AN ACT CONCERNING REVENUE AND OTHER ITEMS TO IMPLEMENT THE BUDGET FOR THE BIENNIUM ENDING JUNE 30, 2017.

The following sections provide detail on the fiscal impacts by topic included in Sections 1 through 35 of the bill.

Sections 1 through 4 establish CTNext as a subsidiary within Connecticut Innovations, Inc. (CI). The bill provides $25 million in bond authorizations from CI's recapitalization authorization over five years for the purposes of funding the entity and its duties as outlined in the bill.

The bill also establishes programs and groups to be administered by CTNext, including the Innovation Places program, the Innovation and Entrepreneurship Working Group, a mentorship network, an internet website advertising certain Connecticut based start-up businesses, and various grants-in-aid. These programs are also either funded by existing bond authorizations earmarked under the bill or will be administered by CTNext.

Section 10 earmarks $50.5 million from the Manufacturing Assistance Act (MAA) for various purposes, as outlined under the bill, listed in the table below.

The current unallocated bond balance for MAA, after the March 24th State Bond Commission meeting, is approximately $114.3 million. An additional $100 million is authorized for FY 17 from PA 15-1 JSS. The bond bill includes a cancellation of $10 million.

Background: The Manufacturing Assistance Act is a multipurpose program administered by the Department of Economic and Community Development (DECD) which provides different types of financing for businesses and infrastructure development, including the First Five Program. The State Bond Commission allocated $119,478,850 to MAA during FY 15.

Section 11 results in a one-time cost of up to $50,000 in moving expenses to CI by requiring the agency to relocate its main office to an innovation district and establish a satellite office in each of the other districts. The agency may also incur potential increases in rent associated with more offices and new locations. Section 14 also results in a one-time cost of up to $25,000 by requiring CI to solicit and submit an independent performance audit to the General Assembly by December 1, 2016.

As a quasi-public state agency, CI's funding sources include returns on investments and loans, as well as General Obligation (GO) bond proceeds from the state, as mentioned above. The identified costs will not be incurred by state-appropriated funds.

Sections 11, 13, and 22 authorize CI to undertake the following investments:

1. Investments in private equity investment funds;

2. Investments in a venture capital funding round for out-of-state businesses that will relocate to Connecticut;

3. Venture capital agreements, investment agreements, and other similar agreements with one or more partners; and

4. Establishment of a program to solicit private investment from state residents that CI will invest in a private investment fund.

For these provisions, Section 16 provides $10 million for a venture capital funding round for out-of-state businesses as described above. Section 22 also allows CI to use unrestricted funds from the Connecticut Bioscience Innovation Fund to invest in private equity investment under certain conditions.

It is anticipated that CI may require additional GO bond funds to support all other requirements. Future General Fund debt service costs may be incurred sooner under the bill to the degree that the bill causes authorized GO bond funds to be expended more rapidly than they otherwise would have been.

Section 15 allows DECD to forgive a portion of any state assistance received by certain businesses if they are participating in the network. This may impact repayments that may otherwise be used for future projects.

Such assistance is typically funded by GO bond funds. Future General Fund debt service costs may be incurred sooner under the bill to the degree that the bill causes authorized GO bond funds to be expended more rapidly than they otherwise would have been.

Section 16 earmarks $39.5 million from bond authorizations for the recapitalization of CI for various purposes listed in the table below.

The current unallocated bond balance for CI's recapitalization after the March 24th State Bond Commission meeting, is approximately $85 million. The bond bill includes a cancellation of $35 million.

Background: PA 11-1 of the October Special Session authorized a total of $125 million for grants-in-aid to recapitalize the CI's programs. CI's current venture pipeline alone is $31 million for the remainder of FY 16 and FY 17. The breakdown of the Equity Pipeline is as follows:

The State Bond Commission allocated $80 million of the $125 million since 2011 to CI.

Section 17 allows DECD to give priority for financial assistance in the Small Business Express program to businesses located in innovation places. There is no anticipated fiscal impact.

Section 18 expands the First Five program 1) from fifteen to twenty projects and 2) for three additional years.

In the event that the committees of cognizance approve a recommendation from the report to continue the program, as required under the bill, DECD may provide substantial financial assistance to projects without legislative approval for proposed financial assistance amounts that exceed statutory limits.

Assuming that these projects would have received legislative approval for the amounts exceeding the statutory threshold, there is no fiscal impact. To the extent that a project or projects receive funding that otherwise would have been disapproved by the legislature, there would be a potential impact to 1) the Manufacturing Assistance Act (MAA), a bond fund program, and 2) tax revenue associated with tax credits provided.¹

The bill does not change General Obligation (GO) bond authorizations for MAA, which is the primary source of funding for loans and grants provided through the First Five program. Future General Fund debt service costs may be incurred sooner under the bill to the degree that the bill causes authorized GO bond funds to be expended more rapidly than they otherwise would have been. As of March 31st, the program has an unallocated bond balance of $114.3 million.

Section 20 requires the Permanent Commission on Economic Competitiveness to solicit bids from outside consultants to develop the Connecticut 500 Project. The bill does not specify the funding source to compensate the consultants, but allows the Commission to solicit public or private funding mechanisms. The consultant costs could be significant; by means of comparison the recent Tax Panel study cost $500,000.

Section 21 increases the membership of the Permanent Commission on Economic Competitiveness by ten individuals. There may be a cost of less than $1,000 annually to those agencies participating on the Commission to reimburse legislators and agency staff for mileage expenses.

Section 23 establishes the Technology Talent Advisory Committee within DECD. Section 10 of the bill provides $2 million of MAA bond funds over ten years to support the Committee. There is no additional fiscal impact.

Section 24 allows DECD to establish up to ten knowledge enterprise zones. These zones receive the same benefits as those located in general enterprise zones.

This may result in a significant annual revenue loss from the corporation tax and the real estate conveyance tax beginning as early as FY 17. The revenue loss could be off-set by additional tax revenue from the creation of new or the expansion of existing businesses to the extent that these financial incentives result in economic development that otherwise would not have occurred.

There is a potential grand list reduction to municipalities with knowledge enterprise zones beginning as early as FY 18 due to multiple five-year property tax breaks for which certain businesses located in enterprise zones are eligible. Such grand list reductions result in a loss of property tax revenue, given a constant mill rate. Towns will be partially reimbursed for the revenue loss relating to this provision via the Distressed Municipalities grant program administered by the Office of Policy and Management. Correspondingly, this increases the cost of fully funding the Distressed Municipalities grant program. As the grant is subject to proration, if the grant is not fully funded, then an increase in grant funding to towns with knowledge enterprise zones will result in a decrease in funding to other towns that receive Distressed Municipalities funding.

Section 26 allows the Departments of Economic and Community Development, Housing, Energy and Environmental Protection, Transportation, the Office of Policy and Management, and the Connecticut Housing Finance Authority to prioritize state financial assistance to entities located within a designated innovation place. There is no anticipated fiscal impact.

Section 31 allows municipalities to expand a pilot property taxation program to more than three commercial properties. Presumably, a municipality would only do this if it anticipated that a revenue gain would result. Such revenue gain would depend on the net profits of the properties to which a municipality expanded the program.

Section 32 1) expands an optional freeze on certain property assessments to include the entire assessment of certain property for 10 years, which results in a grand list reduction, and 2) restricts the freeze, specifying that only residential property consisting of four or more dwelling units can be eligible for the program, which results in a grand list expansion.

The net revenue gain/loss as a result of the bill will vary based on the municipality.

Sections 33 and 34 modify the Connecticut Arts Endowment Fund (CAEF) by 1) lowering the threshold for nonprofits to qualify for a matching grant and 2) setting a floor for fund payout. It is anticipated that more nonprofits will qualify for funding with the lower threshold. The bill also modifies the amount of funds available through the CAEF for matching grants.

However, because the bill does not increase state bond funding for the CAEF, there is no fiscal impact.²

Background: Matching Grant Formula: Under current law, eligible nonprofits must receive total private contributions of at least $25,000 to qualify for the program. The formula for calculating a CAEF grant for eligible applicants is as follows:

1. For total private contributions which is equal to $25,000 or more, but does not exceed the prior fiscal year's total contributions, there is a match of 25% of such amount, capped at $250,000; and

2. For total private contributions which exceed the total donor contributions for the prior fiscal year, there shall be a match of 100%, capped at $1 million.

If in any fiscal year the total amount of matching grants to be paid exceed the investment earnings of the CAEF, all grants shall be reduced on a pro-rata basis.

In FY 15, the interest earned by the CAEF totaled $446,607 and was awarded to 117 organizations. Of that, 23 organizations received awards of less than $500. Under provision of the bill, which sets a $500 floor for grants, such organizations would not receive a grant. It is presumed that in this scenario those funds would be pro-rated to organizations with grants calculated above $500.

Section 35 could result in a significant, future state revenue loss to the extent that participation in the new program reduces tax liabilities under the Estate Tax. The bill caps the program at $30 million in allowable tax reductions in the aggregate.

The new program is applicable to the estates of decedents who die on or after January 1, 2021. The decedents must have made investments for at least 10 years to qualify.

Section 36 allows taxpayers in Milford who would have been eligible for certain tax exemptions, if they had not missed the deadline to file a claim, to receive such exemptions. The bill results in a revenue loss to Milford associated with these exemptions.

Section 37 establishes a maximum copayment of $17 per month for Medicare Part D prescription drugs for certain dually eligible beneficiaries, and makes the Department of Social Services (DSS) responsible for copayments above such amount. SB 501 provides funding of $90,000 related to this change.

Sections 39 through 51 implement the transfer of the DDS Division of Autism Spectrum Disorder Services to DSS. This implements a provision of SB 501 that transfers ten positions and funding of $2.6 million to DSS.

Section 52 caps total annual pension benefits at $125,000 for non-union employees who are hired on or after July 1, 2016. The fiscal impact will be reflected in the actuarial valuation of the State Employees' Retirement System (SERS) as of June 30, 2016 and in the FY 18 actuarially determined employer contribution (ADEC). There is no fiscal impact in FY 17 as the FY 17 ADEC is established as of the most recent SERS valuation (as of June 30, 2014).

Section 53 alters the membership of the committee to review school building projects to twelve members. There may be a cost of less than $1,000 to reimburse legislators for mileage expenses.

Section 54 makes conforming changes regarding the definition of Autism Spectrum Disorder. There is no fiscal impact.

Section 55 allows, rather than requires, the Department of Mental Health and Addiction Services (DMHAS) to administer a grant program for community-based behavioral health services. This could result in a savings to DMHAS of up to $3 million in FY 17.

Section 56 allows SDE to limit magnet school payments to magnet school operators, based on October 1, 2013, or October 1, 2015 enrollment, whichever is lower. This could result in a revenue loss to municipalities or other entities operating magnet schools, and a corresponding savings to the state. The amount of the revenue loss and corresponding savings is indeterminate, as the bill allows approval of funding for enrollment above such enrollment level, based on the prioritization of a number of variables, by SDE.

Sections 57 through 64 and 148 repeal the statutes that established the Office of State Ethics, the State Elections Enforcement Commission and the Freedom of Information Commission and put them under the purview of the Office of Governmental Accountability. This implements the budget creating the above three as independent state agencies.

Sections 65 and 66 transfer the Board of Accountancy (BOA) from the Office of the Secretary of the State (SOTS) to the Department of Consumer Protection (DCP). This results in a savings to the state of $338,152 resulting from the elimination of four positions within the SOTS. The DCP is able to continue the function of the BOA without additional staff due to the streamlined computerization of licensing procedures and in-house expertise surrounding the regulation of various professions.

Section 67 codifies the current practice of the Office of Policy and Management in calculating State Property PILOT grants. There is no fiscal impact.

Sections 68 and 69 require the Department of Economic and Community Development to maintain visitor welcome centers within available appropriations. SB 501 includes a reduction of $23,400 for part-time seasonal staff at the Westbrook Welcome Center.

Sections 68 through 73 delay judges' raises for FY 17. This results in savings of approximately $1.4 million in FY 17.

Section 74 allows the Office of Early Childhood (OEC) to increase certain rates paid to state-funded child care facilities, up to the amount paid under the school readiness program ($8,927). As SB 501 consolidates the accounts that support such rate payments (Child Care Services, School Readiness and Early Childhood Program), this is not anticipated to result in an overall fiscal impact to the agency.

Section 75 establishes reporting requirements for the OEC regarding School Readiness and state-funded child care facility capacity and utilization information. This has no fiscal impact as the agency currently compiles such data.

Sections 76 through 81 and 148 eliminate the Connecticut Public Transportation Commission. There is no fiscal impact as the Commission does not have an appropriation from the state.

Section 82 allows an increase in the employee share for health insurance for non-union state employees up to 18% of the total premiums. SB 501 includes savings of approximately $5.2 million to the General Fund and $276,000 to the Special Transportation Fund in FY 17 related to increased employee cost sharing.

Sections 83 through 85 allow all but municipalities designated as alliance districts to reduce their budget for education in FY 17 by an amount equal to their decrease in ECS funding from FY 16 to FY 17. This results in a potential savings to such municipalities.

Additionally section 85 provides that any decrease in ECS funding in FY 17 for alliance districts be reflected as a decrease in alliance district funding.

Sections 50 through 134 and 148 merge the responsibilities of the six existing legislative commissions into two new commissions, the Commission on Women, Children and the Elderly and the Commission on Equity and Opportunity. SB 501 appropriates $700,000 in FY 17 to each of these commissions. This consolidation reflects a savings of $1,411,753 from the original FY 17 appropriations for the six legislative commissions.

Section 135 eliminates sales tax on parking fees at certain Governmental Parking lots. This is anticipated to result in a General Fund revenue loss of $500,000.

Section 136 extends the Angel Investor Tax Credit, which is anticipated to result in a General Fund revenue loss of $3 million. In addition, it makes Angel Investor Tax credits transferrable.

Section 137 specifies that a portion of the $3 million distributed to Regional Councils of Government in FY 17 from the Municipal Revenue Sharing Fund shall be used for regional education service centers. This precludes the use of such funding for other purposes. It also expands the categories of spending exempt from the municipal spending cap that goes into effect in FY 18. This precludes any reductions in these categories of municipal spending that would have occurred as a result of the spending cap.

Section 138 changes the due date of the Department of Revenue Services' tax incidence report from February 15, 2017 to February 15, 2018. This shifts the estimated cost of $400,000 for the study from FY 17 to FY 18.

Sections 139 and 140 cap probate fees at $40,000. This results in a revenue loss to the Probate court Administrative fund of $4.5 million.

Section 141 clarifies the definition of “ambulatory surgical center” in relation to “outpatient surgical facilities.” This has no fiscal impact as it does not appear to impact the tax base of the ambulatory surgical center tax. There is no fiscal impact to the Department of Public Health (DPH) resulting from the requirement for the agency to adopt related policies and procedures.

Section 142 requires DPH, by 7/1/16, to study the implications of the definitional changes within the provisions of Section 198 and determine whether regulations are required to carry out such provisions, and does not result in fiscal impact to the state or municipalities.

Section 143 requires the Office of Policy and Management (OPM) to conduct a study concerning the gross receipts tax on ambulatory surgical centers. This has no fiscal impact, as it is anticipated that OPM has the expertise to conduct this study.

Section 144 prohibits the Commissioner of the Department of Revenue Services from issuing or renewing certain permits or licenses if taxpayers have any outstanding unfiled tax returns.³ To the extent these provisions increase compliance with existing tax laws, this change results in a revenue gain which may be significant.

Section 145 exempts from the sales and use tax sales of 1) feminine hygiene products, 2) disposable or reusable diapers (non-adult) beginning in FY 19. This results in an annualized revenue loss of $3.6 million associated with feminine hygiene products and $4.2 million for diapers beginning in FY 19.

Section 146 exempts from taxation for sale signs used by realtors. It is anticipated that municipalities that tax these signs will experience a minimal revenue loss, estimated at less than $5,000.

Section 147 allows municipalities to amend their FY 17 budgets if 1) they have already been adopted prior to the effective date of the bill, and 2) the amount of state aid they are estimated to receive is less than the amount they included in their FY 17 budgets. It is anticipated that any municipality that chooses to do this will either reduce spending, or increase property tax revenue, to make up for any FY 17 budget deficit resulting from a reduction in estimated state aid.

Section 148 repeals CGS 38a-1051 thereby eliminating the Commission on Health Equity within the Office of the Healthcare Advocate. SB 501 assumes savings of $146,967 related to the commission's elimination.

Section 148 repeals obsolete language regarding the study and review of the Healthy Start program under DSS, which has no fiscal impact. HB 501 transfers Healthy Start funding of $1.2 million from DSS to OEC.

Section 148 also repeals the statute that requires the Office of Governmental Accountability to create a plan to provide for personnel, payroll, affirmative action, administrative and business office functions including information technology. The budget includes a transfer of five positions and $431,000 to the Department of Administrative Services to handle these functions.

The annualized ongoing fiscal impact identified above would continue into the future subject to inflation and other factors identified in the above analysis.

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.

¹Urban and Industrial Reinvestment Site (URA) Tax Credits are the primary tax credits awarded to First Five projects, though not exclusively so. The tax credit cap on the URA program is $950 million, of which $588 million has been granted as of October 2015.

²The State Bond Commission allocated $14.5 million to the CAEF between 1989 and 2002. Investment earnings on the Connecticut Arts Endowment Fund currently finance the grants provided through this program.

³The following permits or licenses are affected: 1) cigarette dealer, distributor, or manufacturer license; 2) tobacco product distributor or unclassified importer license; or 3) sales tax seller's permit.

To Agency/Program	Amount $	Description
CTNext	29,500,000	Innovation Places program grants and planning grants (Secs. 5,7,8)
CTNext	10,000,000	Technology Talent Advisory Committee (Sec. 23)
CTNext	6,000,000	Higher ed. entrepreneurship grants-in-aid (Sec. 2)
CTNext	2,250,000	Grants to growth-stage companies (Sec. 2)
CTNext	1,500,000	Grant-in-aid to the CT Procurement Technical Assistance Program over five years
CTNext	1,250,000	Grant-in-aid to the CT Supplier Connection over five years
TOTAL	50,500,000

To Agency/Program	Amount $	Description
CTNext	25,000,000	CTNext purposes (Secs. 1 - 2); CI Grant-in-aid for Start-Up-Businesses Program (Sec. 29)
CT Innovations	10,000,000	Investments in venture capital funding (Sec. 11)
CTNext	4,000,000	Higher Education entrepreneurship grants (Sec. 2)
CTNext	500,000	Grant-in-aid for evaluating public innovation, entrepreneurship initiatives, state-wide innovation and entrepreneurship performance (Sec. 25)
TOTAL	39,500,000