AN ACT CONCERNING THE STATE BUDGET FOR THE BIENNIUM ENDING JUNE 30, 2017, AND MAKING APPROPRIATIONS THEREFOR, AND OTHER PROVISIONS RELATED TO REVENUE, DEFICIENCY APPROPRIATIONS AND TAX FAIRNESS AND ECONOMIC DEVELOPMENT.

OFFICE OF FISCAL ANALYSIS

Legislative Office Building, Room 5200

Hartford, CT 06106 ↓ (860) 240-0200

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

EMERGENCY CERTIFICATION

HB-7061

AN ACT CONCERNING THE STATE BUDGET FOR THE BIENNIUM ENDING JUNE 30, 2017, AND MAKING APPROPRIATIONS THEREFOR, AND OTHER PROVISIONS RELATED TO REVENUE, DEFICIENCY APPROPRIATIONS AND TAX FAIRNESS AND ECONOMIC DEVELOPMENT.

State & Municipal Impact: See Below

Explanation

The bill includes: 1) General Fund appropriations of $18.2 billion in FY 16 and $18.7 billion in FY 17, 2) appropriations in nine funds totaling $19.8 billion in FY 16 and $20.5 billion in FY 17, 3) carry forward funding totaling an estimated $26.1 million, 4) $121.7 million in FY 15 General Fund deficiency appropriations (offset by General Fund appropriation reductions of $121.7 million), 5) $20.4 million in Transportation Fund deficiency appropriations, 6) deficit mitigation measures that reduce the FY 15 deficit by $8.5 million, 7) various policy changes that yield net revenue increases of $821.5 in FY 16 and $691.0 in FY 17, 8) revenue estimates adopted by the Finance Committee on 6/1/15, as adjusted to reflect new policies in this bill; and 9) various other provisions. The table below compares the revenue estimates to the appropriations included in the bill.

Comparison of FY 16 and FY 17 Appropriations to Revenue Estimates


Fund	FY 16 $			FY 17 $
	Approp.	Revenue	Surplus/ (Deficit)	Approp.	Revenue	Surplus/ (Deficit)


General	18,175.6	18,181.8	6.2	18,738.2	18,740.2	2.1
Special Transportation	1,416.1	1,468.1	52.0	1,496.1	1,613.2	117.1
Other Appropriated	229.6	242.8	13.2	231.0	245.4	14.4
TOTAL	19,821.2	19,892.7	71.4	20,465.3	20,598.8	133.6

Appropriations

Sections 1 – 9 include appropriations by agency and line items totaling $19.8 billion in FY 16 and $20.5 billion in FY 17.

Fund Summary of FY 16 and FY 17 Appropriations


	Legislative
Gross Appropriations by Fund	FY 16 $	FY 17 $
General Fund	18,363,669,386	18,931,380,389
Special Transportation Fund	1,428,073,382	1,508,138,933
Banking Fund	29,636,246	29,889,297
Insurance Fund	79,933,789	81,351,940
Consumer Counsel and Public Utility Control Fund	26,990,146	26,953,593
Workers' Compensation Fund	27,312,126	26,982,874
Mashantucket Pequot and Mohegan Fund	61,779,907	61,779,907
Regional Market Operation Fund	1,061,237	1,067,306
Criminal Injuries Compensation Fund	2,851,675	2,934,088
Total Gross Appropriations	20,021,307,894	20,670,478,327
General Fund Lapses:
Unallocated Lapse	(93,076,192)	(94,476,192)
Unallocated Lapse - Legislative	(5,028,105)	(3,028,105)
Unallocated Lapse - Judicial	(7,400,672)	(7,400,672)
General Employee Lapse	(7,110,616)	(12,816,745)
General Lapse - Legislative	(39,492)	(39,492)
General Lapse - Judicial	(282,192)	(282,192)
General Lapse - Executive	(9,678,316)	(9,678,316)
Municipal Opportunities and Regional Efficiencies Program	(20,000,000)	(20,000,000)
Overtime Savings	(10,500,000)	(10,500,000)
Statewide Hiring Reduction - Executive	(30,920,000)	(30,920,000)
Statewide Hiring Reduction - Judicial	(3,310,000)	(3,310,000)
Statewide Hiring Reduction - Legislative	(770,000)	(770,000)
TOTAL	(188,115,585)	(193,221,714)
Transportation Fund Lapses:
Unallocated Lapse	(12,000,000)	(12,000,000)
TOTAL	(12,000,000)	(12,000,000)

General Fund	18,175,553,801	18,738,158,675
Special Transportation Fund	1,416,073,382	1,496,138,933
Banking Fund	29,636,246	29,889,297
Insurance Fund	79,933,789	81,351,940
Consumer Counsel and Public Utility Control Fund	26,990,146	26,953,593
Workers' Compensation Fund	27,312,126	26,982,874
Mashantucket Pequot and Mohegan Fund	61,779,907	61,779,907
Regional Market Operation Fund	1,061,237	1,067,306
Criminal Injuries Compensation Fund	2,851,675	2,934,088
Total Net Appropriations	19,821,192,309	20,465,256,613

Spending Cap

The bill is under the spending cap by $8.1 million in FY 15, $9.0 million in FY 16 and $93.7 million in FY 17. Pursuant to Section 35 of the bill, these calculations reflect a five-year personal income growth rate calculated on a calendar year rather than a fiscal year basis, and assume that appropriations for the unfunded liabilities of the State Employees' Retirement System, Judges, Family Support Magistrates and Compensation Commissioners Retirement System, and Teachers' Retirement System are exempt from being counted as general budget expenditures under the spending cap.

Growth Rate

The FY 16 growth rate for the General Fund is 3.98% over FY 15 estimated expenditures.¹ The FY 17 General Fund growth rate is 3.10% over FY 16. See the table below for details on other funds.

FY 16 and FY 17 Budget Growth Rates (by fund – $ in millions)


Fund	FY 15 Est.	FY 16	FY 16		FY 17	FY 17
	Expnd.	Approp.	Change		Approp.	Change
	$	$	$	%	$	$	%
General	17,480.5	18,175.6	695.1	3.98%	18,738.2	562.6	3.10%
Transportation	1,341.8	1,416.1	74.3	5.54%	1,496.1	80.1	5.65%
Other Appropriated	214.5	229.6	15.1	7.03%	231.0	1.4	0.61%
TOTAL	19,036.7	19,821.2	784.5	4.12%	20,465.3	644.1	3.25%

Fiscal Impact of Sections 10 - 51 are identified below.

Section	Agency	Description
10(a)	OPM/Various	OPM shall recommend reductions in executive branch expenditures for FY 16 and FY 17 by $9,678,316. This represents .05% of the FY 16 and FY 17 executive branch appropriations.
10(b)	OPM/OLM	OPM shall recommend reductions in legislative branch expenditures for FY 16 and FY 17 by $39,492. This represents .05% of the FY 16 and FY 17 legislative branch appropriations.
10(c)	OPM/Judicial	OPM shall recommend reductions in judicial branch expenditures for FY 16 and FY 17 by $282,192. This represents .04% of the FY 16 and FY 17 judicial branch appropriations.
11(a)	OPM/Various	OPM shall recommend reductions in executive branch expenditures in Personal Services by $30.9 million for FY 16 and FY 17. Savings to be achieved by implementing a statewide hiring reduction across executive branch agencies. This represents .16% of the FY 16 and FY 17 executive branch appropriations.
11(b)	OPM/OLM	OPM shall recommend reductions in legislative branch expenditures in Personal Services by $770,000 for FY 16 and FY 17. Savings to be achieved by implementing a statewide hiring reduction across legislative branch agencies. This represents .92% of the FY 16 and .89% of the FY 17 legislative branch appropriations.
11(c)	OPM/Various	OPM shall recommend reductions in judicial branch expenditures in Personal Services by $3,310,000 for FY 16 and FY 17. Savings to be achieved by implementing a statewide hiring reduction across judicial branch agencies. This represents .52% of the FY 16 and .50% of the FY 17 judicial branch appropriations.
12	OPM	Requires the Office of Policy and Management to recommend municipal aid reductions of $20 million in each of FY 16 and FY 17.
13	OPM	Exempts appropriations authorized for purposes of complying with Generally Accepted Accounting Principles (GAAP) from the quarterly allotment process pursuant to Section 4-85 of the Connecticut General Statutes. This provision has no fiscal impact since these funds are non-programmatic and are only used to close out the end of the fiscal year in accordance with GAAP.
14	DSS	Allows the Department of Social Services (DSS) to establish an account to allow for the receipt of reimbursement anticipated from the federal government. This allows the state to receive revenue as anticipated in the budget.
15	DPH	Increases the transfer of funding from the newborn screening fee receipts to $3,109,177 million in both FY 16 and FY 17 to provide increased support to the DPH newborn screening program and to support grants to newborn screening regional and sickle cell disease treatment center. This results in: 1) an increase of $1,374,177 from the FY 15 transfer, 2) a corresponding General Fund revenue loss, and 3) a corresponding savings that is reflected in section 1 of the bill in the DPH budget. SB 955 implements the increase in newborn screening fees.
16	DCF	Suspends the rate adjustments for DCF-funded private residential treatment centers in FY 16 and FY 17. The savings of $3.2 million in FY 16 and $4.4 million in FY 17 are reflected in Section 1 of the bill in DCF's budget.
17(a)(b)	RSA/OPM	Allows OPM to transfer funding to and from the Reserve for Salary Adjustments account (RSA) and other agencies for specific salary and wage related expenses such as accrual payouts and unsettled contract costs.
18(a)	RSA/OPM	Allows for the unexpended funds for collective bargaining costs to be carried forward from FY 15 into FY 16 and FY 17. It is estimated up to $8,153,104 in the General Fund and up to $3,569,996 in the Special Transportation Fund will be carried forward. In FY 16, total funding would be up to $30,393,406 for the General Fund and up to $5,466,276 for the Special Transportation Fund.
18(b)	RSA/OPM	Allows for the unexpended funds for collective bargaining costs to be carried forward from FY 16 into FY 17.
19	TRB	Implements the savings in the budget by maintaining the state's share of the Teachers Retirement Board retiree health services costs at the FY 15 level and municipal health subsidy at the FY 15 level. This results in a reduction of $14.0 million in FY 16 and $16.8 million in FY 17 in the retiree health service cost account and a reduction of $1.4 million in both FY 16 and FY 17 in the municipal health subsidy account. These savings are reflected in section 1 of the bill in the TRB budget.
20	Various	Allows for the transfer of funds between agencies via the use of Finance Advisory Committee (FAC) to maximize federal matching funds. This allows any General Fund appropriation to be transferred between agencies to maximize federal funding with FAC approval. Funds generated through transfer may be used to reimburse GF expenditures or expand programs as determined by Governor and with FAC approval.
21(a)(b)	Various	Allows for the adjustments to appropriations, with the approval of FAC, to maximize federal funding available to the state. This allows any General Fund appropriation to be adjusted by the Governor with FAC approval in order to maximize federal funding. The Governor shall present a plan for any such transfer.
22	UCHC/DSS	Allows for the transfer from the UConn Health Center to DSS's Medicaid account to maximize federal reimbursement. This allows the state to receive revenue as anticipated in the budget.
23	DSS/DMHAS	Directs DSS to make Disproportionate Share (DSH) payments to hospitals in the Department of Mental Health and Addiction Services (DMHAS) for operating expense and related fringes. This allows the state to receive revenue as anticipated in the budget.
24	DVA/DSS	Allows any appropriation made to the Department of Veterans Affairs in section 1 of the bill to be transferred to the Medicaid account within DSS for the purpose of maximizing federal reimbursement.
25	SDE/OEC	Transfers $1 million in both FY 16 and FY 17 of Part B IDEA (federal funds) from SDE to the Office of Early Childhood for the Birth-to-Three Program.
26	DMHAS	Allows funding of up to $828,975 in the Pre-Trial Education Program account to support Regional Action Councils ($353,025) and the Governor's Prevention Partnership ($475,950) in both FY 16 and FY 17.
27	OPM	Carries forward into FY 16 and FY 17 the unexpended balance of funds in the Criminal Justice Information System account. It is estimated that $1.7 million will be available to carry forward.
28(a)	DDS	Requires that DDS receive 100% reimbursement (or an alternative level identified by DDS and approved by OPM) from private providers when actual expenditures are less than the amount received from the department in both FY 16 and FY 17. This gives DDS the discretion to allow providers to retain cost settlement funds which could reduce the savings associated with requiring that DDS receive 100% reimbursement.
28(b)	DMHAS	Requires that DMHAS receive 100% of reimbursement (or an alternative amount identified by the agency) for private providers where their actual expenditures are less than the amount received by the department for both FY 16 and FY 17.
29	DMV	Allows the unexpended balance of funds for the Commercial Vehicle Information Systems Network Project within the Department of Motor Vehicles (DMV) to be carried forward into FY 16 and FY 17. It is estimated that approximately $1 million will be available to carry forward.
30(a)	DMV	Allows the unexpended balance of funds for the purpose of upgrading the registration and driver license data system within DMV to be carried forward into FY 16 and FY 17. It is estimated that a combined $10.6 million will be available to carry forward in sections 30(a-c).
30(b)	DMV	Allows up to $7 million of the unexpended balance of funds for the purpose of upgrading the registration and driver's license data processing system within DMV to be carried forward into FY 16 and FY 17. It is estimated that a combined $10.6 million will be available to carry forward in sections 30(a-c).
30(c)	DMV	Allows up to $8.5 million of the unexpended balance of funds for the registration and driver license data processing systems within DMV to be carried forward into FY 16 and FY 17. It is estimated that a combined $10.6 million will be available to carry forward in sections 30(a-c).
31	BOR	Provides that up to $50,000 of the amount appropriated to the Board of Regents for Higher Education be used for the maintenance of the Iwo Jima Memorial and Park located in Newington. This is currently paid for with private funds.
32	OHE	Transfers $525,000 in FY 16 and $575,000 in FY 17 from the Private Occupational School Student Protection account to the General Fund. The Private Occupational School Student Protection account is an account used to make tuition refunds to students unable to complete a course at a private occupational school because the school becomes insolvent or ceases operating. It is funded by (1) quarterly assessments on private occupational schools' tuition revenue received from Connecticut students and (2) other fees related to the schools' operations.
33	SDE	Provides a list, by town, of the equalization aid grant (ECS) amounts for FY 16 and FY 17. The total ECS amount by town for FY 16 is $2,062.4 million, and the total ECS amount by town for FY 17 is $2,069.8 million. Of this total, $10 million in each of FY 16 and FY 17 is provided by revenue through the Municipal Revenue Sharing Account.
34(a)	SOTS	Transfers $182,000 in FY 16 from the Citizens Election Fund (CEF) and credits this amount to Other Expenses in the Secretary of the State (SOTS) for election related expenses including: $42,000 for the Electronic Registration Information Center (ERIC) dues; $40,000 for training of registrars of voters; and $100,000 for grants to regional councils of government for election activities.
34(b)	SOTS	Transfers $332,000 from the CEF in FY 17 and credits this amount to Other Expenses in the SOTS for election related expenses including: $50,000 for election monitoring in Hartford; $142,000 for ERIC; $40,000 for training of registrars of voters; and $100,000 for grants to regional councils of government for election activities.
35(a)(b)	Spending Cap	Specifies the following for spending cap purposes for fiscal years 2015 through 2017: 1) that the five-year average personal income growth rate is to be calculated on an income year basis rather than a fiscal year basis, and 2) that appropriations for the unfunded liabilities of the State Employees' Retirement System, Judges, Family Support Magistrates and Compensation Commissioners Retirement System, and Teachers' Retirement System are exempt from being counted as general budget expenditures under the spending cap.
36(a)	SOTS	Carries forward into FY 16 and FY 17 up to $297,000 in Other Expenses for the Connecticut Data Collaborative's agency data accessibility project.
36(b)	SOTS	Carries forward into FY 16 and FY 17 up to $150,000 in Other Expenses to enable the continuation of certification of electronic devices during the voter check-in process.
37(a)	OLM	Allows for up to $70,000 to be carried forward in Other Expenses for the purpose of conducting a tax study.
37(b)	OLM	Allows for up to $299,400 to be carried forward for CASE to be used in FY 16 and FY 17 for a disparity study.
37(c)	OLM	Allows for up to $96,000 to be carried forward for the National Center for Higher Education Management Systems to be used in FY 16 and FY 17 for a higher education study.
37(d)	OLM	Allows for up to $47,500 to be carried forward in Other Expenses for consulting services by the Charter Oak Group for the Appropriations Committee Accountability Initiative to be used in FY 16 and FY 17.
37(e)	OLM	Allows for up to $55,000 to be carried forward for CASE to be used in FY 16 and FY 17 for a family violence study.
38	OPM/Various	OPM shall recommend reductions in an appropriate and proportionate manner among branches and agencies to facilitate a reduction in General Fund expenditures of $7,110,616 in FY 16 and $12,816,745 in FY 17. This shall only apply to state employees.
39(a)	DPH	Transfers $550,000 in each of FY 16 and FY 17 from the THTF to DPH for the following grants: (A) Easy Breathing Program: 1. $150,000 for adult asthma; 2. $250,000 for children's asthma, and (B) $150,000 for CT Coalition for Environmental Justice for Asthma Outreach. This reduces the THTF balance by $550,000 in both FY 16 and FY 17.
39(b)	DDS	Transfers $750,000 in both FY 16 and FY 17 from the THTF to DDS to fund autism initiatives resulting from the Autism Feasibility study conducted pursuant to Section 27 of PA 11-6.
40	DAG	Allows the Town of Bethlehem to receive a one-time grant in FY 16 not exceeding $50,000 from the Department of Agriculture's animal population control account (APCA) for the town's animal control purposes. The balance in the APCA account is approximately $675,000.
41	OPM/Various	OPM shall recommend reductions in overtime expenditures in the General Fund by $10.5 million in both FY 16 and FY 17.
42(a)	DOB	Allows up to $412,150 of the unexpended balance of funds for Fringe Benefits to be transferred to DOB to support four additional staff positions in FY 16.
42(b)	DOB	Allows up to $420,920 of the unexpended balance of funds for Fringe Benefits to be transferred to DOB to support the additional staff in FY 17.
43	DEEP	Carries forward up to $152,000 of the unexpended balance in the Solid Waste Management account into FY 16 and transfers it to the Other Expenses account to purchase pheasants during FY 16. It is estimated that the balance in the Solid Waste Management account is approximately $400,000.
44	OSC	Allows for the transfer of up to $150,000 in FY 16 from the Tobacco Settlement Fund to the Other Expenses account within the Office of the State Comptroller. The transferred funds will allow OSC to provide a grant to the University of Connecticut to conduct an Early Childhood Regression Discontinuity Study.
45(a)(b)	SDE	Allows for up to $100,000 to be carried forward in Other Expenses for a multi-year analysis of African American, Latino and poor children in FY 16 and FY 17. A grant of $50,000 in each of FY 16 and FY 17 is for the Metropolitan Center for Research on Equity and the Transformation of Schools at NYU for data on and the analysis of the achievement gap.
46	Judicial	Allows the Judicial Department to establish receivables for revenue anticipated to be collected for deposit into the Probate Court Administration Fund.
47	UCHC	Transfers $1 million in each year of FY 16 and FY 17 from the Biomedical Research Trust Fund to the UConn Health Center to support the Connecticut Institute for Clinical and Translation Science. Of that total, $250,000 in each of FY 16 and FY 17 shall be used for breast cancer research.
48	OSC	The office of the State Comptroller shall fund any differential between the state fringe benefit rate for John Dempsey Hospital employees and the average rate for private Connecticut hospitals in an amount not to exceed $13,500,000, for each of the fiscal years ending June 30, 2016, and June 30, 2017, within the resources appropriated to the State Comptroller – Fringe Benefits in section 1 of this act.
49(a)(b)	BOR/UOC	Provides for caps on administrative costs at the constituent units of higher education.
50	DPH	Requires DPH to implement a savings in the budget by reducing on a pro rata basis payments to local and district departments of health an aggregate amount equal to $234,000 in FY 16.
51	SDE/OEC	Allows for up to $2 million from the Tobacco Settlement Fund to the smart start competitive grant account, to be transferred to the State Department of Education (SDE) in the Other Expenses account, to provide grants to local and regional boards of education to reimburse costs incurred in the implementation, on or before July 1, 2017, of a kindergarten entrance inventory developed by the Office of Early Childhood for each child enrolled in kindergarten, for the purpose of measuring the child's level of preparedness for kindergarten.

FY 15 General Fund Deficiency Appropriations

Sections 52 and 53 result in no net impact to the General Fund as appropriation increases of $121.7 million are offset by reductions of $121.7 million to various agencies and accounts.

Increased General Fund Appropriations


Agency	FY 15 $
General Fund Increases:
Department of Emergency Services and Public Protection	3,680,000
Department of Agriculture	341,000
Department of Social Services	82,000,000
Department of Correction	3,830,000
Public Defenders	4,600,000
State Comptroller - Miscellaneous	10,200,000
State Comptroller – Fringe Benefits	17,000,000
Total - General Fund Increases	121,651,000

Detailed descriptions of agency deficiency needs are described below:

Department of Emergency Services and Public Protection - $3.7 million

The agency's projected FY 15 budget shortfall is composed of:

● $4.5 million in Personal Services

This shortfall is partially offset by lapsing funds of $0.8 million in the following accounts:

● $443,000 in Fleet Purchase

● $333,000 in Other Expenses

The $4.5 million projected shortfall in Personal Services arises, in part, from higher than budgeted overtime expenses in the Division of State Police. The Revised FY 15 budget included a $4 million reduction in Personal Services to reflect the implementation of overtime savings in the Division of State Police. While DESPP has recently implemented overtime reduction measures, a delay in doing so has made the target savings unachievable in FY 15. This shortfall is further exacerbated by an FAC transfer of $2.3 million from Personal Services to Other Expenses during April, 2015.

Funding of approximately $443,000 is available in the Fleet Purchase account due to delays in vehicle delivery from the vendor. Similarly, funding of approximately $333,000 is available in Other Expenses to offset the deficiency.

Department of Agriculture (DAG) - $341,000

The agency's projected FY 15 budget shortfall is composed of:

● $350,000 in Personal Services.

This shortfall is partially offset by a $9,000 release of holdbacks in the following account:

● $9,000 in Personal Services.

The projected shortfall in the Personal Services (PS) account is driven by a transfer from the PS account to the Other Expenses (OE) account associated with unanticipated costs related to neglected animal seizures. The May 7, 2015 Finance Advisory Committee (FAC) transferred $300,000 from PS to OE, and a prior transfer of $50,000 was also made from PS to OE (totaling $350,000) during FY 15. On January 16, 2015 the Department of Agriculture (DAG) seized 74 goats and currently there are approximately 90 goats under the care and control of the agency. FY 15 costs to care for the goat herd (including veterinary and laboratory services, waste and maintenance costs, prescription medicine costs, equipment, and feed) at the agency's "Second Chance" Large Animal Rehabilitation Facility, total approximately $344,600 as of April 28, 2015.

Department of Social Services (DSS) - $82 million

The agency's projected FY 15 budget shortfall is composed of:

● $82 million in Medicaid

The $82 million projected short fall in the Medicaid account is due to the following factors:

Enrollment growth in the Medicaid program continues to be strong. There were 21.6% more cases in March, 2015 than in March, 2014. This caseload growth has led to expenditures in excess of budgeted assumptions in many categories of service. Of particular note, pharmacy expenditures continue to track 12.5% above the budgeted assumptions through the first half of the fiscal year;

DSS made a $42.9 million retroactive hospital payment in November (with additional obligations anticipated prior to the end of the fiscal year);

Re-estimates for the federal cost share for the Affordable Care Act expansion population has resulted in anticipated state expenditures of approximately $13 million; and

FAC 2014-32 transferred $10 million out of the Medicaid account to the Connecticut Children's Medical Center account.

Department of Correction (DOC) - $3.8 million

The agency's projected FY 15 budget shortfall is composed of:

● $6.9 million in Personal Services.

The deficiency bill addresses $4.9 million of the projected shortfall and the remaining $2 million will be addressed by an expected transfer from the Reserve for Salary Adjustment account.

The $6.9 million projected shortfall in Personal Services account is due to 1) the FY 14 deficiency remaining unfunded, 2) an increase in hazardous duty retirement of approximately 150% over FY 13, 3) the April 2, 2015 FAC transfer of $4.9 million from the Personal Services account to the Other Expenses account and the Workers' Compensation Claims account to offset deficiencies in those accounts.

The FY 14 deficiency was mostly a result of higher than budgeted use of overtime due to an 80% increase in hazardous duty retirements from the previous year. In addition, retirements in FY 15 have increased approximately 65% over FY 14. The total growth in Correction Officer hazardous duty retirement since FY 13 is approximately 150%.

Public Defenders - $4.6 million

The agency's projected FY 15 budget shortfall is composed of:

● $4.6 million in Personal Services.

This shortfall is partially offset by:

● $1.2 million release of rescissions

● $173,746 release of holdbacks

The projected shortfall of $6 million in the Personal Services account (11.% of the appropriation) is due to: 1) the March 5, 2015 FAC approval of transferring $5 million from the Personal Services to the Assigned Counsel – Criminal and Expert Witnesses account, 2) rescissions to this account totaling $1.2 million, and 3) greater than anticipated accumulated leave payments.

The March 2015 FAC transferred $4.7 million to the Assigned Counsel – Criminal account. The original shortfall in the Assigned Counsel – Criminal account (as referenced in HB 6825) is due to PA 12-115, An Act Concerning Habeas Reform, which reduced the time in which a habeas petition can be filed, which in turn has resulted in an influx of habeas petitions received by the agency. Habeas petitions have almost doubled since the legislation passed. Previous to the legislation, the agency averaged 25 petitions per month, or 300 per year. Since the legislation passed, the agency has averaged 50 petitions per month, or 600 per year. The cost per case can vary significantly depending on the complexity of the appeal but is usually between $3,000 and $10,000 per case.

The March 2015 FAC transferred $310,000 to the Expert Witnesses account. Funds in this account are used, in part, to support habeas cases, which have increased significantly, as explained above.

The agency is anticipating greater accumulated leave payments than budgeted. In FY 14, accumulated leave payments totaled $308,086. In FY 15, it is anticipated that accumulated leave payments will total approximately $537,000.

Office of the State Comptroller - Adjudicated Claims - $10.2 million

The agency's projected FY 15 budget shortfall is composed of:

● $10.2 million in Adjudicated Claims.

The projected shortfall in the Adjudicated Claims account is due to (1) higher than anticipated claims costs and (2) two settlements for wrongfully convicted individuals in the amount of $6 million and $900,000, payable in FY 15. The projected shortfall represents 71% of total FY 15 projected expenditures.

Office of the State Comptroller - Fringe Benefits - $17 million

The agency's projected FY 15 budget shortfall is composed of:

● $29.7 million in Retired State Employees' Health Service Costs.

This shortfall is partially offset by lapsing funds of $12.9 million in the following accounts:

● $9.2 million in Higher Education Alternative Retirement System;

● $2.8 million in Unemployment Compensation;

● $609,000 in Group Life Insurance; and

● $93,000 in Pensions and Retirement –Other Statutory.

The projected shortfall in the Retired State Employees' Health Service Costs account is due to various factors. First, an increase of 9.8% for retirees under 65 and 5% for Medicare eligible retirees in prescription drug costs over what was assumed in the FY 15 budget, including coverage for a new Hepatitis C treatment approved by the FDA this year (estimated cost per 12-week regimen is approximately $94,500). In addition to the new Hepatitis C treatment, compound drugs and costly brand name specialty drugs (for which there is not a generic alternative) are also driving the increase in prescription costs. Secondly, the shortfall in the Retired Employees' Health Services account is also being driven by an increase of approximately 3,000 retirees over what was assumed in the FY 14 and FY 15 biennial budget. The Revised FY 15 budget was not adjusted for the increase in the retiree population experienced in FY 14. Lastly, a reduction in the federal subsidy rates for participating in the Employer Group Waiver Program (which offset Medicare retiree state health costs) resulted in a reduction in FY 15 of approximately $6.9 million over what was assumed in the budget.

Funding is available in the Higher Education Alternative Retirement System (ARP) account, predominately due to the distribution of General Fund funded employees and expenditures being less than was anticipated, due to a shift to funding SERS higher education employees versus ARP employees out of the General Fund. In addition, funding is available in the Unemployment Compensation account, Group Life account and the Pensions – Other Statutory account (which predominately funds pensions for retired Governors) due to personnel and claims expenditures (for unemployment compensation) being less than anticipated for FY 15.

FY 15 General Fund Appropriation Reductions

Section 53 reduces appropriations to General Fund agencies by $121.7 million. The table below reflects the impact of the appropriation reductions contained in section 53 of the bill.

General Fund Appropriation Reductions

Agency	FY 15 $
General Fund Reductions:
Department of Developmental Services	(7,548,000)
Department of Social Services	(2,000,000)
University of Connecticut	(7,388,000)
University of Connecticut Health Center	(4,183,000)
Board of Regents for Higher Education	(7,321,000)
Debt Service – State Treasurer	(88,141,000)
State Comptroller – Fringe Benefits	(4,270,000)
Department of Administrative Services - Workers' Compensation Claims	(800,000)
Total - General Fund Reductions	(121,651,000)

Department of Developmental Services (DDS) - $7.5 million

Funding is reduced in the following account:

● $7.5 million in Personal Services.

The Personal Services funding requirements reflect that the budgeted lapses (holdbacks) and Governor's November, January and April rescissions totaling $7.5 million are released. The Personal Services lapse is due to a combination of separations of staff, retirements and delays in refilling vacant positions.

Debt Service - State Treasurer - $88.1 million

Funding is reduced in the following account:

● $88.1 million in General Fund Debt Service.

OFA's estimated FY 15 lapse for the General Fund debt service account as of May 26, 2015 is $88.1 million. As shown in the table below, the lapse estimate includes debt service adjustments for: (1) the difference between issuance assumptions and actual issuance of GO bonds, (2) bond premiums², (3) anticipated future savings for the remainder of the fiscal year, and (4) the FY 15 refinancing of Economic Recovery Notes (ERNs) that were originally issued to fund the 2009 General Fund operating budget deficit.

OFA FY 15 Debt Service Lapse Estimate (in millions)

Description	Amount $
Differences in issuance assumptions	(44.4)
Premiums	(79.9)
Refunding Savings	(9.7)
Savings on fees, arbitrage rebate and other sources	(9.6)
Economic Recovery Note refinancing and retirement	55.5
TOTAL	(88.1)

Department of Social Services (DSS) - $2 million

Funding is reduced in the following accounts:

● $2 million in Personal Services; and

The $2 million in Personal Services is available due to rescissions.

Office of the State Comptroller - Fringe Benefits - $4.3 million

Funding is reduced in the following accounts:

● $2.5 million in Employers' Social Security Tax;

● $906,000 in Higher Education Alternative Retirement System;

● $432,000 in Unemployment Compensation; and

● $432,000 in Group Life Insurance.

Funding is available in the Employers' Social Security Tax account, Higher Education Alternative Retirement System account, Unemployment Compensation account and the Group Life Insurance account due to rescissions.

University of Connecticut Health Center - $4.2 million

Funding is reduced in the following account:

● $4.2 million in Operating Expenses.

Funding is available in the Operating Expenses account due to the initial budget holdback of $486,252 and rescissions in November, January and April totaling 3,697,730.

University of Connecticut (UCONN)- $7.4 million

Funding is reduced in the following account:

● $7.4 million in Operating Expenses.

Funding is available in the Operating Expenses account due to the initial budget holdback of $822,896 and rescissions in November, January and April totaling $6,565,434.

Board of Regents for Higher Education (BOR)- $7.3 million

Funding is reduced in the following account:

● $7.3 million in Operating Expenses and Transform CSCU.

Funding is available in the Operating Expenses account due to the initial budget holdback of $560,868 and rescissions in November, January and April totaling $6,761,292.

Department of Administrative Services - Workers' Compensation Claims - $800,000

Funding is reduced in the following account:

● $800,000 in Workers' Compensation Claims.

Funding is available in the Workers' Compensation Claims account due to rescissions.

FY 15 Transportation Fund Deficiency Appropriations

Section 54 results in Transportation Fund increases of $20.4 million, with no reduction offsets. The increased appropriations in the Transportation Fund are described in detail below.

Increased Transportation Fund Appropriations (in millions)


Agency	FY 15 $
Transportation Fund Increases:
Department of Transportation	18,000,000
State Comptroller – Fringe Benefits	2,400,000
Total - Transportation Fund Increases	20,400,000

Department of Transportation (DOT) – Transportation Fund - $18 million

The agency's projected FY 15 budget shortfall is composed of:

● $13.6 million in Personal Services; and

● $4.4 million in Rail Operations.

The $13.6 million projected shortfall in the Personal Services account is driven by higher than budget overtime costs for storms and the March 5, 2015 FAC transfer of $10.7 million from Personal Services to Other Expenses. This transfer was to cover a shortfall in the Other Expenses account due to higher than budgeted storm related costs for snow and ice removal. DOT's snow and ice removal budget is based on an average of 12 storms per year, and to date there have been approximately 18 storms. The price of road salt has increased by 24%, and due to the severity of the storms, DOT has been using more contractor trucks. Also, per union contract, employees that work certain hours beyond the regularly scheduled day must have meals provided which has exceeded budgeted amounts. Due to winter storm costs funding is needed for the following reasons; 1) $8.8 million from higher than average storm costs for road salt, material and contractual services, 2) $1.9 million for equipment maintenance and repair of the department's fleet. Currently, 280 of DOT's 632 truck fleet, or 45% are past the 12 year useful lifecycle.

The $4.4 million projected shortfall in the Rail Operations account is driven by the costs associated with the Metro North Rail line. DOT received an unanticipated notification from Metro North of a pending settlement between the Metropolitan Transit Authority (MTA) and the Long Island Railroad workers regarding back wages to 2010. This settlement, and also the costs of ongoing safety initiatives to be implemented in accordance with regulatory authorities have resulted in a projected shortfall in this account.

Office of the State Comptroller - Fringe Benefits - Transportation Fund - $2.4 million

The agency's projected FY 15 budget shortfall is composed of:

● $2.9 million in State Employees' Health Service Costs.

This shortfall is partially offset by lapsing funds of $0.5 million in the following accounts:

● $490,300 in Employers' Social Security Tax;

● $37,000 in Unemployment Compensation; and

● $22,000 in Group Life Insurance.

The projected shortfall in the State Employees' Health Service Costs account within the Special Transportation Fund is due to expenditures being 9.4% higher than anticipated for employees of the Departments of Transportation (DOT) and Motor Vehicles (DMV), partially driven by higher than anticipated payroll fringe benefit transactions. Average monthly expenditures are 4.7% higher than the period July through April in FY 14.

Funding is available in the Employers' Social Security Tax account, the Unemployment Compensation account and the Group Life account due to DOT and DMV personnel and claims expenditures (for unemployment compensation) being less than anticipated for FY 15.

FY 15 Deficit Mitigation Plan

Section 55 transfers a total of $8.5 million into the General Fund in FY 15. OFA's projected FY 15 General Fund deficit is $189.5 million. As a result, the bill reduces OFA's FY 15 deficit figure from $189.5 million to $181 million. See below for detail.

Section 55(a) transfers $2.5 million from the private occupational school student protection account within the Office of Higher Education (OHE), and credits this amount to the resources of the general fund for the fiscal year ending June 30, 2015. The current available balance in this account is approximately $5.7 million.

Section 55(b) transfers $2.25 million from the Citizens Election Fund (CEF) and credits this amount to the resources of the General Fund for the fiscal year ending June 30, 2015. The current available balance in the CEF is approximately $9.9 million.

Section 55(c) transfers $750,000 from the Judicial Data Processing Revolving Fund account within the Judicial Department, and credits this amount to the resources of the general fund for the fiscal year ending June 30, 2015. The current available balance in the account is approximately $1.4 million.

Section 55(d) transfers $3 million from the School Bus Seat Belt account within the Department of Motor Vehicles (DMV), and credits this amount to the resources of the general fund for the fiscal year ending June 30, 2015. The current available balance in this account is approximately $5.3 million.

Revenue

Sections 56 - 182, 216 – 220 include various revenue provisions and are identified below:

Summary of General Fund Revenue Changes by Revenue Source

(in millions)


Revenue Source	FY 16 $	FY 17 $	FY 18 $	FY 19 $	FY 20 $
Personal Income	208.3	233.9	242.3	252.5	265.1
Sales and Use	(98.6)	(258.9)	(427.9)	(443.7)	(460.6)
Corporations	281.8	222.8	200.3	162.8	147.8
Insurance Companies	22.7	22.7	-	-	-
Inheritance and Estate	(4.0)	(8.0)	(8.0)	(8.0)	(8.0)
Cigarettes	24.5	42.8	37.6	35.3	33.2
Oil Companies	-	-	(7.1)	(41.0)	(58.1)
Alcoholic Beverages	0.5	0.5	0.5	0.5	0.5
Health Provider	224.8	229.8	229.9	230.0	230.1
Admissions and Dues	(0.4)	(0.4)	-	-	-
Miscellaneous Taxes	(0.1)	(0.1)	(0.1)	(0.1)	(0.1)
Earned Income Tax Credit	11.0	11.0	-	-	-
Total Taxes	670.5	496.1	267.5	188.4	150.0

Licenses, Permits and Fees	2.7	2.3	2.3	2.3	2.3
Miscellaneous	2.5	2.5	2.5	2.5	2.5
Transfer Special Revenue	13.6	30.0	30.0	30.0	30.0
Total Other Revenue	18.8	34.8	34.8	34.8	34.8

Federal Grants	(40.4)	(45.9)	(48.3)	(50.9)	(46.2)
Transfer from Tobacco Settlement	17.0	17.0	6.0	6.0	6.0
Transfers From/To Other Funds	155.6	189.1	118.2	118.2	118.2
Total Other Sources	132.2	160.2	75.9	73.3	78.0

TOTAL GENERAL FUND	821.5	691.0	378.2	296.4	262.8

Revenue Impact (in millions)


Sec.	Action(s)	Fund	FY 16 $	FY 17 $
65	Increases, from 50% to 100%, the Income Tax exemption for military retirement pay.	General	(6.0)	(4.0)
66	Establishes a new top marginal rate of 6.99% in the Income Tax for those tax filers with CT Adjusted Gross Incomes over certain thresholds. Increases the current Top Marginal Rate to 6.9%.	General	151.5	137.9
67-68	Delay the scheduled increase in the personal exemption for Single Filers of the Income Tax from $14,500 to $15,000.	General	10.8	-
69	Delays the scheduled restoration of the state's Earned Income Tax Credit (EITC) rate to 30% from 27.5% of the federal EITC.	General	11.0	11.0
70	Reduces Property Tax Credit phase out thresholds for the credit in FY 16. Reduces the credit from $300 to $200 in FY 17.	General	52.0	100.0
71	Reduces, from $300 to $100, the per-item exemption from the Sales and Use Tax during the “Sales Tax Free Week.”	General	1.0	1.0
72-73	Increase the Luxury Sales and Use tax from 7.0% to 7.75%.	General	6.2	6.4
74	Establishes (1) a municipal share and (2) a transportation share of the Sales and Use Tax. The rates for both are 0.3% in FY 16, effective 10/1/15, 0.4% effective 7/1/16, and 0.5% effective 7/1/17 and thereafter.¹ Sections 183-216 provide for the distribution of the Municipal Revenue Sharing Account funds.	General	(317.2)	(553.8)
		Municipal Revenue Sharing Account	158.6	276.9
		Special Transportation	158.6	276.9
74	Eliminates FY 17 Regional Performance Incentive Account Diversion.	General	-	10.0
74		Regional Performance Incentive Account	-	(10.0)
75 & 76	Establish a Sales and Use Tax rate of 2% in FY 16 and 3% in FY 17 for services related to web sites that are part of the World Wide Web.	General	15.5	32.4
75	Extends the Sales and Use tax to car wash services.	General	6.8	6.8
75 & 77	Repeal Sales and Use tax exemption for certain motor vehicle parking services.	General	6.1	6.1

76	Increases the Sales and Use Tax rate for computer and data processing services from 1% to 2% in FY 16 and from 2% to 3% in FY 17.	General	39.9	83.1
78-80	Authorize certain entities to sell sealed containers of draught beer i.e. “growlers”, which is anticipated to increase the volume of beer consumed.	General	1.8	1.8
81-82	Increase the number of allowable alcoholic beverage retail permits. Extends permissible sale hours for alcoholic beverage retail permittees.	General	0.8	0.8
83-84	Extend the 20% surcharge on the Corporate Income Tax for certain filers and phases out the surcharge after the FY 16 and FY 17 Biennium.	General	44.4	75.0
85	Delays the scheduled expiration of the two lower tiers of caps on credit utilization against the Insurance Premiums Tax.	General	18.7	18.7
86	Delays the scheduled expiration of the moratorium on the issuance of new film tax credits, which may be applied to the Insurance Premiums Tax.	General	4.0	4.0
87	Limits the use of loss carryforwards against the Corporate Income Tax to 50% of net income in any income year when computing the amount of tax due.	General	156.3	90.1
88	Lowers, from 70% to 50.01%, the maximum percentage to which tax credits may be used against the total liability under the Corporate Income Tax.	General	42.5	34.0
89	Limits the use of tax credits against a liability under the Hospital Tax to 50.01% of the total.	General	2.8	2.8
90	Diverts ½ of the first and second scheduled transfer from the Tobacco Settlement Fund to the Smart Start competitive grant account.²	General	5.0	5.0
90		Municipal Grants	(5.0)	(5.0)
90	Diverts the scheduled transfers from the Tobacco Settlement Fund to the Tobacco Health Trust Fund during the FY 16 and FY 17 Biennium. Permanently reduces, from $12 million to $6 million, scheduled transfers in FY 18 and thereafter.	General	12.0	12.0
91	Deposits the Oil Companies tax into the Special Transportation Fund (STF) and eliminates the provision that requires the resources of the General Fund to cover any shortfall in revenue below the STF transfer as of July 1, 2015.	General	38.2	17.6
91		Special Transportation	(38.2)	(17.6)
92	Eliminates scheduled future transfers to the Special Transportation Fund.	General	152.8	162.8
92		Special Transportation	(152.8)	(162.8)
93	Diverts a portion of revenue from the Community Investment Account during the 2016-2017 Biennium.³	General	6.8	13.5
94-95	Divert revenue from the Connecticut Health and Educational Facilities Authority.	General	3.5	3.5
96-97	Transfer funds from the Public, Educational and Governmental Programming and Education Technology Investment Account (PEGPETIA).	General	4.2	4.3
98	Permanently diverts 3/5 revenue from the Municipal Video Competition Account.⁴	General	3.0	3.0
98		Municipal Grants	(3.0)	(3.0)
99-102, 218	Shift revenue from the Palliative Marijuana Account which is generated by fees imposed for growing, distributing and use of palliative marijuana.	General	0.6	0.6
103-106	Authorize keno gaming, which is anticipated to generate revenue through direct sales of the keno game in addition to having an indirect positive impact on lottery ticket sales.	General	13.6	30.0
107	Limits the applicability of the rental surcharge to people or businesses generating at least 51% of their total annual revenue from rentals.	General	(0.1)	(0.1)
108-111	Require manufacturers and sellers of electronic nicotine delivery devices to register with the Department of Consumer Protection and annually renew their registration accompanied by fees.	General	2.0	1.6
112-137	Increase license renewal fees by $5 for various professionals licensed by the Department of Public Health (DPH). Revenue collected from the increase is to be transferred to the newly established professional assistance program account for DPH to provide grants- in-aid to program providers and medical review committees under the assistance program of health care professionals.	Professional assistance program Account	0.6	0.7
138-163	Implements mandatory combined reporting under the Corporation Business Tax.	General	38.6	23.7
164-169	Establishes an ongoing, potential revenue diversion from the General Fund to the Budget Reserve Fund based on revenue trends. More details below.	Budget Reserve “Rainy Day” Fund; General	-	-
170	Adjusts reimbursement rates for resident state trooper costs to 85%.	General	2.5	2.5
171	Increases the aggregate cap on all tax credits available under the Insurance Reinvestment Fund tax credit from $200 million to $350 million. To the extent such credits are utilized, this results in potential significant General Fund revenue loss beginning as early as FY 19.	General	-	-
172	Establish a provider tax of 6% on ambulatory surgical centers.	General	15.0	20.0
173	Transfers Resources from the General Fund from FY 16 to FY 17.	General	(25.0)	25.0
115-175	Create a $20 million lifetime cap on total Unified Gift and Estate tax liability.	General	(4.0)	(8.0)
176-180	Increase the tax on cigarettes by $0.25 in FY 16 and $0.50 in FY 17. Implements a floor tax on cigarettes.	General	24.7	43.2
181-182	Transfer funds from the resources of the Banking Fund.	General	7.0	7.0
216	Exempts Harbor Yard in Bridgeport from the Admissions and Dues tax.	General	(0.4)	(0.4)
217	Creates a swimming pool installer license.	General	0.1	0.1
219	Eliminates the Sales and Use Tax exemption for clothing and footwear costing less than $50.	General	136.8	142.6
219	Repeals Sales and Use tax exemption for water companies.	General	4.0	4.0
220	Transfers the Municipal Revenue Sharing Account balance to the Resources of the General Fund.	General	12.7	-
Municipalities previously had shared in 0.1% of the Sales and Use Tax during FY 12 and FY 13 only. These funds were deposited into the Municipal Revenue Sharing Account and distributed according to statute. ²Section 138 of PA 14-217, established an annual revenue diversion of $10 million from FY 16 to FY 25 in order to provide grants-in-aid to towns for the purpose of establishing or expanding preschool programs. ³The Community Investment Account is a separate, non-lapsing state fund established by PA 05-3 to fund a variety of programs. As of 2/27/15 the account had a balance of $48.3 million. Annual revenues are approximately $27 million. ⁴CGS 16-331bb requires the State Comptroller to deposit up to $5 million each fiscal year from the Gross Earning Tax on certified video service providers (i.e., certain cable TV companies) to be distributed to municipalities for property tax relief. Funds are allocated by a ratio of total number of subscribers to competitive video service in a given town to the total number of such subscribers in the entire state. The 2014-2015 Biennial Budget eliminated this transfer entirely in each fiscal year to help balance the General Fund budget.

In order to administer the tax provisions of the bill, the Department of Revenue Services (DRS) would need nine additional staff members and associated expenses. The annualized cost of these new positions, including expenses and fringe benefits, is approximately $810,187 (included in section 1of the bill). In addition, one-time costs to update the online Taxpayer Service Center and internal Integrated Tax Administration System as well as tax form alteration and printing costs of approximately $420,000 would be incurred in FY 16 (included in Section 1 of the bill).

The bill makes several policy adjustments not reflected in the revenue schedule adopted by the Finance, Revenue, and Bonding Committee on June 1, 2015. The table below provides the policy adjustments and the updated General Fund balance for the FY 16 – FY 17 biennium:

Policy Revisions Post FRB Revenue Adoption (in millions)


	FY 16 $	FY 17 $
Starting Balance - FRB	2.4	0.9
Policy Revisions
Reduce the property tax credit from $300 to $200 in FY 17.	(48.0)	-
Reduce Sales and Use Tax rate from 3.0% to 2% in FY 16 for services related to web sites that are part of the World Wide Web.	(19.9)	-
Reduce the Sales and Use Tax rate for computer and data processing services from 3% to 2% in FY 16.	(7.8)	-
Increase the tax on cigarettes by $0.25 in FY 16 and $0.50 in FY 17. Implements a floor tax on cigarettes.	24.7	43.2
Transfers the Municipal Revenue Sharing Account balance to the Resources of the General Fund.	12.7	-
Adjust the transfer of FY 16 Resources to FY 17.	42.1	(42.1)
Ending Balance	6.2	2.1

Further information on the Budget Reserve Fund Provisions

Beginning in FY 19, the bill establishes a transfer of General Fund (GF) revenue to the Budget Reserve Fund (BRF) and the State Employees Retirement Fund (SERF), which is determined by a statutory formula. This results in a potentially significant diversion of revenue from the GF to the BRF and SERF in FY 19 and annually thereafter.³

In order for a revenue transfer to be triggered, total “combined revenue”⁴ must be in excess of a calculated threshold based on the average difference (as a percentage) between actual revenue and the ten year average. The bill allows for the threshold to be adjusted for changes in tax policy that impact the corporation business tax or the personal income tax.

Based on historical data, the transfer of GF revenue to the BRF and SERF may exceed $800 million in a fiscal year. The table below compares actual deposits into the BRF to deposits that would have occurred under the provisions of the bill.

Comparison of Historical BRF Transfers to Formula

FY	Actual Deposit into BRF $	Transfers as Calculated Under the Bill $
04	302,200,000	24,557,248
05	363,900,000	433,646,700
06	446,500,000	697,097,504
07	269,200,000	815,841,033
08	-	818,479,382
09	-	-
10	(1,278,500,000)	-
11	(103,200,000)	-
12	93,500,000	74,994,072
13	177,200,000	200,364,682
14	248,500,000	-

The breakout of the transfer from the GF to the BRF or SERF varies based on the amount of funds currently in the BRF relative to total GF appropriations, which is illustrated in the table below.

BRF and SERF Diversions Calculation

BRF Balance / Appropriations	Budget Reserve Fund	State Employees Retirement Fund
0 to 5%	95%	5%
5 to 10%	90%	10%
10 to 15%	85%	15%
Greater than 15%	0%	100%

The ongoing fiscal impact identified above would continue into the future subject to the degree in which actual revenues exceed the threshold calculated by the formula. The bill also increases the maximum amount allowed to be in the BRF from 10% to 15% of appropriations. This allows for additional funds to be transferred from the GF to the BRF.

Property Tax Reform

Sections 183 – 215: 1) change the reimbursement rates, and the basis for determining those rates, for the State Property PILOT and College & Hospital PILOT grant programs; 2) cap the motor vehicle mill rate at 32 in FY 17 and 29.36 in FY 18 and annually thereafter; 3) distribute a portion of sales tax revenue to municipalities; and 4) establish an optional commercial property tax revenue sharing system for regional councils of government. Below is a description of the fiscal impact of each section:

Changes to PILOT Grants

The revenue gain to municipalities associated with this portion of the bill will vary based on grand list and mill rate data that municipalities have not yet finalized. For FY 17, the first year the bill takes effect, the bill specifies the distribution of $46.4 million to municipalities. This funding is equal to the increased funding towns would have received if the bill was in effect in FY 15.

Costs in the out years will vary based on continued changes in municipal grand lists and mill rates. As municipal mill rates and grand lists tend to increase over time, costs in the out years could be significantly higher than the cost in FY 15.

The bill freezes at FY 15 levels the portion of each town's Pequot grant that is dependent on its State Property PILOT and College & Hospital PILOT payments. This precludes any changes in a town's Pequot grant that would result from changes to either of its PILOT grant payments.

Motor Vehicle Tax Cap

The bill caps each town's motor vehicle mill rate at 32 in FY 17, and 29.36 in FY 18 and annually thereafter. If these caps had been in place in FY 14, it is anticipated that, at a cap of 32, 33 municipalities would have lost $59.1 million and, at a cap of 29.36 mills, 57 municipalities would have lost approximately $82.6 million in revenue.

The bill also requires special taxing districts to reduce their mill rates such that, when their mill rates are combined with their host municipality's mill rate, the total mill rate for the town, plus the taxing district is below the mill rate cap.

It is estimated that, in FY 14, at least nine taxing districts would have lost $1.3 million as a result of a mill rate cap of 32. It is estimated that at least 15 special taxing districts would have lost $2.7 million, with a FY 14 mill rate cap of 29.36.

Sales Tax Distribution

The bill diverts a portion of sales tax revenue ($158.6 million in FY 16 and $276.9 million in FY 17) to the Municipal Revenue Sharing Account.

Due to the timing of payments, this results in a FY 17 revenue gain of $224.4 million to municipalities and $3.0 million to regional councils of government. In FY 18, it is estimated that municipalities will receive $285.7 million and regional councils of government will receive $$7 million.

This funding will be provided to: 1) ensure that municipalities are held harmless that experience a revenue loss as a result of the motor vehicle mill rate cap established by the bill; 2) fund the additional cost of the State Property PILOT and College & Hospital PILOT, beyond appropriated amounts; 3) provide funding of $10 million in each of FY 16 and FY 17 for supplemental Education Cost Sharing grants; and 4) provide additional funding to municipalities, distributed according to a formula established by the bill (the additional FY 17 funding is specified by the bill, however).

Beginning in FY 18, the bill requires that a portion of the grant a municipality receives under this provision of the bill be reduced in the event that municipal spending growth exceeds 2.5%, or inflation (whichever is greater) based on the two prior years. The portions of the grant intended to: 1) provide additional PILOT funds; 2) offset the revenue loss from the motor vehicle mill rate cap; and 3) provide supplemental ECS funding are not subject to this reduction.

Grand List Growth Sharing

The bill allows each regional council of government (COG) to establish a property tax base sharing program under which its member municipalities share property tax revenues generated by the growth in their commercial and industrial property tax bases.

Under the bill's provisions, towns would remit a payment to their COGs equal to 20% (or less) of net commercial and industrial grand list growth, divided by 1,000, and multiplied by the regional mill rate. For example, if a participating town's commercial and industrial grand list grew by $1 million, it could remit a payment of up to $6,000 to its COG (assuming a regional mill rate of 30).

The bill then establishes a formula for calculating the municipal commercial and industrial mill rate (for any participating municipality). The mill rate is intended to raise enough revenue to offset the payment to the COG.

Impact of Various Other Sections

Sections 108 to 111 create a new regulatory system for electronic nicotine delivery system dealers and manufacturers. This results in a cost to the state of $351,093 in FY 16 and FY 17. The Department of Consumer Protection (DCP) would require a Drug Control Agent (liquid nicotine is classified as a drug), a License and Applications Analyst, a Processing Technician and a Staff Attorney to perform background checks, process applications, and investigate and act upon complaints. The costs include $248,174 in salaries, $95,919 in fringe benefits and $7,000 in other expenses and equipment. These costs are not included in Section 1 of the bill.

Section 217 results in a state cost of $139,658 (included in section 1) in each of FY 16 and FY 17 and a revenue gain to the state of $112,500 in FY 16 and $75,000 (as identified in the above revenue table) in FY 17 by creating an above ground swimming pool installer license along with regulatory responsibility for such licensees within DCP.

It is estimated that as many as 2,500 above ground pools are installed in Connecticut each year. This section would result in an estimated issuance of 750 licenses. The initial license fee is $150 with a $100 yearly renewal fee.

The volume of licensees and anticipated consumer complaints for faulty workmanship require a DCP Inspector ($59,737) and a DCP Inspection Aide ($37,384) along with associated Other Expenses/Equipment ($5,000) and fringe benefits ($37,537).

Section 218 repeals the Palliative marijuana administration account and requires the transfer of $425,563 in FY 16 and $445,341 in FY 17 and five corresponding positions from the Palliative Marijuana Administration account to the General Fund. Fees associated with palliative marijuana would be deposited in the General Fund rather than Palliative Marijuana Administration account (see revenue table above).

The Out Years

With the exception of the one-time policies noted above, the annualized ongoing fiscal impacts identified above would continue into the future subject to inflation.

The table below reflects the projected expenditures for FY 18 – FY 20 based on the FY 16 and FY 17 budget.

Projected Expenditures FY 18 – FY 20 (in millions)


Fund	Appropriations		Projected
Fund	FY 16 $	FY 17 $	FY 18 $	FY 19 $	FY 20 $
General	18,175.6	18,738.2	19,917.1	20,571.9	21,434.3
Special Transportation	1,416.1	1,496.1	1,568.9	1,601.5	1,636.1
Other Appropriated	229.6	231.0	237.6	244.6	251.9
TOTAL	19,821.2	20,465.3	21,723.6	22,418.0	23,322.3
Growth Rates	4.12%	3.25%	6.15%	3.20%	4.03%
Over/(Under) Spending Cap	(9.0)	(93.7)	349.7	393.3	382.3

The table below compares the revenue estimates to the projected expenditures for FY 18 – FY 20 based on the FY 16 and FY 17 budget.

FY 18 – FY 20 Fund Balance (in millions)


Fund	FY 18 $			FY 19 $			FY 20 $
	Approp.	Revenue	Surplus/	Approp.	Revenue	Surplus/	Approp.	Revenue	Surplus/
	Approp.	Revenue	(Deficit)	Approp.	Revenue	(Deficit)	Approp.	Revenue	(Deficit)
General	19,917.1	19,085.1	(832.0)	20,571.9	19,840.0	(731.9)	21,434.3	20,639.4	(794.9)
Special Transportation	1,568.9	1,725.3	156.4	1,601.5	1,775.3	173.8	1,636.1	1,809.2	173.1
Other Appropriated	237.6	249.3	11.7	244.6	252.0	7.4	251.9	256.7	4.8
TOTAL	21,723.6	21,059.7	(663.9)	22,418.0	21,867.3	(550.7)	23,322.3	22,705.3	(617.0)

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.