OFFICE OF FISCAL ANALYSIS

Legislative Office Building, Room 5200

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SB-501

AN ACT ADJUSTING THE STATE BUDGET FOR THE BIENNIUM ENDING JUNE 30, 2017.

As Amended by Senate "A" (LCO 6404)

OFA Fiscal Note

State Impact: See Below

Municipal Impact: See Below

Explanation

The bill contains a revised budget package for FY 17, spending adjustments for FY 16 and various revenue changes for FY 17.

The bill includes:

FY 17 Revised Fund Balance (in millions)

APPROPRIATIONS

Sections 1 - 7 include the FY 17 changes to the original appropriations resulting in a reduction of $673.5 million, for total appropriations of $19,764.8 billion for the ten appropriated funds. The table below summarizes the appropriations by fund.

FY 17 Revised Appropriations

Spending Cap

The bill is under the spending cap by $58 million in FY 16 and $612.8 million in FY 17. The bill is $35 million further from the cap than the original FY 16 budget due to the net impact of the deficiency provisions, which include a $35 million increase to Debt Service (which is exempt from the cap). The bill is also $589.8 million further from the cap in FY 17.¹

Growth Rate

The FY 17 Revised Budget growth rate for the General Fund is -1.0% and for all appropriated funds is 0.4% over FY 16 estimated expenditures. See the table below for details.

Growth Rate of Appropriations (by fund – in millions)

The FY 17 Revised Budget growth rate for the General Fund is -4.4% and for all appropriated funds is -3.3% over FY 17 Original Appropriations. See the table below for details.

Sections 9 – 47 relate to specific budget actions identified below.

Municipal Revenue Sharing Account - Revenue Changes

Sections 40, 41, 44 and 46 make the following changes with regard to the Municipal Revenue Sharing Account/Fund (MRSA). The net impact to the General Fund from these changes is a $49.9 million revenue gain.

MRSA Revenue Changes (in millions)

The Municipal Revenue Sharing Fund will receive $185.0 million in FY 17. This results in a revenue loss of about $61.4 million to municipalities from the original FY 17 budget for MRSA payments.

The table below compares the grants to be paid out in FY 17 from MRSA, and grants to be paid out from MRSF under the bill's provisions. The bill combines the Additional Sales Tax grant and the Car Tax grant into one, and specifies the town by town distribution of the combined grant. For comparative purposes, the Additional Sales Tax Grant and the Car Tax grant are shown separately.

MRSA Expenditure Changes¹

FY 16 DEFICIENCY APPROPRIATIONS

Sections 31 and 32 make various FY 16 appropriation increases and reductions that result in no net impact to the General Fund. The General Fund increases of $66.4 million are offset by reductions in appropriations to various agencies and accounts.

The bill is under the spending cap by $58 million in FY 16. The bill is $35 million further from the cap than the original FY 16 budget due to the net impact of the deficiency provisions, which include a $35 million increase to Debt Service (which is exempt from the cap). The table below shows the changes in agency appropriations contained in these sections.

FY 16 Deficiency - Changes in Appropriations (in millions)

Section 31 increases the General Fund appropriations to various agencies and accounts by $66.4 million in FY 16. Below is the explanation of the General Fund agency's deficiency appropriations needs:

Office of the Chief Medical Examiner (CME) – $465,000

The FY 16 appropriation included in the bill for this agency is composed of:

The $225,000 shortfall in PS represents 4.7% of the FY 16 appropriation in the account. The $240,000 shortfall in OE represents 17.9% of the FY 16 appropriation in the account. The shortfall in PS predominantly reflects overtime expenses. Expenditures in OE are projected to be 28.7% greater in FY 16 ($1.6 million) than in FY 15 ($1.2 million). Primary cost drivers for OE are laboratory services, body transportation, and medical supplies. CME's overall caseload continues to rise. From FY 14 to FY 15, autopsies increased by more than 33% from 1,488 to 1,993. Current projections for FY 16 place a two-fiscal-year increase in autopsies at over 58%. The Office is open 24 hours a day, every day of the year. It is charged to investigate all human deaths that fall into the following categories: 1) violent (whether apparently homicidal, suicidal, or accidental), 2) sudden, or unexpected, that are not caused by a readily recognizable disease, 3) under suspicious circumstances, 4) related to disease resulting from employment, 5) related to disease that might constitute a threat to public health, and 6) the bodies of the deceased to be cremated.²

Office of Early Childhood (OEC) - $6.3 million

The agency's projected FY 16 budget shortfall is composed of:

The $6.3 million projected shortfall (25.5% of the FY 16 appropriation) in the Early Intervention account, commonly known as Birth to Three, is due to several factors: (1) underfunding of the Birth-to-Three program over the past three years, (2) an increase in the number of children served, and (3) an increase in the number of children requiring more intensive services.

The Early Intervention account expenditures have been increasing over the past three years, from $35.4 million in FY 13 to $42.1 million in FY 15. This has resulted in a transfer of funding from other accounts (via an FAC transfer) to cover the shortfalls. In FY 13, Department of Developmental Services (DDS) transferred $497,000 from the Employment Opportunities and Day Services to the Early Intervention account to support the Birth-to-Three program, while in FY 15 DDS transferred $2.9 million from Personal Services. The FY 16 and FY 17 Budget transferred the Birth-to-Three Program from DDS to OEC. The amount transferred to OEC for the reallocation of the program did not include supplemental funds to cover the full program costs. Additionally, the FY 16 expenditure requirements include $500,000 in unpaid FY 15 invoices, resulting in a total cost of $3.4 million over budget.

The number of children in the Birth-to-Three program has also increased above original projections by 2.1% or an average increase of 115 children per month, resulting in a cost of approximately $1.8 million.

The number of children requiring intensive services (primarily those diagnosed with an autism spectrum disorder) has also increased by 9.5% or an average increase of 40 children per month, resulting in a cost of approximately $1 million.

Public Defender Services Commission - $4.6 million

The FY 16 appropriation included in the bill for this agency is composed of:

A total projected shortfall of $4.6 million is due to a deficiency of $2.5 million (5.7% of the appropriation) in the Personal Services account, $2.0 million (9.1% of the appropriation) in the Assigned Counsel account, and $0.1 million (3.3% of the appropriation) in the Expert Witnesses account.

The Personal Services deficiency of $2.5 million is due to the agency's inability to meet the assigned deficit mitigation amount of $2.5 million in this account. In addition to the deficit mitigation reduction, the Personal Services account also included a holdback of $562,000.

The Assigned Counsel deficiency of $2.0 million is due to: (1) an increase in child protection cases ($1.2 million); and (2) an increase in habeas cases ($820,000). In child protection cases, the Division of Public Defender Services is required to provide counsel for all children whose parents are deemed indigent and for any party where the court orders counsel. In FY 14 there were a total of 8,364 child protection cases (697 per month) and in FY 15 there were a total of 10,307 cases (859 per month). It is anticipated that there will be a total of approximately 12,000 cases in FY 16. From July through October of FY 16 they have averaged approximately 1,203 cases each month. While the number of child protection cases has increased significantly since FY 14, the funding level has remained the same at $7.6 million. Child protection cases are assigned to outside counsel and are paid through the Assigned Counsel account at a flat rate of $500 per case (attorneys can also petition for an hourly rate). The estimated 3,600 additional cases in FY 16 will require approximately $1.2 million in additional funding.

In addition to the deficiency due to the child protection increases, PA 12-115, An Act Concerning Habeas Reform, reduced the time in which a habeas petition can be filed, and resulted in an influx of habeas petitions received by the agency. Habeas petitions have 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. In FY 16 to date, the agency has been averaging approximately 54 petitions per month, or 648 per year. The cost per case can vary significantly depending on the complexity of the appeal but on average costs approximately $11,000 per case. The additional 48 cases in FY 16 will require approximately $820,000 additional funding in FY 16.

Funds in the Expert Witnesses account are used, in part, to support habeas cases, which have increased significantly, as explained above. The cost per case is, on average, approximately $2,083 per case.

The agency's projected FY 16 budget shortfall is composed of:

The projected $35 million shortfall in the General Fund Debt Service account is due to a lower level of premium income related to the issuance of General Obligation bonds. This shortfall represents 2.4% of the FY 16 appropriation. The FY 16 budget included a reduction of $142.8 million below the level requested by the Office of the State Treasurer primarily due to the anticipated receipt of premiums on bond issuances in the current fiscal year. Throughout the year, net premiums realized on issuances have not achieved budgeted levels.

Office of the State Comptroller - Miscellaneous - $20 million

The FY 16 appropriation included in the bill for this agency is composed of:

The projected shortfall in the Adjudicated Claims account is due to higher than budgeted normal claims costs, including four, $4.2 million settlements against the state for individuals who were wrongly incarcerated (totaling $16.8 million). Average normal claims experience over the past 10 years, after adjusting for large settlements, has been approximately $8 million annually. Normal claims experience for FY 16 is projected to be $11.2 million, $7.1 million greater than the historical $4.1 million appropriation.

The total FY 16 appropriation included $20.8 million for FY 16 settlement costs associated with the State Employees' Bargaining Agent Coalition (SEBAC) versus the State (commonly referred to as the Rowland settlement).

Section 32 reduces General Fund appropriations to various agencies and accounts by $66.4 million in FY 16. The following provides additional detail on the appropriation reductions.

Legislative Management - $2 million

Funding is reduced in the following account:

Funding is available in the Personal Services account due to holding nonpartisan positions vacant, savings from employee turnover, and continuing the practice of releasing most of the sessional assistant clerks two weeks after the Joint Favorable deadline while maintaining caucus savings.

Department of Developmental Services (DDS) - $11,800,000

Funding is reduced in the following account:

Turnover, in combination with a hiring freeze, contribute to a projected $10,000,000 lapse in Personal Services. As of the end of March 2016, there are approximately 185 full-time funded vacancies in DDS.

Department of Mental Health and Addiction Services - $5.6 million

Funding is reduced in the following account:

Funding is available in the Personal Services line item due to the partial release of the holdback of $7.5 million.

Office of the State Comptroller - Fringe Benefits - $47 million

Funding is reduced in the following accounts:

Funding is available in the Retired State Employees' Health Services Cost account due to expenditures and population being less than budgeted. The budget assumed a 6% increase in population, however actual growth is trending closer to 3%. In addition projected Medicare Part B premium increases of approximately 51.9% (an increase of approximately $54 per Medicare member per month did not materialize, the actual increase was 16.1% (or approximately $17 per Medicare member per month)).

Funding is available in the Employers' Social Security Tax due to statewide payroll information reflecting lower than anticipated hiring and other personnel costs across state agencies funded by the General Fund. Average General Fund social security trends are 3.4% less than anticipated.

Funding is available in the Higher Education Alternate Retirement System 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.

Funding is available in the Unemployment Compensation due to average monthly unemployment benefit costs being 30.4% less than anticipated (average month benefits are $424,960).

REVENUE

The table below contains the revenue estimates adopted by the Finance, Revenue and Bonding Committee on 5/4/16. Section 9 of this bill transfers the unobligated funds in the Biomedical Research Trust Fund to the General Fund in FY 17. This results in a General Fund increase of $3.9 million over the revenue estimates adopted by the Finance, Revenue and Bonding Committee on 5/4/16. This results in total FY 17 General Fund revenue of $17,890.6 million.

Finance, Revenue and Bonding Committee Revenue Estimates, as Adjusted (in thousands)

Senate “A” makes several adjustments to the appropriations included in sections 1 and 2 of the bill and reduces the transfer from the Biomedical Research Trust Fund to the General Fund. The changes are incorporated in the various financial tables above.

Below is the agency and account detail on the changes to the appropriations included in sections 1 and 2 of the bill:

Senate “A” reduces the transfer from the Biomedical Research Trust Fund (BRTF) to the General Fund by $3,900,000. Three entities are authorized to receive equal distribution of this amount: 1) The University of Connecticut Health Center, 2) the Yale School of Medicine, and 3) Griffin Hospital. Further, four accounts under the Department of Public Health are moved from the General Fund to the BRTF: 1) Children's Health Initiatives, 2) Children's Lead Poisoning, 3) Children with Special Health Care Needs, and Genetic Diseases Program.

Senate “A” limits the allotment reductions that the Office of Policy and Management can apply to the constituent units of Higher Education.

Senate “A” makes a distributional adjustment to the Municipal Revenue Sharing grant for West Haven. These changes are as follows:

Senate “A” makes a clarifying change concerning the Municipal Revenue Sharing grants to special taxing districts in Windham. The grant of $640,000 is provided to Windham Special Service District #2.

Senate “A” changes the effective date for section 45. This conforms the underlying bill to the revenue estimates adopted by the Finance, Revenue and Bonding Committee. This effective date was assumed in the analysis of the underlying bill.

Senate “A” also changes the name of the newly established Commission on Women, Children and Family to the Commission on Women, Children, and Seniors.

Lastly, Senate “A” includes the revised FY 17 revenue estimates as adopted by the Finance, Revenue, and Bonding Committee on May 4, 2016 in support of the revised FY 17 budget. The estimates are outlined in the revenue section.

The Out Years

The table below reflects the projected expenditures utilizing a current service methodology for FY 18 - FY 20 based on the FY 17 Revised Budget.

Projected Expenditures FY 18 - FY 20 (in millions)

The table below compares revenue estimates to projected expenditures for FY 18 - FY 20 based on the FY 17 Revised Budget.

Fund Balance FY 18 - FY 20 (in millions)

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 Pursuant to Section 35 of PA 15-244, the FY 17 Revised Budget reflects 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 (SRS), Judges, Family Support Magistrates and Compensation Commissioners' Retirement System (JRS), and Teachers' Retirement System (TRS) are exempt from being counted as general budget expenditures under the spending cap through FY 17.

² There is a $150 fee for this investigation and the associated certificate, which is usually handled through the funeral director of the family's choice. The revenue from the fee ($2.3 million in FY 15) is deposited into the General Fund.