenue neutral or positive to the state. In order for the fund to remain certified it must report and demonstrate to DECD that it has remained revenue neutral to the state. This must be done in the third, fifth, seventh, and ninth years of the plan or whenever substantial changes have been made to the investment plan. These provisions are anticipated to offset the revenue loss to the General Fund associated with the credit.

The amendment specifies that the maximum credit that can be claimed per fiscal year is $40 million, which would occur in the years when 20% of the credit could be claimed. The table below shows the revenue loss in each fiscal year assuming that sufficient capital is invested to qualify for the maximum amount of credit. The actual amount of the revenue loss in each fiscal year will depend on the amount of capital invested in eligible companies.

Maximum General Fund Revenue Loss from the Insurance Reinvestment Fund Program Tax Credit

Fiscal Year

Percent Credit claimed

Maximum Revenue Loss

($ millions)

FY 10

0%

0

FY 11

0%

0

FY 12

0%

0

FY 13

10%

20

FY 14

10%

20

FY 15

10%

20

FY 16

10%

20

FY 17

20%

40

FY 18

20%

40

FY 19

20%

40

Total

100%

200

It is anticipated that DECD will incur out year costs, beginning in FY 11, of $32, 250 for a half time Community Development Agent (AR-25) to administer the credit.

Section 15 could result in a General Fund revenue loss to the personal income tax of up to $6.0 million (the cap) in FY 11 through FY 13, and up to $3.0 million per year until FY 15. The revenue loss is a result of the amendment authorizing income tax credits for people who invest in qualified Connecticut start-up businesses. However, the initial revenue loss is likely to be less than $6.0 million because of the limited number of Angel Investors currently active in Connecticut.

CII must determine a company's eligibility as an Angel Investor, maintain a database of such approved businesses that is updated monthly, and review the credit's effectiveness, which is anticipated to result in personnel3 costs of $59, 323, plus fringe benefits, and indirect overhead costs of $17, 532. It is anticipated that any costs incurred by CII would come from its operating funds, which reduces funding available for current investments and programs.

Section 17 expands the duties for the Department of Economic and Community Development (DECD) regarding Connecticut exports, resulting in costs of $114, 125, plus fringe benefits in FY 11 and $110, 410, plus fringe benefits in FY 12. The amendment requires DECD to reallocate funding from existing agency accounts or programs. It is uncertain which programs will receive reduced funding.

The amendment requires DECD to assign adequate staff to provide technical assistance to businesses regarding exports. The agency will need one Connecticut Careers Trainee with a starting salary of $40, 000, plus fringe benefits to handle this new responsibility. The agency is required to provide guidance and advice on regulatory matters which will require funding for staff training and travel expenses to develop expertise in these areas. Funding is needed for: training at the State International Development Officers Association ($450 event registration plus $950 for staff travel= $1, 500) ; attendance at three CT Business and Industry Association (CBIA) workshops ($75 per session x 3 sessions = $225) ; and to attend two specialized week long export training sessions (with registration and staff travel costs estimated at $4, 000) .

Additionally, DECD must support organizations and activities that provide assistance in exporting state products. This will require DECD to: join the State International Development Officers Association with annual dues of $2, 200; participate in the quarterly Eastern Trade Council board meeting ($500 per meeting x 4 meetings = $2, 000) ; sponsor the CBIA International Trade Survey ($10, 000) ; and join the World Affairs Council ($15, 000) .

The amendment requires DECD to promote export activities, including sponsorship of programs, assist companies in accessing federal Department of Commerce services and provide marketing materials and web site improvements for exporters. It is anticipated the department will need $30, 000 to provide export assistance, $5, 000 for marketing materials, and $5, 000 for website improvements.

Section 18 expands the uses of the DECD's Manufacturing Assistance Act (MAA) funds to support exporting. As of April 5, 2010, the unallocated balance of MAA funds is $59 million.

Sections 19 and 20 establish a Connecticut Competitiveness Council and places it within the Department of Economic and Community Development, results in no fiscal impact.

Section 21 authorizes $1.3 million in General Obligation (GO) bonds in FY 11 for the mortgage crisis job training 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 $2.0 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.

Section 22 - 24 makes technical changes which results in no fiscal impact.

Sections 25 through 28 of the amendment will result in a revenue gain of approximately $155, 000 per year beginning in FY 15 from eliminating corporation tax credits for donating computers to public and private schools (CGS 10-228b) , financial institutions constructing new facilities (CGS 12-217u) , and Small Business Administration guaranty fee (CGS 12-217cc) .

The table below provides the history of the credits from tax year 2005 to 2007.

Credit

2005

2006

2007

Average

Computer Donation

250

340

0

197

Financial Institutions

0

839

0

280

SBA Guaranty Fee

178, 791

893

33, 324

71, 003

Total

179, 041

2, 072

33, 324

71, 479

Section 29 requires DECD to establish and implement a pilot program to assist eligible manufacturing companies in converting their operations into green manufacturing facilities or in implementing energy efficient measures by using lean manufacturing strategies. The amendment permits the department to contract with a third party to provide such services.

Section 30 authorizes $0.5 million in General Obligation (GO) bonds in FY 11 for the mortgage crisis job training 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 $0.8 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.

Section 31 requires DECD to report certain information regarding the Connecticut Credit Consortium which results in no fiscal impact.

Sources:

2006 County Business Statistics

 

United States Census Bureau

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.

1 CHEFA currently has a fund balance of approximately $11.8 million dollars, of which approximately $900, 000 in not restricted by statute or committed for the purposes of other programs.

2 CII is a quasi-public state agency that does not receive resources from the General Fund. It provides assistance for: (a) development of new business; (b) research and development of new businesses; and (c) financing.

3 Personnel include a 0. 5 FTE Investment Analyst and a 0. 2 FTE Investment Manager