OFFICE OF FISCAL ANALYSIS

Legislative Office Building, Room 5200

Hartford, CT 06106 (860) 240-0200

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

sSB-1135

AN ACT CONCERNING THE MANAGEMENT OF REVENUE VOLATILITY.


OFA Fiscal Note

State Impact:

Agency Affected

Fund-Effect

FY 16 $

FY 17 $

Resources of the General Fund

GF - Revenue Impact

None

Potential Significant

Budget Reserve Fund

App Fund - Revenue Impact

None

Potential Significant

State Employees Retirement System

SERF - Revenue Impact

None

Potential Significant

Note: GF=General Fund; App Fund=All Appropriated Funds; SERF=State Employees Retirement Fund

Municipal Impact: None

Explanation

Beginning in FY 17, 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 17 and annually thereafter.1

In order for a revenue transfer to be triggered, total “combined revenue” 2 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 current revenue estimates the bill will not result in a GF revenue transfer until FY 18, at which point approximately $10 million will be diverted. Under this scenario, the FY 17 threshold is $5,086 million while combined revenue is $4,930 million, or approximately $156 million less than the threshold. Due to the historical volatility of combined revenue the bill may still result in a transfer from the General Fund in FY 17 depending on actual revenue collected.

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.

FY

Actual Deposit into BRF $

Transfers as Calculated Under the Bill $

2004

302,200,000

24,557,248

2005

363,900,000

433,646,700

2006

446,500,000

697,097,504

2007

269,200,000

815,841,033

2008

-

818,479,382

2009

-

-

2010

(1,278,500,000)

-

2011

(103,200,000)

-

2012

93,500,000

74,994,072

2013

177,200,000

200,364,682

2014

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 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 Out Years

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.

Sources:

Department of Revenue Services Historical Tax Data

1 Per the bill, BRF revenue can be accessed in the event of a decrease in GF revenue greater than 2% over the prior year (for example, during a recession).

2 For the purposes of the bill “combined revenue” is equal to the sum of: 1) the corporation business tax, and 2) the estimated & final payments portion of the personal income tax.