Transcript Governor Rowland’s Budget Proposal FY 2003-2005 Biennium March 4, 2003

Governor Rowland’s
Budget Proposal
FY 2003-2005 Biennium
March 4, 2003
Back to Basics Budgeting
• States are facing the worst budget crisis since WWII
– Drastic changes in the stock market—unprecedented growth in the ‘90s
followed by a dramatic drop off beginning in 2001
– 9/11, its fallout, & the anticipation of war may forestall the nascent recovery
– Expansion and creation of new programs in the ‘90s
– Spiraling health care inflation
• Quick fixes and one time revenues have not provided a remedy
– In 2001 and 2002, states generally failed to make the fundamental choices
necessary to adapt to the changing economy
– Instead, quick fixes, one time revenues and gimmicks were used to fill the
gaps as they surfaced, only the holes reappeared
• A structural and balanced solution is overdue
– Tempered spending accompanied by modest tax increases, shared by all,
will provide a basic, balanced solution
2
From Boom to Bust
General Fund Surplus/Deficit
Prior To Disposition
(In Millions of Dollars)
$800
$610
$613
$512
– From 1995 to 2001, the
surpluses were between $81M
and $700M per year
$381
$400
$200
surpluses in the mid and late
‘90s
$702
$600
• CT enjoyed unprecedented
$250
$81
$0
• But in 2002, the state
-$200
-$400
-$600
-$638
-$800
-$817
-$1,000
'95
'96
'97
'98
'99
'00
Fiscal Year
'01
'02
'03
Est.
registered an $800M plus gross
deficit
– The deficit would have exceeded
$1.2B if not for actions taken in
Special Session
3
From Boom to Bust
• During the Boom of the ‘90s,
Capital Gains Realizations
Reported By CT Residents
(In Millions)
Income
Capital
Percent
Year
Gains
Change
1994
$2,547
-16%
1995
$3,832
50%
1996
$4,732
23%
1997
$7,787
65%
1998
$9,867
27%
1999
$11,800
20%
2000
$15,435
31%
capital gains realizations drove
much of the surpluses we saw in
the mid to late ‘90s and into 2001
– In the years of the greatest
surpluses, anywhere between
1/3 and 70% of each fiscal
year’s surplus
was Gains
tied toRealizations
the
Capital
stock marketReported
gains By CT Residents
Not Including Extension Filings
Millions)
• For six years in a row,(InCT
residents’ capital gains increased
by booming double-digit growth
• From 1994-2000, CT capital
gains realizations grew by more
than 500%
4
From Boom to Bust
• The rising stock market meant healthy increases in other
tax revenues as well
– Withholding taxes grew between 7.5% and 15.1% annually
– Sales taxes went up 3.6% to 8.6% annually
– The estimates and finals category of the state income tax
rose between 14% and 32% annually
Economic Growth In Major Taxes
19.0%
0.9%
1.2%
-0.9%
-1.5%
-23.5%
Sales Tax
-10%
Withholding Tax
-20%
-9.7%
4.9%
8.7%
14.9%
9.5%
7.1%
14.2%
8.9%
6.7%
14.5%
7.3%
0%
8.6%
3.6%
7.5%
10%
10.4%
22.6%
20%
15.1%
32.3%
30%
Estimates & Finals Tax
-30%
'96
'97
'98
'99
'00
Fiscal Year
'01
'02
'03 Est.
5
From Boom to Bust
• But a series of major market
U.S. Stock Market Performance
corrections occurred
Magnitude Of Decline Since Peak
0%
-15%
D
-30%
S
-45%
-60%
N -75%
Dow
Jan-97
Jan-98
Jan-99
Nasdaq
Jan-00
S&P 500
Jan-01
Jan-02
-90%
Jan-03
– IT & Telecom bubble burst
– Corporate fraud and abuse
scandals
– 9/11 tragedy
• The major stock indices are
still down between 30% and
75%
• With the stock fall came a
precipitous fall in state tax
revenue
6
From Boom to Bust
• In the current fiscal year the state is looking at the second
year in a row of negative withholding performance because of
poor bonuses and stock options
• Estimates and finals are estimated to be about 10% below last
fiscal year
– This equates to yet another drop in capital gains realizations of
between 20%-25% on an already pitiful FY 02 base
• The sales tax is expected to post a gain of just 0.9%, after
performing barely above that last fiscal year
7
From Boom to Bust
Economic Growth Rates
• How bad was the stock crash
on state revenue?
– Wealthy states like
Connecticut saw their
revenues drop more than the
national average of 6%
– In Connecticut, “so-called”
economic growth of general
fund revenues was down 7.5%
in FY 02
General Fund Revenues
9%
8.5%
6%
7.1%
3%
1.6%
0%
-3%
-6%
-7.5%
-9%
FY '00
FY '01
FY '02
FY '03
– In the current fiscal year, a
meager rebound from FY 02
of 1.6% is expected
8
Putting the Deficit and State Fiscal Crisis in
Context
9
Thank Goodness for the Spending Cap
• Clearly the spending cap isn’t perfect since we do have a
deficit
• But the spending cap did what it was supposed to do
– Held growth rates between 2.1% and 6.4% over the past 8 years
– Spending growth stayed down under the cap, in spite of several
years of robust revenue growth
– In FY 00 and 01, actual GF revenue grew almost 16%, but the
budget grew over 12%
• If not for the constitutional spending cap, our problems
would clearly be much worse—our structural gap would be
billions more
• Consequently, CT’s fiscal situation is less severe than many
other states
10
Both a Spending and a Revenue Problem
• If the revenue side is a problem, so
is the spending side
• Even if the revenue base had
stayed artificially high for the
foreseeable future, we still could
not afford the services our current
laws call for
– State employees and retiree
health care are expected to grow
over 20% in FY 04
– Medicaid is growing at about 9%
– Overall growth in the GF is
12.3%
Where's the Growth In
General Fund Budget?
(In Millions)
Major Categories
State Employee Health Insurance
Retirees Health Insurance
State Employee Pension Fund
Teachers' Retirement Pension Fund
Debt Service
Wages and Salaries
Other Expenses
Higher Ed Block Grants
Medicaid (Excluding DSH)
Education Cost Sharing
Grants to Towns (excluding ECS)
All Other (Net)
Total
Estimated
FY 03
296.4
240.9
285.7
179.8
999.1
1,999.8
1,478.9
529.6
2,705.9
1,516.3
573.0
1,334.4
12,139.8
Current
Services
Add
FY 04
75.0
53.1
53.8
90.7
203.4
161.4
238.8
31.6
239.3
74.7
131.0
140.1
1,492.9
Growth
Rate
25.3%
22.0%
18.8%
50.4%
20.4%
8.1%
16.1%
6.0%
8.8%
4.9%
22.9%
10.5%
12.3%
• Even if revenues were still
growing at 7%-9%, there would
still be a substantial structural gap
11
And a Spending Cap Problem Too!
• The spending cap demands that spending be reduced from
current services by at least $1B over the next two fiscal
years
• The FY 04 current services gap is about $2B
• The cap will only allow a blended capped and uncapped
growth of just over 6%
• But current services growth is about 12.3%, outpacing
allowable growth in expenditures for FY 04 by $763M
Current Services Gaps
(In Millions)
General Fund
Estimated General Fund Revenue
Current Services
Revenue Gap
FY
FY
2003-04 2004-05
11,625.4 12,077.0
13,632.7 14,617.8
(2,007.3) (2,540.8)
All Appropriated Funds
Allowable Capped Appropriation
Current Services
Cap Gap
14,036.3 14,765.0
14,799.5 15,819.6
(763.2) (1,054.6)
12
Bond Rating at Risk
• The gaps in our budget clearly put our state’s bond rating at risk
– “Any significant revenue deterioration not offset by expenditure
adjustments or revenue enhancements could cause a change in the
rating…achieving structural budget balance in FY 04 and beyond will be
necessary to maintain the current rating.” –Standard and Poor’s
– “Adoption of balancing plans with recurring benefits is critical to the
rating.” –Fitch Ratings
– “The basic message here is that there is a growing negative number with
no solution and there remains a structural imbalance.” –Moody’s upon
putting Connecticut on its watch list for possible downgrade
• A lower bond rating could mean tens of millions of dollars in
increased debt costs decades into the future, meaning less will go
to programs, services or other expenditures
• Because of the deficit mitigation plan, the rating should be held
13
Changing the Entitlement Culture
• The recent fiscal crises have forced states to rein in burgeoning
entitlement programs
– At least 40 states, including CT, have enacted significant Medicaid reforms
– At least 22 states have restricted Medicaid eligibility
– At least 16 states have established or increased co-payments
– At least 29 states will implement reductions or freezes in provider payments
• Given the spiraling health care inflation in the nation, state governments
have had to realize that either benefits must be reduced or service
populations must be restricted—you can’t have it both ways anymore
14
Where Does All the Money Go?
• Any discussion of the equity of spending cuts must begin with an
understanding of where the money currently goes
– Total personnel costs make up about 30% of GF spending
– Debt service accounts for about 8% of GF spending
– Various entitlements amount to about 25% of GF spending
– Local aid is about 17% of GF spending
• Is there any doubt, then, that labor cost must be part of the solution
Budgeted Expenditure Growth Rates
Where Do the Dollars Go?
Estimated General Fund FY 2002-03
By Fiscal Year
(In Millions)
Total Personnel Services Costs
Debt Service
Private Providers
Medicaid
HUSKY
SAGA/DMHAS GA/ConnPACE
Hospital DSH/Psychiatric DSH
Education Cost Sharing
Other Payments to Local Governments (Excludes ECS)
Inmate Medical Services
All Other Programs
Total Estimated General Fund Expenditures
10% 10.8%
$3,625.6
999.1
1,029.8
2,705.9
22.3
254.9
204.2
1,516.3
573.0
73.3
1,135.4
$12,139.8
8%
6%
6.4%
6.4%
6.0%
5.6%
4%
4.8%
4.6%
4.2%
3.8% 3.5%
2%
2.1%
0%
'87-'91 '91-'95 '95-'03
'96
'97
'98
'99
'00
'01
'02
03
Est.
15
The Economic Outlook
• What Does the Future Hold?
– From a national perspective, the recession and sluggish recovery appear to be
longer than the early ‘90s downturn
– Recovery over the next several years appears moderate and prolonged
– Consumer moderation in spending prevails over the next several years
– “Jobless Recovery” Phenomenon --Productivity gains rather than job growth
will drive the economy
– Job, personal income and GSP growth will lag the nation
– Connecticut tends to lead nation into recession, lags by two quarters in coming
out
• A Slew of Uncertainties
– Economic recovery or continued recession rests on two main factors (1) the
performance of the equity markets and (2) the outcome of the threat of war with
Iraq
16
Liquidating the FY 2002 – 03 Deficit
• How did the deficit come about?
– Total revenues are down by $388M below budgeted amounts for FY 03
– Personal income taxes are down $421M because of reduced corporate
bonuses and a downturn in capital gains revenue due to deterioration of
the market
– Sales and use tax revenues are down $82M
– On the positive side, corporate tax revenue is up by $40M due to
corporate downsizing in the private sector
FY '03 Major Revenue Shortfalls
Feb. 27th
Assumed
Forecast
Diff.
$4,553.0
$4,132.0
($421.0)
3,141.3
3,059.4
(81.9)
Investment Income
28.0
13.6
(14.4)
Gaming Revenues
672.0
658.9
(13.1)
37.9
25.0
(12.9)
3,659.7
3,815.4
$12,091.9
$11,704.3
Personal Income Tax
Sales & Use Tax
Miscellaneous Revenues
All Other
Total G.F. Revenues
155.7
($387.6)
17
Liquidating the FY 2002-03 Deficit
• On the spending side, the state is expecting that expenditures
will exceed budgeted appropriations by about $140M
– Medicaid is anticipated to be over budget by almost $100M caused by
the softened economy, liberal eligibility rules and health care inflation.
Specific areas of deficiency include HUSKY enrollment for both adults
and children, pharmacy expenditures and healthy home care enrollment
– Major workers’ compensation deficiencies totalling about $17M
– State employee and retiree health accounts have a deficiency of about
$16M due to heavier than anticipated enrollment activity
FY 03 Additional Estimated Expenditures
(In Millions)
State Insurance and Risk Management Board
Department of Mental Retardation
Department of Mental Health & Addiction Services
Department of Social Services
Department of Correction
Department of Children and Families
DAS Workers Compensation
State Employees Health Services
Retired State Employees Health Services
Total - General Fund Additional Requirements
$ 1.2
4.1
2.2
96.7
3.3
7.3
6.5
5.2
8.7
$135.2
18
Liquidating the FY 2002-03 Deficit
• When the FY 03 budget adjustments were passed last year, the
legislature cut $94M in anticipation that the administration would
receive savings from union concessions for the current year
• As no concessions were forthcoming, a portion of that $94M will be
made up through savings from layoffs of nearly 3,000 state
employees and savings from an early retirement plan. (Even with
these measures we are still short by $50M)
General Fund
Changes from Adopted Budget
(In Millions)
Beginning Balance
$
0.1
Revenue Decline
(387.6)
Expenditure Increases
(135.2)
Lost Lapses/Miscellaneous
Adjustments
(105.6)
Surplus/(Deficit)
Loss of Escheats
Final Surplus/(Deficit)
$ (628.3)
(10.0)
$ (638.3)
19
Liquidating the FY 2002-03 Deficit
• Deficit mitigation plan to close entirety of $638.3M gross deficit
and deposit $47.8 million into Budget Reserve Fund. Combination
of measures taken by Governor already, the legislative deficit
mitigation bill, and future steps to be taken by the Governor within
his own authority
• November allotment rescissions of $27.9M in addition to $35M
in Section 52 extraordinary rescissions already accounted for in the
FY 03 adjusted budget passed last year (these Section 52 cuts do
not reduce the deficit)
• January allotment rescissions and agency forced lapses of
$9.1M after duplication with legislative deficit mitigation plan is
taken out. The legislature’s deficit plan also enacted some of the
Governor’s forced lapses. Because the budget is balanced, the
remaining forced lapses will not be taken and will be available for
expenditure.
20
Liquidating the FY 2002-03 Deficit
• $107.6 million in attainable spending reductions in
legislative deficit mitigation plan out of $222.5 million
reported in bill. Included in the attainable cuts is $4.65
million FY 2000-01 surplus. Included here is $21 million for
layoffs and $23 million for the early retirement that was passed
• Within existing authority, Governor and the Secretary of OPM
can choose to lapse salary reserve monies of $29.5 million
• Within existing executive authority, the Governor and the
Secretary of OPM can choose to lapse $18.7M in collective
bargaining monies that were set aside for unsettled
contracts
21
Liquidating the FY 2002-03 Deficit
• According to OPM’s analysis, the legislative deficit
mitigation plan will infuse $485.2M into the general
fund revenue stream. Pure tax increases amount to
about $296M, with an additional temporary corporate
surcharge raising $46M. Other transfers and accrual
changes make up rest
• New additional tax increases in this budget proposal that
raise $8.1M in FY 03
22
Liquidating the FY 2002-03 Deficit
• About $350M in ongoing and temporary tax increases, or
about 50%
• About $223M in spending cuts, or one-third
• It’s fair. It’s equitable. The plan should preserve the state’s
bond rating
• Final estimated FY 03 spending in the general fund will be
about $28M higher than what the Governor was going to
initially propose ($12.112B versus $12.140B)
• It balances the state budget and reduces next fiscal year’s hole
by more than one half. Total FY 04 mitigation is $1.118B,
dropping gap from over $2B to just below $900M
• Mitigation because of plan in FY 05 is $1.146B, dropping gap
from over $2.5B to below $1.4B
23
The FY 2003-05 Biennial Budget
• The Spending Plan
– Governor Rowland continues his record of fiscal prudence
– The proposed FY 04 budget is $333M below the cap and for FY 05
$65.6M below the cap
– GF current services reduced by $1.16B in year one and $1.59B in
year two
– GF net revenues increased $852M in FY 04 and $950M in FY 05
Nominal Growth In State Spending
Appropriated Funds Of The State
By Fiscal Year
(In Millions)
7%
6%
6.4%
5%
6.0%
4%
4.2%
4.2%
3%
2%
2.1%
1%
2.4%
0%
'00
'01
'02
'03
Est.
'04
Fcst.
'05
Fcst.
Estimated
FY 03
General Fund
$12,139.8
Special Transportation Fund
892.4
Mashantucket Pequot & Mohegan Fund
106.0
Soldiers’, Sailors’ & Marines’ Fund
3.6
Regional Market Operating Fund
0.9
Banking Fund
15.6
Insurance Fund
20.8
Public Utility Control Fund
20.5
Workers Compensation Fund
23.4
Criminal Injuries Compensation Fund
1.4
Grand Total
$13,224.4
Recommended
FY 04
FY 05
$12,476.5 $13,026.4
898.8
921.9
85.0
85.0
3.5
3.5
0.9
1.0
15.2
15.5
19.8
19.8
19.8
19.8
21.8
22.1
1.4
1.4
$13,542.7 $14,116.4
24
The FY 2003-05 Biennial Budget
Revenue Forecasts
• Revenue assumptions are based upon the most prudent and realistic
forecasts currently available
Economic Growth Rates
General Fund Revenues
9%
8.5%
6%
7.1%
3%
3.8%
4.4%
1.6%
0%
-3%
-6%
-7.5%
-9%
FY '00 FY '01 FY '02 FY '03 FY '04 FY '05
25
The FY 2003-05 Biennial Budget
Revenue Forecasts
• For the state income tax, modest growth is predicted for the
withholding side and even more modest growth is predicted in
the estimates and finals component. It will raise $4.75B in FY
04 and over $5B in FY 05
Personal Income Tax Growth Rates
28%
19.0%
8.7%
7%
14.9%
14%
9.5%
4.0%
6.0%
2.0%
2.0%
0%
-7%
-14%
-9.7%
-0.9%
-1.5%
-23.5%
Economic Growth Rate
21%
-21%
Withholding Tax
Estimates & Final
-28%
'00
'01
'02
'03 Est.
'04 Fcst.
'05 Fcst.
Fiscal Year
26
The FY 2003-05 Biennial Budget
Revenue Forecasts
• The Sales and Use Tax, the state’s second largest tax generator,
will rebound during the FY2003-05 biennium and will raise
almost $3.3B in the first year and $3.46B in the second year
Sales & Use Tax Growth Rates
8%
Economic Growth Rate
7.1%
6%
5.6%
4.9%
4%
4.8%
2%
1.2%
0%
'00
'01
'02
0.9%
'03 Est. '04 Fcst. '05 Fcst.
Fiscal Year
27
The FY 2003-05 Biennial Budget
Limiting the use of one-time revenues
• Many states have used one-time revenues as a “quick fix” in order to
avoid the necessity of making significant structural changes to both the
expenditure and revenue sides of the budget. Poor fiscal practice will
impact our bond ratings if no structural changes to state budgets are made
• Connecticut has used one-time revenues of $656.3M as well to adjust and
balance the FY 03 budget as follows
– $475M in the FY 03 budget adjustment plan of last year including $85M in
additional tax amnesty monies over what was budgeted
– $181M under House Bill 6495
• The use of one time revenues drops from approximately 5.4% in FY 03 to
1.7% in FY 04 and to 1.3% in FY 05. Total “one-times” $207M and
$172M in each each year. Included are sweeps of ECLM, CEF, CHFA,
CDA, and CII
28
Tax Changes and Revenue Enhancements
• Taxes were already increased $250M last year
Enacted Tax Changes
2002 Legislative Session
(In Millions)
General Fund Tax Changes ($M)
Increase Cigarette Tax
Defer Singles Exemption
Defer Sales Tax Phase Down on Computer & Data Processing Services
Institute $250 Charge on LLCs, LLPs and S Corps
Modify R&D Credit Exchange
Reduction In Corporate Liability At No More Than 70%
Reduce Oil Company Transfer By the Increase in the Diesel Tax
Defer Gift Tax Phase Down
Total Tax Changes
November Special Session
Delay Succession Tax Phase Out for Class B & Class C
FY 03
Impact
129.3
12.0
10.0
28.0
13.0
30.0
25.0
2.6
249.9
11.0
29
Tax Changes and Revenue Enhancements
Fiscal Impact of House Bill 6495
Signed into law by the Governor on February 28, 2003
General Fund
Personal Income Tax
Increase 4.5% rate to 5.0%
Accrue July non-withheld payments
Sub-total
Sales and Use Tax
Reduce Clothing Exemption to $50
Newspapers & Magazines
Advertising Services at 3%
Health and Athletic Clubs
Additional Sales Tax due to Cigarette Tax
Sub-total
Corporation Tax
Impose 20% surtax in IY 2003
Accrue to August 15th
Sub-total
Public Service Tax
Quarterly estimates for Cable TV
Cigarettes
Increase rate from $1.11 to $1.51
Floor Tax
Sub-total
Real Estate Conveyance
Accrue to July 31st
Oil Companies
Suspend transfer to the STF
Federal Grants
Revenue impact due to budget changes
Transfers to/(from) the General Fund
Reduce the Mashantucket/Pequot Grant
Fund Transfers
Transfer from the STF
Transfer from the Probate Court Admin. Fund
Reduce Tourism Districts Hotel Intercept
Transfer from Commercial Recording Account
Energy Conservation and Load Mgt.
Sub-total
Fiscal
2002-03
Fiscal
2003-04
Fiscal
2004-05
1/1/03
1/1/03
230.5
10.0
240.5
428.3
428.3
445.5
445.5
4/1/03
4/1/03
4/1/03
4/1/03
3/15/03
10.9
17.5
5.0
1.9
1.7
37.0
33.6
69.8
20.0
7.5
4.4
135.3
35.3
73.3
22.5
7.9
4.3
143.3
1/1/03
45.6
7.0
52.6
24.6
24.6
-
Eff.
1/1/03
15.2
3/15/03
22.1
6.6
28.7
1/1/03
12.0
-
-
7/1/02
20.0
-
-
Grand Total - General Fund
Special Transportation Fund
Oil Companies tax
Suspend transfer from the GF
Fund Transfers
Transfer from the STF
Grand Total - Special Transportation Fund
7/1/02
73.5
73.5
71.7
71.7
(13.8)
(43.7)
(43.7)
21.5
21.5
21.5
52.0
10.0
1.0
2.5
6.0
71.5
1.0
12.0
13.0
1.0
12.0
13.0
485.2
652.5
651.3
(20.0)
-
-
(52.0)
-
-
(72.0)
-
-
30
Tax Changes and Revenue Enhancements
• Legislative deficit mitigation plan increased income
tax rate
• Effective with income year 2003, increase the 4.5%
to 5% only; 3% rate unchanged
– 0.5 percentage point across-the-board rate increase for all
filers
• Raises $231M in FY 03, $428M in FY 04, and
$446M in FY 05
31
Tax Changes and Revenue Enhancements
• To ensure that the current fiscal year deficit is closed
– New tax tables will be in force by April 1
– Increase withholding so as to collect a full six months
worth of increases in the three remaining months of the
fiscal year
– In effect, taxpayers would be asked to double up
– April, May and June make up for January, February and
March
– New tax tables would be issued again for implementation in
July, which would be the permanent ones
32
Tax Changes and Revenue Enhancements
• Reducing the property tax credit on all filers
– Reduce the $500 property tax credit to no more than $400 and remove
the minimum $100 credit for higher income filers
– Phase out the minimum $100 property tax credit, even at higher income
levels
– The property tax credit begins to be phased down beginning at $54,500
for singles and $100,500 for joint filers. The current $100 minimum
begins at $144,500 for singles and $190,500 for joint filers
Changes in Property
Tax Credit
Income
Year
1996
1997
1998
1999
2000
2001
2002
2003
Maximum
Amount
$
100
$
215
$
350
$
425
$
500
$
500
$
500
$
400
Distribution Of Property Tax Credits Claimed
By Connecticut AGI - 2001 Tax Year
1.5%
$200K+
12.5%
$100K-$200K
16.1%
$75K-$100K
12.7%
$0-$25K
24.1%
$50K-$75K
33.1%
$25K-$50K
33
Tax Changes and Revenue Enhancements
• What The Property Tax Credit Change Will Mean?
– All who pay at least $500 in property taxes and file for the credit will
see the $100 loss. Those who pay and claim less than $500 in property
taxes will see a reduction of up to $100 and those whose claim is less
than $400 will have no reduction
– Increase revenue in FY 04 by $68M and by $69.4M in FY 05
– Property tax minimum phase-out saves $12M in FY 04 and FY 05
Phaseout of the Property Tax Credit
Filing Status
Single
Adjusted Gross Income
From
To
$54,501
$144,500
Head of Household $78,501
$168,500
Joint
$190,500
$100,501
Filers
Claiming Property Tax Credit
Tax Year 2000
Credit Range
$0
$100
$200
$300
$400
Total
Full
$99.99
$199.99
$299.99
$399.99
$499.99
$500.00
Returns
61,817
154,210
71,700
90,206
100,824
509,927
988,684
34
Tax Changes and Revenue Enhancements
• Elimination of phase-in of
higher singles exemption
– Last session, the legislature
suspended the phase-in for two
years effective January 1, 2002.
The 2001 exemption level of
$12,500 remains in effect until
January 1, 2004
– The Governor proposes to
permanently repeal any further
changes to the singles
exemptions. The exemption and
phase-out threshold will stay at
the January 2001 levels
permanently. Will save $7M in
the FY 05
Singles Exemption
Income
Year
AGI Exemption Level
Current Proposed
Pre-2000
2000
2001
2002
2003
2004
2005
2006
2007
2008
2009
$12,000
$12,250
$12,500
$12,500
$12,500
$12,750
$13,000
$13,500
$14,000
$14,500
$15,000
$
$
$
$
$
$
12,500
12,500
12,500
12,500
12,500
12,500
35
Tax Changes and Revenue Enhancements
• Summary of Income Tax Increases
– Total income tax increases or repeal of past reductions amount to
$231M in FY 03, $508M in FY 04 and $535M in FY 05
– On the property tax credit, no filer gets hit with more than a $100
loss. Every filer is paying 0.5 percentage points more on all taxable
income – period
– Families earning less than $100K pay less than $500 more than they
did before – about $10 per week
– The filer earning $500K will pay up to $2,550 more. The filer
earning $1M will pay up to $5,050 more
– About three quarters of the tax hike will be borne by those earning
more than $100K
– Since the beginning of the Rowland administration, families earning
less than $125K still enjoy an overall income tax decrease
36
Tax Changes and Revenue Enhancements
• Lowering sales tax exemption
on clothing and footwear
• Accomplished in the legislative
deficit mitigation plan
– Return to the $50 threshold per
item effective April 1
– Increased revenue to the general
fund of $8.2M in the current
fiscal year, $33.6M in FY 04 and
$35.3M in FY 05
Changes in the
Clothing Exemption
Date
Amount
Previously
$50
7/1/2000
$75
4/1/2003
$50
• New proposal: Eliminate salestax free week to save $3M in
FY 04 and $3M in FY 05
37
Tax Changes and Revenue Enhancements
• Sales on business computer
services
– Repeal the phase-down
– The Governor is proposing a
permanent rate of 1%. This
change would raise about
$10.8M in FY 05
Changes in the Sales Tax
on Computer and
Data Processing Services
Effective
Current
Rate
Proposed
Rate
7/1/96
7/1/97
7/1/98
7/1/99
7/1/00
7/1/01
7/1/02
7/1/03
7/1/04
7/1/05
6%
5%
4%
3%
2%
1%
1%
1%
0%
0%
1%
1%
38
Tax Changes and Revenue Enhancements
• Corporate tax surcharge
– 20% surcharge in income year, falling to 10% in income
year 2004. Surcharge will be gone by income year 2005
– Businesses will pay in estimated taxes what would have
been owed if the tax were in place as of January 1
– Last session, two major changes increased corporate
expenses by at least $60M. Total of $105M in new
temporary surcharges in the two income years
Corporation Tax Surcharge Revenue
(In Millions)
Income
Year
Surcharge
FY
2002-03
FY
2003-04
FY
2004-05
2003
20%*
$ 45.6
$ 24.6
$
-
$ 70.2
2004
10%
$
$ 22.8
$ 12.3
$ 35.1
$ 47.4
$ 12.3
$ 105.3
Total
-
$ 45.6
Total
* The 20% surcharge has already been enacted as part of HB6495.
39
Tax Changes and Revenue Enhancements
• Increasing the Cable TV Gross
Receipts Tax
– Increase cable gross receipts
tax portion of the public
service tax from 5% to 6% to
raise $6.3M in FY 04 and
$6.7M in FY 05
• The Hospital Sales Tax
– Permanently rescind the
5.75% hospital sales tax
• Cigarette Tax Increase
– Increase the cigarette tax rate
to $1.51, effective March 15
to raise $31M in FY 03,
$78M in FY 04, and $76M
in FY 05
C i g a r e t te T a x R a te s
Sta te
C o n ne c tic ut
M a s s ac h u s e tt s
N e w H a m p s h ir e
N e w J e rse y
N e w Y o rk
R h o de Is lan d
V e r m o nt
T ax Per Pack
In E f f e c t 2 /1 / 03
$ 1 .1 1
$ 1 .5 1
$ 0 .5 2
$ 1 .5 0
$ 1 .5 0
$ 1 .3 2
$ 0 .4 9
40
Tax Changes and Revenue Enhancements
• Increases in the real estate
conveyance tax
– Effective April 1
– No increase in the real estate
conveyance tax on homes valued at
or under $300K or on the first
$300K of a home’s value
– The incremental portion of a home’s
value between $300K and $800K
will be taxed at .75% as opposed to
0.5%
– The portion of a home over $800K
will be taxed at an incremental rate
of 1.5% as opposed to 1%
– The commercial rate will increase
from 1% to 1.5%
– Will raise $5M in FY 03, $25M in
FY 04, $25M in FY 05
Real Estate Conveyance Tax Rates
(In Thousands)
House Price
$0 to $300
$300 to $800
Over $800
Commercial
Current Proposed
Rate
Rate
0.5%
0.5%
1.0%
1.0%
No Change
0.75%
1.50%
1.50%
41
Tax Changes and Revenue Enhancements
• Tourism funding changes
– Combine the Historical Commission, the Commission on the
Arts, the Film Commission and the Tourism Office into a new
commission, the Commission on the Arts, Culture, and Tourism
– To bring greater oversight and accountability to the system,
current tourism districts will be disbanded and the central
commission will determine what local entities should be set up
and the funding they should receive
Tourism Related Program Changes
FY
Revenues
Hotel Occupancy Tax - Repeal transfer for the payment
to Tourism Districts and Convention Center
Misc. Tourism Items - Eliminate transfers from
the Hotel Occupancy Tax for the following items
CHC - Freedom Trail
$ 40,000
DECD - Freedom Trail
$ 50,000
Impressionists Arts Trail
$ 50,000
Historical Resource Inventory
$ 30,000
Central Tourism Account
$ 500,000
CT Film, Video, & Media Office
$ 412,000
CT DOT Ferries
$ 688,202
Tourism Account Surcharge-$1/day on rental of passenger cars
Repeal the payment to the Tourism Account
Total Revenues
FY
2003-04 2004-05
(In Millions)
16.6
17.4
1.8
1.8
4.6
4.8
23.0
24.0
12.2
12.2
Expenditures
Discovering CT
Note: In addition to the Discovering Connecticut Grant the costs of positions supported
in DECD by the Tourism Fund will be transferred to General Fund appropriations.
42
Tax Changes and Revenue Enhancements
• Escheating unclaimed bottle deposits to the State of
Connecticut
– The Governor again is proposing that unclaimed deposits on
unreturned beverage containers be escheated to the state
– Will raise $18M in year one and $20M in year two
It’s Time!!
43
Tax Changes and Revenue Enhancements
• Internet sales tax
– Change Connecticut’s status on the Streamlined Sales Tax
project from observer status to voting participant status
– Connecticut is currently losing between $300-$400M
– Governor Rowland now favors taxation of internet sales
Estimated Revenue Loss
Due to Internet and Mail Order Sales
(In Millions)
Fiscal Year
2000
2001
2002
2003
2004
2005
Revenue
Loss
$ 136.5
$ 153.4
$ 181.2
$ 220.6
$ 277.8
$ 366.3
44
Tax Changes and Revenue Enhancements
• Governor Rowland is proposing ongoing tax increases, including the
permanent freeze of the singles exemption at $12,500, of $214 million.
Including the legislative deficit mitigation plan, total taxes will increase
$851 million.
Proposed Tax Increases - 2003 Session
(In Millions)
Tax & Description
Income Tax
Reduce $500 property tax credit to $400
Phase-out remaining $100 property tax credit
Eliminate Increase in Singles Exemption
Sales & Use Tax
Computer & Data Processing Services at 1%
Rescind Sales Tax Free Week
Corporation Tax
Impose 10% Surcharge in IY 2004 *
Repeal various minor tax credits
Public Service Tax
Increase Cable TV tax from 5% to 6%
Additional sales tax collections due to change
Inheritance & Estate
Defer phase-down in succession tax for 2 years
Insurance Companies
Limit credits to no more than 70% of tax
Real Estate Conveyance
Increase tax rates
Total - Ongoing Tax Increases
FY
FY
FY
Effective 2002-03 2003-04 2004-05
1/1/03
1/1/03
-
68.0
12.0
-
69.4
12.2
7.0
4/1/03
7/1/03
-
3.1
10.8
3.3
1/1/03
1/1/03
-
22.8
5.0
12.3
5.0
4/1/03
4/1/03
1.5
0.1
6.3
0.4
6.7
0.4
1/1/03
-
11.0
26.0
1/1/03
1.5
2.5
2.5
4/1/03
5.0
25.0
25.0
8.1
$ 133.3
$ 168.3
$
* Temporary Tax Increase
45
Tax Changes and Revenue Enhancements
Major Tax Cuts
• Net tax decrease of $961M
• Economic Competitiveness
fundamentally safeguarded
Income Tax
Added lower tax rate
Added a property tax credit
Phase in of higher standard deduction for single filers from $12,000 to $12,500
Sales and Use Tax
Eliminated the tax on hospital services
Exempted college text books
Phase out of property repair services such as painting, roofing, paving, etc.
Exempted manufacturing repair and replacement parts
Phase down of tax on computer and data processing services to 1%
Corporation Tax
Reduced tax rate from 11.5% to 7.5%
Instituted single factor apportionment for manufacturers, broadcasters, and
financial services
Phased out S-corporation tax
Extended the carry forward for NOL's from 5 years to 20 years
Expanded credit & permitted exchange of unused R&D credits for smaller firms
Instituted an Urban Reinvestment credit worth $500 million over 10 years
Inheritance Tax
Phase out of the Succession tax for all classes
Motor Fuels Tax
Reduced tax 14 cents or approximately 36%
Hospital Gross Receipts Tax
Eliminated tax
Tax Cuts Fully Implemented
(In Millions)
Tax Type
Income Tax
Sales Tax
Corporation Tax
Hospital Tax
Cigarette Tax
Inheritance Tax
Gasoline Tax
Local Business Property Taxes
Other Taxes
Total
Enacted in
Governor's Net Tax
Pre-2002
2002
HB 6495
Proposal
Cut/
Session
Session
2003
3/4/2003 (Increase)
$ 711.5 $
$ (428.3) $ (161.0) $ 122.2
193.3
(8.3)
(135.3)
(14.3)
35.4
496.6
(58.5)
(5.0)
433.1
190.4
190.4
(122.0)
(73.5)
(195.5)
158.1
158.1
190.2
(25.7)
164.5
66.1
66.1
57.8
(36.9)
(33.8)
(12.9)
$ 2,064.0 $ (251.4) $ (637.1) $ (214.1) $ 961.4
46
Education: Developing the Next Generation
• Reducing Racial Isolation and Improving Urban Education –
Sheff Initiatives
– Under Governor Rowland, spending on initiatives to improve urban
education and reduce racial isolation has increased from $21M to $208M
over the decade
– Funding for Magnet Schools will increase from $45M in FY03 to $73M
in FY05, the number of schools will increase from 31 to 48 and
enrollment will go from 11,000 to 17,000 over the biennium
– Funding for the OPEN Choice Program will increase $300K in FY 04
and $1.6M in FY05, with enrollment going from 1,600 to 2,000 in FY05
– Funding for Charter Schools will be $16M in FY04 and $16.8M in FY05
with 2,400 students participating in FY05 up by 150 students over the
biennium
– The Interdistrict Cooperation Grant, serving some 60,000 students, will
be increased by $1.2M during the biennium
47
Education: Developing the Next Generation
• Reducing Racial Isolation and Improving Urban Education –
Sheff Initiatives
ESTIMATED COST OF SHEFF STIPULATED AGREEMENT
PROGRAM
2003-04
2004-05
2005-06
2006-07
Magnet Schools*
$ 3,180,000 $ 6,360,000 $ 9,540,000 $ 12,720,000
Open Choice
$ 1,070,000 $ 2,140,000 $ 3,230,000 $ 4,360,000
Interdistrict
$ 250,000 $ 500,000 $ 750,000 $ 1,000,000
Expert Witness
$
6,000 $
6,000 $
6,000 $
12,000
Total
$ 4,506,000 $ 9,006,000 $ 13,526,000 $ 18,092,000
*The recommended budget for FY 04 & FY 05 is lower than the figures shown.
DOE had already requested some additional funding for Hartford magnet
schools, only the net additional funding needed was added in the budget.
The figures above are from the Stipulated Agreement.
48
Education: Developing the Next Generation
• School Choice
– Governor proposes allowing parents of children in “failing” schools to take
up to $3,000 in ECS funding to attend school of their choice including
public, magnet, charter or private schools
• Regional Vo-Tech Schools
– Due to fiscal exigencies, institute a freeze in enrollment at current levels for
FY04
• Educational Cost Sharing
– To restrain growth but maintain equalized distribution: (a) keep ECS Cap in
place but continue $50M subsidy for capped towns, (b) eliminate Density
Supplement (c) institute 3% reduction in each town’s grant for the biennium
and (d) calculate ECS grant only once for the biennium
– These measures will save $170M over the biennium
– The proposed $1.488B for ECS, although a $27M reduction from current
year, is up $100M from FY 01 level
49
Education: Developing the Next Generation
• Special Education Changes
– Under current law, the threshold for state funding of per pupil costs
would go from 5x to 4.5x costing $37.3M over the biennium.
– The proposed budget maintains the current eligible costs over 5x the
average per pupil cost funding level and caps the grant at FY03
level
• Holding Other Grants to Level Funding
– Because of the State’s fiscal condition, level funding is proposed for
Public and Non-public School Transportation, Adult Education and
Health and Welfare Services grants
• RESC Subsidies
– Reduce current operating subsidy grant by $1M and lease grant by
$300K
50
Education: Developing the Next Generation
• Restructuring Higher Education
– The proposed budget recommends creation of a new governing
entity – the Board of Regents for Higher Education
Merger of Chancellor's Offices
Into Board of Regents
CommunityTechnical Colleges
Chancellor's Office
Department of
Higher Education
Connecticut State
University
Chancellor's Office
Board of Regents For
Higher Education
Financial Summary
(Current Costs)
Department of Higher Ed.
CTC Chancellor's Office
CSU Chancellor's Office
TOTAL
$
$
$
$
FY 2004 *
40,120,653
6,206,421
4,811,306
51,138,380
$
$
$
$
FY 2005
40,159,331
6,516,742
5,051,871
51,727,944
SAVINGS
$ (2,754,432) $
(5,784,306)
* Half year savings in 2004 because of contractual requirements
Reallocation to Board of Regents
For Higher Education
Recomm Appropriation
$
48,383,948 $
45,943,638
51
Education: Developing the Next Generation
• Higher Education Block Grants
– Governor Rowland has always considered higher education to be a key
component in growing the economy and attracting new employers
– Under the Governor, from FY95-FY03, education block grants increased
more than a third for UConn and CSU and almost 50% at the CTCs
– The proposed budget fully funds the state’s portion of all new facility
costs at each unit
– Because of fiscal constraints, the units will get 1/2 of the gross increase in
the Current Service level for annualization and new wage increases, less
the amount estimated for unsettled collective bargaining contracts
– The units can cover these reductions through concessions from bargaining
units or implementation of announced layoffs
– Despite these cutbacks, block grants increase by about $3M across all
units in FY 04 and by an additional $7M in FY 05; without the CSU/CTC
merger, block grants would have increased $14M in FY 04 and an
additional $18M in FY 05
52
Education: Developing the Next Generation
• Eliminating NEBHE Funding
– Encourages New England states to join a compact to provide benefits
similar to the NEHBE sponsored program that allows students to enroll (at
reduced rates) in NE colleges with programs not offered in state
• Matching Grants
– Proposes to defer bond authorization for endowment fund-raising match
during the biennium
• Tuition Aid
CONNECTICUT INDEPENDENT COLLEGE STUDENT GRANT (CICSG)
Available
Est. # Recipients Avg. Award
Change
Funding
In # Recipients
SFY '03
SFY '04
SFY '05
$15,888,864
$12,067,492
$12,067,492
4,022
4,022
4,022
$3,950
$3,000
$3,000
0
0
CONNECTICUT AID FOR PUBLIC COLLEGE STUDENTS (CAPCS)
Available
Est. # Recipients Avg. Award
Change
Funding
In # Recipients
SFY '03
SFY '04
SFY '05
$17,539,728
$17,539,728
$17,539,728
11,158
11,158
11,158
$1,572
$1,572
$1,572
0
0
53
Education: Developing the Next Generation
• 21st Century UConn Continues
– The Governor is committed to maintaining UConn as one of
the best research institutions in the nation and attracting
academically gifted students who will become future leaders
in the state
– The Governor proposes no changes to his program that
allocates $1.3B to capital improvements at the Storrs, regional
and Health Center campuses
• Renewed Commitments to CSU and the CTCs
– Since the Governor took office through FY07, capital funding
for CSU is $843M and for the CTCs it is $708M
– For this biennium, capital funding for CSU has increased
some $17M and for the CTCs about $30M
54
Maintaining a Commitment to the Development of
Nursing Home Alternatives
• For the past 8 years, Governor Rowland has championed the
enhancement of long-term care alternatives in the community
• The Governor proposes to fully fund Home Care expansion,
assisted living in congregate and HUD facilities, and 276
freestanding assisted living units
Growth In Nursing Home Alternatives
Governor Rowland's Continuum of Care
No Waiting List Policy Instituted for Home Care Program
Jan. 1998
Home Care Program Waiting List Eliminated
July 1998
St. Jude Congregate Assisted Living Pilot
Oct. 2000
Home Care Program Eligibility Expanded
May 2001
Assisted Living in Congregate and HUDs Initiated
Jan. 2003
Private Pay Assisted Living Pilots Implemented
Spring 2004
First of 276 Assisted Living Demonstration Units Come Online
Sept. 2004
Over 600 Individuals Covered Under Medicaid and StateFunded Assisted Living Programs
$186.0
$171.2
$175
Expenditures ($M)
Jan. 1997
$200
$157.2
$142.9
$150
$130.8
$118.3
$125
$100
$108.1
$87.5
$75
$50
'98
'99
'00
'01
Fiscal Year
'02
'03
'04
'05
Est. Fcst. Fcst.
55
Putting Reins on the Human Services Safety Net
• Health Care Costs
Factors Driving Rising Costs In Healthcare
2001-02
Skyrocketing
– There is not one single driver
of health care costs today,
complicating cost
containment strategies
– State government is more
vulnerable than the private
sector because of the richness
of its employee plan and the
Medicaid benefit, as well as
the acuity of clients served
• Burgeoning Eligibility Rolls
– Increases due to economic
recession
– Legislature expanded
eligibility in the ’90s
Increased
Consumer
Demand
15%
Drugs &
Medical
Devices and
Other
Advances
22%
General
Inflation
18%
Gov.'t
Mandates &
Regulations
15%
Litigation &
Risk Mgmt.
7%
Rising
Provider
Expenses
18%
Other
5%
Source: Managed Healthcare Executive
Caseload as of January, 2003
(or as noted)
Managed Care
Husky A - as of January 1
Husky B - as of January 1 (bands 1 & 2 only)
Medicaid Fee-For-Service
Nursing Homes
Licensed Beds (all payors)
Medicaid payments
ConnPACE
SAGA
SAGA - Medical - as of November 30
SAFA - Cash - as of November 30
TFA
Home Care
Waiver - as of December 1
State Funded - as of December 1
289,333
13,648
104,000
31,092
19,954
50,260
24,706
4,646
24,297
8,875
3,691
56
Putting Reins on the Human Services Safety Net
• Governor Rowland is recommending a series of changes to the
state’s entitlements:
– Repeal of Certain Entitlements
– Removal of Certain Eligibility Groups from the Benefit Rolls
– Reductions in Benefit Levels for Remaining Recipients
– New or Increased Cost-Sharing for Recipients
– Competitive Bidding and Provider Reimbursement Reductions
57
Putting Reins on the Human Services Safety Net
• Joining many other states that have closed their General Assistance
programs, the Governor proposes to eliminate cash and medical
assistance under SAGA to approximately 25,000 individuals.
Changes to General Assistance Programs
(In Millions)
Department of Social Services
Eliminate State Administered General Assistance (SAGA)
Transfer Behavioral Health Prescription Dollars to DMHAS
Increase Disproportionate Share Funding in the
Uncompensated Care Program for Acute Care Hospitals
Increase Funding for Public Acute Care Hospital
Department of Mental Health and Addiction Services
Eliminate GA Behavioral Health Managed Care
Reallocate Dollars to Community Substance Abuse
and Mental Health Accounts
Transfer Behavioral Health Prescription Dollars from DSS
Total Changes
FY 04
FY 05
(105.4)
(4.0)
(141.9)
(4.0)
58.3
1.7
(49.4)
58.3
1.7
(85.9)
(66.4)
(72.5)
42.5
4.0
(19.9)
50.0
4.0
(18.5)
(69.2)
(104.4)
58
Putting Reins on the Human Services Safety Net
• Medicaid is expected to grow 17% from $2.7B in FY 03 to
$3.17B in FY 05 if no changes are made. To cut costs, the
Governor is proposing to
– Eliminate Medical Coverage for 27,000 HUSKY Adults with
income between 100-150% of FPL with an anticipated savings of
$54.9M in FY 04 and $65.9M in FY 05 (Accomplished in
legislative deficit mitigation bill)
– Eliminate Other Optional Medical Coverage in Medicaid
affecting approximately 7,000 individuals will have an
anticipated savings of $7.2M in FY 04 and $12M in FY 05
(Partially accomplished in legislative deficit mitigation bill)
Presumptive Eligibility
Guaranteed Eligibility
Continuous Eligibility
59
Putting Reins on the Human Services Safety Net
• Reductions in Benefit Levels and Increased Cost-Shares
– Restructure Benefits in Medicaid managed care and FFS
Benefits will more closely resemble commercial coverage
Institute Premium and other cost-sharing
Will save $6.5M in FY 04 and $15M in FY 05
– Small Employer Health Insurance Subsidy Program
Establish a capped, non-entitlement program for 3-5,000 enrollees under
300% FPL. Budget includes $1.8M in FY 04 and $3.6 M in FY 05 to
implement.
– Medicaid Co-Pays
Impose Co-payments to the extent permitted by federal law on doctor
visits, outpatient services and pharmacy. Will save $11.1M in FY 04 and
$11.7M in FY 05 (Accomplished in legislative deficit mitigation bill)
60
Putting Reins on the Human Services Safety Net
• Changes to HUSKY B
Program
– Increase HUSKY B Premiums
$30 per child for income
between 185-235% FPL
$50 per child for income
between 236-300% FPL
– Suspend HUSKY B Enrollment
– Restructure HUSKY B Benefits
Benefits will more closely
resemble commercial
coverage
HUSKY Caseload
Jun-97
Jun-98
Jun-99
Jun-00
Jun-01
Jun-02
Jun-03
Jun-04
Jun-05
HUSKY A HUSKY B
Children Children
164,665
166,858
80
174,328
3,479
176,558
5,586
170,878
8,281
191,027
12,401
14,341
211,357
224,063
14,341
238,459
14,341
[1]
[1]
[1] Suspends HUSKY B Enrollment
over the Biennium.
– These measures will save $4.6M
in FY 04 and $10.78M in FY 05
61
Putting Reins on the Human Services Safety Net
Pharmacy Changes
Estimated Pharmacy Costs
After Implemented Savings
(In Millions)
• The state has already enacted costcutting measures across Medicaid
and ConnPACE. To further curtail
the high cost of prescription drugs,
the Governor is proposing to
– Reduce the dispensing fee from $3.85
to $3.50 (Partially accomplished in
legislative deficit mitigation plan)
– Reduce the AWP reimbursement
from –12% to –13.5%
– Phase-in implementation of a
preferred drug list for certain drugs;
limited to PPIs in FY 04
– Maximize dosage efficiencies
Actual
FY 02
Estimated
FY 03
Recomm
FY 04
Recomm
FY 05
Department of Social Services
Department of Mental Retardation
Department of Mental Health and
Addiction Services
Department of Correction
Department of Children and Families
Workers' Comp
State Employees
Teachers' Retirement
$396.0
0.4
$482.5
0.5
$463.3
0.5
$515.0
0.5
6.9
12.9
0.6
0.9
91.0
10.7
6.4
15.4
0.8
1.0
91.0
12.0
10.3
13.4
0.8
1.0
108.3
14.3
10.3
14.7
0.8
1.0
125.0
16.0
Grand Total
$519.4
$609.6
$611.8
$683.3
Estimated Pharmacy Savings (DSS)
(In Millions)
Ongoing Initiatives:
Maximum Allowable Cost
Prior Authorization / Generic Substitution
Nursing Home Drug Return
Expedite Brand to Generics (Bush Administration)
Utilize the Federal Supply Schedule for FQHC's
Voluntary Mail Order
New Initiatives:
Reduce Average Wholesale Price by 1.5%
Phase-In Preferred Drug List
Reduce Dispensing Fee from $3.85 to $3.50
Maximize Dosage Efficiencies
Total Savings
FY 04 FY 05
$9.8 $10.8
3.4
5.5
2.5
3.0
2.1
3.0
1.0
1.0
0.0
1.3
6.4
5.0
2.6
0.5
7.0
7.5
2.8
1.0
$33.3
$42.9
62
Putting Reins on the Human Services Safety Net
• Additional changes to the ConnPACE program
– Increase the co-pay from $12 to $15 (Accomplished through legislative deficit
mitigation plan – actually goes to $16.25)
– Institute an asset test of $50K for singles and $75K for married
– Limit the quantity dispensed to a 30-day supply
– Suspend the COLA used in determining income eligibility
ConnPACE Expenditures & Caseload
$75
ConnPACE Changes
(In Milions)
55
Net Expenditures
48
$45
41
$30
34
$15
27
$32.8
$37.9
$41.9
$70.1
'00
'01
'02
'03
Est.
$65.4
$25.0
'99
$61.7
$22.6
'98
$0
20
Fiscal Year
'04
'05
Fcst. Fcst.
Average Caseload (Thsd)
Expenditures ($M)
Caseload
$60
FY 04
FY 05
Savings Savings
$ 4.4 $ 4.6
3.5
3.4
Limit ConnPACE prescriptions to a 30 day supply
Increase co-pay for all enrollees to $15
Institute an asset test ($50,000 for singles and $75,000
for married couples)
2.5
Suspend cost of living adjustment in income eligibility
determination
0.3
Allow for estate recovery of benefits under ConnPACE
0.0
Reduce reimbursement from AWP-12% to AWP-13.5%
1.2
Phase-in implementation of the Preferred Drug List
0.8
Reduce dispensing fee from $3.85 to $3.50
0.4
Maximize dosage efficiencies under ConnPACE
0.1
Total
$ 13.2
4.2
2.0
0.3
1.3
1.2
0.4
0.2
$ 17.6
63
Putting Reins on the Human Services Safety Net
Medical Provider and Private Provider Rate Increases
• While rate increases are limited because of the fiscal
exigencies, some increases are budgeted for in the first year of
the biennium
Enhanced Medical Provider Rates – FY 04
Hospitals – Outpatient
Managed Care/HMO’s [1]
Durable Medical Equipment
[2]
Community
Care [1]
Traumatic Brain Injury [1]
Personal Care Attendant [1]
Long Term Care [1]
Home Health Agencies [1]
Home Care - State Funded [1]
Rate
Annualized
Change
FY 04
FY 05
4.5% $3,080,000 $3,218,600
2.5% 6,400,000 15,400,000
5.0% 1,494,000 1,628,000
2.0% 1,100,000 2,700,000
2.0%
230,000
235,000
2.0%
155,500
158,500
2.0% 9,000,000 21,600,000
2.0% 1,700,000 4,100,000
2.0%
200,000
400,000
[1] Rates Effective January 1, 2004
Private Provider Rate Increase
1.5% Effective January 1, 2004
Cash
Required
FY 04
Annualized
Cost
FY 05
Dept of Mental Retardation
Dept of Mental Health and
Addiction Services
Dept of Correction (including
Parole)
Dept of Children & Families
Children's Trust Fund
Judicial
$3,035,755
$6,071,510
1,555,263
3,110,520
150,785
2,104,631
35,109
429,397
301,570
5,171,369
70,218
858,794
Total
$7,310,940
$15,583,981
Additional FFP
1,517,878
3,035,755
Net State Cost
$5,793,062
$12,548,226
64
Putting Reins on the Human Services Safety Net
• Continue to support TFA families, but make the following changes:
– Limit the number of TFA extensions from 3 to 2 “creates” savings of
$2.3M in FY 04 and $5.7M in FY 05 (Accomplished through legislative
deficit mitigation plan)
– Modify TFA child care eligibility from 75% of state median income to
55%. Savings are $1.2M in FY 04 and $1.1M in FY 05 (Partially
accomplished through legislative deficit mitigation plan)
– Revise methodology for child support pass through to maximize revenue
for $6.75M in FY 04 and $9M in FY 05
– Defer COLA for TFA and AABD to save $3.6M in FY 04 and $7.7M in
FY 05
– Eliminate AABD pass through for a savings of $500K annually
(Accomplished through legislative deficit mitigation plan)
– Discontinue cash, medical and state food stamp assistance for legal
aliens to save $1.3M in FY 04 and $1M in FY 05
– Eliminate Safety Net Services, but preserve T-RAP
65
Putting Reins on the Human Services Safety Net
Improving Dental Services for Children on Medicaid
• Implement a carve-out dental program funded by elimination of adult dental
services ($10M) and transfer of an additional undetermined amount from
managed care
• Procure a dental benefits manager to coordinate all coverage
• Develop a hybrid system of community dentists and new innovative
community-based programs to increase access and oral health education
Dental Reallocation
Eliminate Optional Adult Dental in Medicaid
Fee for Service
($8,300,000)
Managed Care
(1,700,000)
Increase Dental Access for Children
$10,000,000
Major Changes in DPH
• $15M, to bring to a total of $20M, in bonding for a state-of-the-art Public
Health Laboratory
• Eliminate general fund support for immunizations and assess insurers for the
cost of vaccines
66
Putting Reins on the Human Services Safety Net
• Initiatives in DMR
Department Of Mental Retardation Expenditures
$775
Millions
$425
'97
'98
'99
'00
'01
Fiscal Year
'02
'03
'04
'05
Est. Fcst. Fcst.
Birth to Three Program
General Fund Reductions - Federal Fund Loss
Reduction Amount
– $5M in FY 04 and $7M in
FY 05 for new placements,
including new high school
graduates, age-outs from DCF,
and emergency placements
$763
$627
$540
$525
$579
$575
$475
$655
$625
$727
$701
$675
$745
$725
$514
– Make Birth to Three a nonentitlement program which
could result in capping
enrollment, reduction in
benefits, and/or means testing
and cost sharing
$6,000,000
$5,000,000
$4,000,000
General Fund Reduction
$3,000,000
$2,000,000
Federal Fund Loss
$1,000,000
$2003-2004
2004-2005
Fiscal Year
67
Investing in Behavioral Health
• KidCare. The first phase has
been initiated over the past
year with 14 Emergency
Mobile Crisis teams and 60
Care Coordinators statewide.
About $13.3M will have been
expended in FY 03; that will
rise to $14.4M in FY 04for
these new programs
• DCF, DMHAS and DSS are
implementing an integrated
system for financing and
delivering public behavioral
health services and programs
for children and adults
Behavioral Health Partnership Carveout
Sources of Funding FY 05
FY 05
Medicaid
Inpatient
Inpatient - MH
Inpatient - SA
Outpatient
Physician
Clinics
Home Health
Managed Care
FQHC Passthrough
Reinsurance
Medicaid Carveout
HUSKY B Carveout
DCF KidsCare
DSS
DCF
Behavioral Health Partnership
$518,207
12,784,000
12,775,000
4,521,693
893,192
15,399,568
72,854,141
60,985,621
1,186,963
15,321,614
$197,240,000
$2,760,000
$93,482,059
$200,000,000
93,482,059
$293,482,059
Excludes administrative cost resulting from the ASO contract
68
Investment in Child Protection and Welfare
• DCF budget has increased from $256.3M in FY 95 to a proposed
appropriation of $609.4M in FY 05, an increase of $353M or
138%. DCF will increase $41M in the biennium
• In 2002, 1,103 children in need were placed in permanent homes,
an increase of 655% from 1996
• Covenant to Care
– Funding is continued for the Covenant to Care program which works as
liaison between church groups and social workers
• Closing Long Lane School
– The facility will close in the Spring of 2003 and services will be outsourced
in order to provide a high level of care together with cost savings
– DCF is negotiating with private providers to develop appropriate services
for this population
69
Ending the Gridlock
• Transportation Strategy Board (TSB)
– The proposed budget carries forward $6.3M to continue ongoing
initiatives initially funded by the TSB that include
Extension of Shore Line East to Serve Bridgeport/Stamford
Expanding bus service to/from train stations
Enhancing commuter busses in Fairfield County
Expanding express bus service into downtown Hartford
Continuing funding for Tweed-New Haven Airport
– The budget also includes $13M in bonding for 1300 train station
parking slots in New Haven and Bridgeport and $1M for highway
improvements in the Coastal Corridor
• Bus and Rail Fare Increases
– Bus transit fares will rise by 25 cents on January 1, 2004; rail fares will
rise by about 15% in October 2003.
– Transit users are only being asked to pay their fair share of the
operating costs; by FY05 state rail subsidy will be $73.5M and the bus
subsidy will be $76.1M
70
Protecting the Homeland and Ensuring Public Safety
• The proposed bond package includes $3M to equip Connecticut’s new
Urban Search and Rescue (USaR), $88K in capital equipment to
purchase personal protective equipment for troopers and $500K in
federal Byrne money to provide training to USaR team and fund
Statewide Anti-terrorism Task Force
• An additional $1.1M in the bond package would be for the Military
Department to purchase a mobile command post and related equipment
• $10M for the purchase of a 100 bed mobile and surge hospital along
with 65 HEPA filtrated isolation rooms in emergency rooms across the
state
• A total of $20M for the development of a new Public Health lab with a
Level 3 capacity
• $75K to DPH to outfit, train and equip the Disaster Medical Assistance
Team. (DMAT)
71
Other Public Safety Changes
• DPS
– Suspending scheduled trooper training classes through FY 04 and
perhaps through FY 05
– Suspending the “1248” Trooper mandate through December 31,
2005
– Number of troopers will remain above level of several years ago
• DOC
– In order to manage the growing prison population, Governor
Rowland proposes enabling legislation to send an additional 1,000
inmates out of state in order to save $1.6M of direct inmate costs in
the first year and $9.2M in the second year of the biennium
– This will temporarily, or even permanently, postpone the need for
prison expansion at Somers
72
Agency Consolidation and Downsizing
• Closures as a Result of Layoffs
– Without concession savings, the Governor had to resort to layoffs to
save money and close the deficit. Office closures as a result will impact
clients and taxpayers alike. In the case of DSS, DOL and DMV, offices
chosen for closure were either small or were located close to another
agency office.
Closures of Offices/Branches Due to Layoffs
Department of Motor Vehicles
Five Photo Licensing Centers:
New Milford, Derby, Middletown, Milford & Waterbury
Two Satellite Offices:
Putnam & Stamford
Two Branch Offices:
Northwestern (Winsted) & Willimantic
Connecticut Historical Commission
State Museums:
Prudence Crandall Museum
Henry Whitfield State Museum
Old New-Gate Prison
Sloane-Stanley Museum
Department of Economic & Community Development Department of Labor
Three Regional Offices:
Four Branch Offices:
Waterbury, Willimantic & Bridgeport
Ansonia, Bristol, Manchester & Stamford
Department of Social Services
Ansonia, Bristol, Killingly, Norwalk, Meriden,
& Willimantic
Board of Education & Services for the Blind
Industries Division
Department of Education
Bristol Technical Education Center
Stratford School for Aviation Maintenance Technicians
73
Agency Consolidation and Downsizing
• Because of layoffs in DEP, numerous parks are targeted for
reduced hours or will be changed to “walk-in” parks which do
not accommodate vehicular traffic or provide staff
WALK-IN PARKS
The following parks may be converted to "walk-in" parks to effect economies:
Cockaponset State Forest
Haddam Meadows State Park
Millers Pond State Park
Pattaconk Reserve
Devil's Hopyard State Park
Gardner Lake Boat Launch
Gardner Lake State Park
Hopemead State Park
Lake Hayward Boat Launch
Mooween State Park
Minnie Island State Park
Mansfield Hollow State Park
Natchaug State Forest
Quaddick State Park
Old Furnace State Park
Ross Pond State Park
Airline State Trail
Shenipsit State Forest
Bigelow Hollow State Park
Mashapaug Pond
Black Pond Boat Launch
Kollar Wildlife Management Area
Scantic River State Park
Scantic River Boat Launch
Crystal Lake Boat Launch
Nipmuck State Forest
Osbornedale State Park
Silver Sands State Park
Charles Island Natural Area Preserve
Wheeler Marsh Wildlife Management Area
Housatonic River Boat Launch
Penwood State Park
Stratton Brook State Park
Horse Guard State Park
Talcott Mountain State Park
Heublein Tower
Windsor Locks Bikeway
Windsor Meadows State Park
Massacoe State Forest
Mattianuk Natural Area Preserve
Great Pond State Forest
“Walk-in" Parks will mean that all of the above will be:

Gated to vehicular traffic

On-site staff eliminated

Maintenance will be limited to public health and safety

Pedestrian access only
74
Agency Consolidation and Downsizing
• While some downsizing was a result of the lack of labor concessions,
Governor Rowland is also proposing consolidations and downsizing to
reduce duplication of services and inefficiency
Consolidations, Eliminations and Mergers
Current Agency
Community Technical Colleges
Connecticut State University
Department of Higher Education
Commission on Arts
Film Commission
Historical Commission
Office of Tourism
Elections Enforcement Commission
Ethics Commission
Freedom of Information Commission
Department of Agriculture
Regional Market Fund
Board of Pardons
Board of Parole
Office of Workforce Competitiveness
Board of Education and Services to the Blind
Board of Education and Services to the Blind
Commission on Deaf and Hearing Impaired
Dept of Economic & Community Development
Office of the Managed Care Ombudsman
Office of Victim Advocate
Council on Environmental Quality
Specific Functions Transferred
Chancellor's Office Only
Chancellor's Office Only
Education of Blind Children Only
Certain Housing Functions
New Agency
Board of Regents for Higher Education
Board of Regents for Higher Education
Board of Regents for Higher Education
Commission on Arts, Culture and Tourism
Commission on Arts, Culture and Tourism
Commission on Arts, Culture and Tourism
Commission on Arts, Culture and Tourism
Commission on Fair and Open Government
Commission on Fair and Open Government
Commission on Fair and Open Government
Department of Consumer Protection and Agriculture
Department of Consumer Protection and Agriculture
Department of Correction
Department of Correction
Department of Economic and Community Development
Department of Education
Department of Social Services
Department of Social Services
Connecticut Housing Finance Authority
Insurance Department
Eliminated
Eliminated
• In addition, Governor Rowland is proposing closing down all legislative
commissions
75
General Government Changes and Efficiencies
• From FY 95 to FY 03,
Growth In Legislative Management
400
360
333
$28
$49.9
$38
336 338
$48.6
$48
333
'98
320
Positions
333
$48.7
Expenditures ($M)
334
280
$34.8
the budget submitted to him
by the legislative branch, but
he CAN recommend lapses
for the branch
$58
$42.8
• The Governor cannot adjust
392
Positions
$46.0
20% over the biennium
391
Expenditures
$56.9
• Now they want ANOTHER
$68
$59.5
Legislative Management’s
budget has increased 57%
240
'99
'00
'01
'02
Fiscal Year
'03 '04 '05
Est. Fcst. Fcst.
76
General Government Changes and Efficiencies
• Recommended lapses for the legislative branch
–
–
–
–
Eliminate new positions asked for by Legislative Management
Eliminate the Industrial Renewal Plan appropriation
Eliminate CTN coverage
Annualize all rescissions the Governor made at Legislative Management
• Total reductions are $7.3M in FY 04 and $9.3M in FY 05
Proposed Legislative Lapse
Legislative Management
New Position Funding
Other Positions
Overtime
Other Expenses Restoration
Flag Restoration
Industrial Renewal Plan
Eliminate CTN
Annualization of FY 03 Reductions -- 4-85
Annualization FY 03 Reductions -- Sec. 52
Remove Inflation
Commission on the Status of Women
Other Expenses Restoration
Annualization of FY 03 Reductions -- 4-85
Annualization FY 03 Reductions -- Sec. 52
Remove Inflation
FY 04
91,810
16,780
196,608
50,000
180,000
1,800,000
1,750,877
2,450,639
382,733
6,919,447
FY 05
91,810
1,069,630
16,780
595,264
50,000
180,000
1,850,400
1,750,877
2,450,639
781,361
8,836,761
Commission on Children
Other Expenses Restoration
New Position Funding
Social Health Index
Annualization of FY 03 Reductions -- 4-85
Annualization FY 03 Reductions -- Sec. 52
Remove Inflation
62,681
28,639
28,639
2,044
122,003
62,681
28,639
28,639
5,900
125,859
African American Affairs Commission
Other Expenses
Annualization of FY 03 Reductions -- 4-85
Annualization FY 03 Reductions -- Sec. 52
Remove Inflation
Latino and Puerto Rican Affairs Commission
Other Expenses Restoration
Annualization of FY 03 Reductions -- 4-85
Annualization FY 03 Reductions -- Sec. 52
Remove Inflation
Total Proposed Legislative Lapse
FY 04
44,717
23,464
30,000
26,787
26,787
1,352
153,107
FY 05
44,717
23,464
30,000
26,787
26,787
3,996
155,751
42,292
19,044
19,044
1,663
82,043
42,292
19,044
19,044
4,557
84,937
11,983
16,465
16,465
1,859
46,772
11,983
16,465
16,465
4,103
49,016
7,323,372
9,252,324
77
Agency Consolidations and Downsizing
• The Department of Higher Education, the Chancellor’s Offices of the State University
System, and the community colleges will be merged into a new Board of Regents for
Higher Education
• The Commission on the Arts, the Film Commission, the Historical Commission, and the
Office of Tourism are being merged into the new Commission on Arts, Culture and
Tourism
• The Department of Agriculture and the Regional Market Fund will be merged into the
Department of Consumer Protection and Agriculture
• The Boards of Parole and Pardons are being merged into the Department of Correction
• The Office of Workforce Competitiveness will be merged into the Department of
Economic and Community Development
• BESB is being split up between DSS and SDE in anticipation of more efficient
administration and improved client services. CDHI is merged into DSS
• The Elections Enforcement Commission, the Ethics Commission and the Freedom of
Information Commission are being merged into the new Commission on Fair and Open
Government
• The business offices of the Connecticut Siting Council and DPUC are being merged
78
General Government Changes and Efficiencies
• Changes at DMV
– Eliminate the requirement to establish a vision-screening program, saving
$1.1M annually
– Eliminate the requirement that DMV collect social security numbers prior to
issuing registration to save $600K annually
– Repeal the statutory requirement that DMV enforce delinquent property taxes
and parking tickets to save $250K annually
• Teachers’ Retirement Board Changes
– Fund retirement contributions for the Teachers’ Retirement Board for FY 04
and FY 05 at the FY 03 level. The state will fund approximately 68.5% of the
certified amount for FY 04 and 65.9% of the certified amount for FY 05
– Increase the active teachers’ contributions to the Retired Teacher Health
Insurance Premium account from 1% to 1.25% effective July 1, 2004
– Increase the state’s share and the retirees’ shares for the Board’s health
insurance plan from 25% to 1/3rd the estimated cost of the plan effective July 1,
2005
– Increase the state’s share of the municipal health insurance subsidy from 25%
to 1/3rd of the $110 subsidy effective July 1, 2005
79
General Government Changes and Efficiencies
• Relocate Elected Officials from
55 Elm Street to 20 Church
Street
– 20 Church Street provides more
square feet, better parking, and
the ability for the AG to
consolidate approximately 103
positions from Sherman Street
into one building
– Purchase of 20 Church Street is
far wiser than leasing 55 Elm
Street and will save $45M over
20 years
Relocating the Elected Officials
To 20 Church Street
FY 04
FY 05
FY 06
(1,575,000) $
(2,350,000)
DPW Operating Costs
$2,350,00/yr - 11/15/04 Occupancy
-
Moving Costs $1,000/person
-
(803,000)
Lease Costs Avoidance at 55 Elm
11/15/04 - $4,068,600/yr**
-
2,772,600
Furniture ($5 M with debt
service beginning in FY 06)
-
Debt Service on Purchase ($18 M)
Renovations ($11.8 M)
Property Taxes $840,000 - 1 year
-
PILOT
-
Income from Tenants
Net Savings
$
-
(2,985,198)
-
4,626,868
(487,778)
(3,308,378)
(378,000)
1,400,000
1,400,000
1,400,000
$1,400,000
($1,190,598)
($497,288)
** Lease costs for 55 Elm are expected to reach $6 million by 2024.
80
Sizing Government To Fit The Times
• Under Governor Rowland, unionized state workers have
received wage increases on average of 43%
State of Connecticut Full Time Employee
Wage Growth
From FY 95 to Present
Avg Full
Time Annual
Employee Group
Salary *
Unionized Employees
$35,696
All Employees
$38,304
Avg Full
Time Annual
Salary **
$51,047
$54,218
Percent
Increase
43.00%
41.55%
Avg Full
Time Hourly
Salary
$19.48
$20.47
Avg Full
Time Hourly
Salary
$26.61
$27.78
Percent
Increase
36.60%
35.71%
Employee Group
Unionized Employees
All Employees
* Effective last pay period of FY 95 (6/23/95).
** Effective 11/1/02.
Source: Office of the State Comptroller's payroll records.
81
Sizing Government To Fit The Times
• Fringe benefits are among the best in Connecticut and the nation
– Drug co-pays are either $3 generic or $6 brand for a 90-day supply of
medication
– Compared to the plan by legislative Democrats to increase ConnPACE
elderly drug program co-pay from $12 to $16.25, much less than the copays of private sector drug plans
• State employees also have a defined pension benefit plan that gives
them, on average, between 1.3% and 2% for each year they worked
• In FY ‘00, health and retirement contributions in all funds were
$814M compared to this fiscal year of $1.07B, an increase of $257M
in three years
• Estimates suggest that in the next two years costs in all funds will
increase another $339M
• Since FY 95 general fund fringe benefit costs have increased 89%
through this fiscal year and are estimated at 144% through FY 05
82
Sizing Government To Fit The Times
• Administration’s labor offers
– The administration has been flexible in its concession requests
from the union including developing a plan that would have
brought back every state employee and offered unprecedented
job protection through December 31, 2006
83
Sizing Government To Fit The Times
• Retired Teachers, not on municipal plans, pay 25% of the cost of their
Medicare Supplement policy plus deductibles and between 15% and 35% of
each drug’s cost
• In comparison, state retirees and employees receive medical coverage for
themselves and dependents at no cost to them and the drug co-pay is $3 or
$6 for up to a 90 day supply. The proposed change would increase the copay to $5 and $10 for a month’s supply (double for a 90-day supply)
84
Sizing Government To Fit The Times
• Layoffs
– Due to the lack of reasonable concessions agreed to by the SEBAC
coalition, Governor Rowland was compelled to resort to layoffs
– The FY03 budget was passed with $94M in targeted general fund
savings to come from state employee concessions. In order to realize
any cost savings in this fiscal year, layoffs were needed when labor
concessions were not successful
– In the development of the FY 03-05 budget, it was clear labor
concessions are needed to help close the budget gap, especially because
labor costs represent almost 1/3 of total spending
– A total of 3006 employees have been issued layoff notices most of
whom have separated from state service
– General and transportation fund savings is about $140M in year one
and $160M in year two. General fund savings in the current fiscal year
will be $23M
85
Sizing Government To Fit The Times
• Early Retirement Incentive Plan
(Accomplished in legislative deficit mitigation plan)
– In addition to layoff savings, an ERIP with a window from March 1, 2003 through
June 1, 2003 will effect savings
– The ERIP will provide “three chips” to be used for age or service, or a
combination of the two
– All employees 52 or older with at least 10 years service or hazardous duty
employees with at least twenty years service will be eligible
– Payments for accrued leave will occur over a three-year period starting July 1,
2005
– Over 10,500 employees will be eligible for the incentive and it is anticipated
approximately 4,300 will take advantage of it
– A targeted ERIP is proposed for the FY 05-07 budget, giving the administration
the ability to offer early retirement to individuals in certain agencies, programs, or
classifications to reduce cost in out years
– Total savings in the GF and STF resulting from ERIP is $22.7M in FY 03,
$164.4M in FY04 and $150.5M in FY 05
86
Sizing Government To Fit The Times
• Total work force reduction and savings
– Layoffs and ERIP together will reduce the state’s work force by at least 4,544
after some refills of positions throughout the biennium
– The total saving from the two work force reductions is $304M in FY 04 and
$310.8M in FY 05 in the GF and STF
– This package of layoffs and ERIP is roughly equivalent to the general and
transportation fund savings that were requested by labor givebacks. This is a
real ongoing savings without inhibiting the state’s ability to manage its business
Impact of Layoffs, Separations and ERIP* on FY 03-05 Budget
General Fund & Special Transportation Fund
(In Millions)
Est
FY 04
Est
FY 05
Estimated Savings of Layoffs and Other Separations
Personal Services
Fringe Benefits
Total Estimated Savings due to Separations
$112.2
27.4
$139.6
$127.2
33.1
$160.3
Early Retirement Incentive Program Estimated Savings
Personal Services
Fringe Benefits
Total Estimated Savings due to ERIP
$151.5
12.9
$164.4
$143.5
7.0
$150.5
$304.0
$310.8
Total Estimated Savings - Separations & ERIP
General & Special Transportation Fund
Total Estimated Savings by Fund
General Fund
Special Transportation Fund
* Governor Rowland's offer of 1/27/03.
Impact of Layoffs, Separations and ERIP*
on FY 03-05 Budget - All Funds
Workforce Reductions
Total Layoffs & Other Separations
Early Retirement Incentive Program (ERIP)
Total Workforce Reductions as of 6/30/03
Workforce Increases
Additional Filled Through 6/30/04
$284.5
$26.3
Est
FY 05
(3,006)
(3,006)
(4,338) ** (4,338) **
(7,344)
(7,344)
2,000
2,000
Additional Filled Through 6/30/05
Total Workforce Increases
Net Impact on Workforce - All Funds
$277.7
$26.3
Est
FY 04
800
2,000
2,800
(5,344)
(4,544)
* Governor Rowland's offer of 1/27/03
** Estimated participation (all funds) in the Governor's proposed
Early Retirement Incentive Program (ERIP)
87
Sizing Government To Fit The Times
• Other potential work force reductions
– The administration will continue to look for opportunities that can
save money beyond the net savings assumptions for the ERIP
– ERIP provides opportunities to reduce the scope of public sector
services and transfer the responsibility to the private sector
without staff layoffs. As a result, taxpayers would benefit from
lower overall costs
– Portions of the savings could also be invested to close the private
and public sector wage disparity as well as reduce the DMR
waiting list
– The budget includes less than 200 of the additional 1,000 layoffs
that the Governor announced. Since an ERIP has been passed,
there is a strong likelihood that the balance of these further layoffs
will not have to be carried out if the plan can be implemented in a
timely fashion
88
Sizing Government To Fit The Times
• All monies for unsettled contracts from FY 03-05 are removed
in this budget
Funding Removed for Unsettled Collective Bargaining Contracts
Appropriated Funds
Recommended Recommended
FY 03-04
FY 04-05
Appropriated Funds
General Fund
Special Transportation Fund
Soldiers', Sailors' and Marines' Fund
Regional Market Fund
Banking Fund
Insurance Fund
Consumer Counsel & Public Utility Fund
Worker's Compensation Fund
(58,260,486)
(2,883,241)
(37,710)
(5,902)
(369,796)
(488,036)
(408,404)
(485,855)
(117,142,974)
(5,251,036)
(41,548)
(13,968)
(787,468)
(1,025,386)
(838,995)
(863,546)
TOTAL - Appropriated Funds
(62,939,430)
(125,964,921)
Notes:
Collective bargaining contracts unsettled as of 6/30/2002 - No funds are included
in the budget for FY 03, FY 04 and FY 05. Bargaining units are: Administrative
Clerical (NP-3), Charter Oak College Professionals, Correctional Supervisors,
Judicial Employees, Judicial Professional Employees and Social & Human
Services (P-2).
Collective bargaining contracts unsettled as of 6/30/2003 - No funds are included
in the budget for FY 04 and FY 05. Bargaining units are: Administrative &
Residual (P-5), DCJ Prosecutors and Juvenile Prosecutors (Assistant Public
Defenders - statutorily related non-union group), Higher Education Professionals,
Vocational-Technical Directors and Vocational-Technical Faculty.
Collective bargaining contracts unsettled as of 6/30/2004 - No funds are included
in the budget for FY 05. Bargaining units are: Connecticut State University
Faculty (wage reopener), Corrections (NP-4), Judicial Marshals, Protective
Services (NP-5) and State Police (NP-1).
89
The Capital Budget
• Given the uncertain times, prudence dictates that the capital program and debt
issuance be scaled back significantly
– Governor Rowland has put a moratorium on discretionary bond projects
– For the foreseeable future, only school construction, higher education,
transportation and emergency needs will be bonded
• Long-term GO state debt continues to increase over $600M on average per
year, much of which is driven by the school construction conversion
Long Term State Debt
As of 6/30
$15,000
S.T.O. Bonds
Total G.O.
$12.4B
$11.7B
$7,176
$7,432
$7,920
'98
'99
'00
'01
$9,190
$6,981
'97
$8,590
$6,826
'96
Millions
$3,151
$3,027
$3,130
$3,016
$3,138
$6,573
$6,000
$3,120
$9,000
$10.0B $10.0B
$11.0B
$3,067
$9.7B
$10.3B $10.5B
$3,251
$12,000
'02
'03
Est.
$3,000
90
The Capital Budget
• Debt service as a percentage of general and transportation fund expenditures
is expected to leap from 10.8% in FY 03 to 12.2% in FY 04 and 12.8% in
FY 05
• The actual amount of General Fund debt service will increase next fiscal
year by $203M and another $159M in FY 05
• About $50M of the increase in each year is due to payments for the five-year
notes to retire the FY 02 deficit
Debt Service Expenditures
General & Special Transportation Funds
12.8%
$2.0
13%
$1.79
12%
11.1%
$1.6
10.8%
10.8%
10.8%
$1.63
11%
10.6%
9.7%
$1.37
$1.2
$1.39
$1.41
10%
$1.23
9%
$1.08
Debt Service As % Of Budget
Debt Service (Billions)
12.2%
$0.91
$0.8
8%
'95
'97
'99
'01
'02
'03
Est.
'04
Fcst.
'05
Fcst.
Fiscal Year
91
The Capital Budget
• New net general obligation authorizations for FY 04, including the UConn
2000 program already in law, are $900M
• In FY 05, net new authorizations, including UConn 2000, will be $1.05B
• Net new authorizations in the Special Transportation Fund will be $242.2M
in FY 04 and $195M in FY 05
Net New General Obligation
Statutory Bond Authorizations By Year
Bond Authorizations ($M)
$1,600
$1,313 $1,338
$1,400
$1,282
$1,200
$1,051
$1,025
$1,000
$900
$800
$664
$600
$537
$400
'98
'99
'00
'01
'02
'03
'04
Fcst.
'05
Fcst.
Fiscal Year
92
The Capital Budget
• School construction authorizations for
FY 04 will be $488M and $623M in FY
05
• That is between 50% and 60% of all
bond authorizations each year
– In the mid ’90s, authorizations were
between $73M and $130M annually
• Total education-related authorizations
are $843M or 94% of total net
authorizations in FY 04 and $891M or
85% of total net authorizations in FY 05
Local School Construction
Bond Authorizations*
(In Millions)
Fiscal
Year
Total
91
92
93
94
95
96
97
98
99
00
01
02
03
04-Est
05-Est
73.0
148.0
112.0
129.1
138.0
130.0
130.0
176.8
301.6
376.8
410.0
120.0
430.0
488.0
623.0
*Does not reflect subsequent
legislative cancellations
93
The Capital Budget
• Already Enacted School Construction Changes
– The latest priority school list is capped at $1B for Dec 03 & Dec 04
– Effective for the Dec 03 list, communities must gain local approval before any
project is submitted for inclusion on the priority list
– Reimbursement was lowered from 100% to 95% for the construction of Vo-Ag
centers, Regional Special Ed facilities, and Interdistrict Magnet schools
• Proposed School Construction Changes
– Reduce the Dec 01 list ($1.7B) and move $400M to the Dec 02 list
– Reduce the Dec 02 list ($1B) to $600M, plus the $400M from the Dec 01 list
– Limit the Dec 03 list to $600M in new projects, plus the $400M from Dec 02 list
– Cap the Dec 04 and Dec 05 lists at $600M
– Cap future lists at $800M
– State reimbursement for new (not delayed) projects on the Dec 03-05 lists will be
10 percentage points below current levels, changing the scale from 20-80% to 1070% for three years. Thereafter, reimbursement will return to current levels
– Delay the start dates of some Vo-Tech school construction projects to the second
year of the biennium
94
The Capital Budget
• The Governor is proposing some major cancellations, including
– $132M in the urban act in FY 04 on top of $154M reduced in FY 03, leaving $60M
for projects
– $20M in the Manufacturing Assistance Act, leaving $50M for projects
– $100M in Clean Water GO bond authorizations, leaving $25M to match $100M in
revenue bonds
– About $10M in open space preservation funding
• Other projects in the bond package include
– $20M for the core financial system in FY 05
– $30M for LoCIP in FY 04 and again in FY 05
– $10M for affordable housing in FY 04
– $25M in FY 05 for Clean Water GO bonds
– $7M over the biennium for UConn Law School building repair
– $10M annually for prison infrastructure
– $19M for acquisition of 20 Church Street
95
Municipal Aid
• From legislative deficit mitigation plan, municipal aid is projected to be
reduced in FY 04 by about $50 million, or 2 percent. Aid would increase
by $13 million in FY 05
Summary - Estimated Formula Grants to Municipalities
(In Millions)
Grant
Estimated Recommended
Fiscal
Fiscal Fiscal
2003
2004
2005
State-Owned PILOT
College & Hospital PILOT
Pequot Grant
Town Aid Road Grant
LoCIP
Miscellaneous General
Machinery & Equipment
$67.0
100.9
106.0
16.0
30.0
22.6
56.1
$67.1
100.9
85.0
12.5
30.0
16.8
47.7
$67.7
100.9
85.0
12.5
30.0
17.2
44.3
Sub-total - General Government
$398.6
$360.0
$357.6
Public School Transportation
Non-Public School Transportation
Adult Education
Education Cost Sharing
Miscellaneous Education Grants
$43.1
4.3
16.9
1,514.9
208.1
$43.1
$43.1
4.3
4.3
16.9
16.9
1,488.0 1,488.0
221.3
236.6
Sub-total - Education
$1,787.3 $1,773.6 $1,788.9
Total - Formula Grants
$2,185.9 $2,133.6 $2,146.5
96
•
Municipal Aid
Important to remember that many communities have significant
undesignated fund balances while the state has completely
depleted its $600M Rainy Day Fund
June 30, 2002 Fund Balances for Selected Municipalities
Muncipality
Bridgeport
Bristol
Cheshire
Danbury
East Hartford
East Haven
Enfield
Hartford
Killingly
Manchester
Middletown
New Britain
New Haven
New London
North Haven
Norwalk
Norwich
Stamford
Torrington
West Hartford
West Haven
Wethersfield
Windham
Total
Fund
Balance
(Deficit)
41,155,512
21,831,000
6,101,138
12,194,220
5,975,000
7,135,707
17,651,006
31,783,000
3,146,424
9,535,000
8,595,000
6,594,000
17,658,226
11,646,963
10,798,705
15,480,460
8,446,511
5,202,300
9,390,213
11,605,000
7,749,000
4,350,233
10,454,449
Reserved
Fund
Balance
2,584,394
2,013,000
1,528,949
788,134
473,000
246,124
3,835,074
3,629,000
204,193
1,582,000
1,528,000
1,417,000
0
330,645
2,953,717
0
288,424
4,089,821
3,174,396
453,000
270,000
318,976
2,186,378
Unreserved
Unreserved
Designated Undesignated
Fund
Fund
Balance
Balance
0
38,571,118
4,014,000
15,804,000
380,000
4,192,189
0
11,406,086
495,000
5,007,000
2,926,432
3,963,151
6,245,000
7,570,932
5,341,000
22,813,000
592,699
2,349,532
2,828,000
5,125,000
2,239,000
4,828,000
0
5,177,000
0
17,658,226
5,466,666
5,849,652
600,000
7,244,988
3,750,000
11,730,460
0
8,158,087
0
1,112,479
1,626,711
4,589,106
0
11,152,000
0
7,479,000
475,000
3,556,257
462,600
7,805,471
Note: The following Municipalities audit reports are on extension: Greewich,
Groton, Hamden, Meriden,Stratford, Wallingford and Waterbury.
Waterbury is expected to register a fund balance on
June 30, 2002 of about $12 million.
97
Municipal Aid
• PILOT Payments
– Both State Owned Property and Private Tax Exempt PILOT Programs will
be funded in FY 04 and FY 05 at the FY 03 funding levels of $65M and
$100.9M, respectively
– Full funding the State Owned Property PILOT would have cost $69.9M in
FY 04 and $87.4M in FY 05
– Full funding the Private Tax Exempt Property would have cost $104.5M in
FY 04 and $125.2M in FY 05
• Pequot Aid
– $6.71M was reduced utilizing the Governor’s extraordinary rescission
authority this fiscal year
– HB 6495 provides for an additional cut of $21.5M this fiscal year. This
program would be funded at $106M this year
– Funding for this grant is proposed at $85M per year for both FY 04 and
FY 05
98
Municipal Aid
• Manufacturing PILOT
– Program began in FY 92 as a modest $15.8M program designed to facilitate
the conversion of defense contracting manufacturers
– Has been expanded over the years to include a number of activities and types
of equipment not traditionally associated with manufacturing
– Governor Rowland proposes to remove the following activities and types of
equipment from the program
Video and sound recordings and machinery and equipment used in direct
or indirect mail distribution effective immediately
Commercial trucks, including trucks for hire immediately
– Governor Rowland proposes to reduce the town reimbursement from 80% to
65%. Businesses that continue in the program cannot be charged any tax by
towns during eligibility period
– Funding drops by about $11 million over the beinnium
99
Municipal Aid
• Eliminate Property Tax Exemption for the Disabled
– Removes the exemption for totally disabled persons for which the
state currently pays $419K. Most totally disabled persons receive
benefits under other state reimbursement programs
• Eliminate Non-Income Qualified Veterans from the Additional
Veterans Exemption
– The non-means tested portion of the veterans reimbursement
program would be eliminated at a savings of $5.9M. Although
not reimbursed by the state, towns would be obligated to continue
offering this additional exemption to about 185,000 veterans
– Reimbursement for 22,000 low-income veterans would continue
100
Municipal Aid
• Significant collective bargaining relief
– In order to offset aid reductions Governor Rowland is proposing
significant mandate relief to municipalities
– The Governor is sponsoring a bill that allows municipalities to bow out
of collective bargaining and arbitration for any unsettled contract for up
to three years
– The legislative body of the town would have to approve a resolution
notifying a union with an open contract that it desires to keep the
contract language, including wage levels and benefits status quo for
anywhere from one to three years
– The Governor is proposing a similarly worded state statute that allows
the state employer as defined by statute to notify collective bargaining
units of a desire to keep wages and benefits status quo for up to three
years
– This proposal would provide relief of greater value than the total
reductions in state aid to municipalities
101
Municipal Aid
• Even with the biennial budget changes, municipal aid will have
grown by $585M (or 38%) over the last decade
• While state spending has grown 43% during the same period,
much of that funding has gone to high growth entitlement
programs for which municipalities are no longer responsible
State Aid 1995 & 2005
$2.20
$2.14
37.5%
Growth
Billions
$2.00
$1.80
$1.60
$1.56
$1.40
$1.20
1995
2005 Est.
Fiscal Year
102
Conclusion
• No one will like this budget proposal
– It relies heavily on tax increases and spending cuts
– It negatively impacts the lives of tens of thousands of residents
• But what are the alternatives?
– Are there any? Are they realistic?
• Twin pillars of revenue gap and spending cap frame the
challenge
– Must abide by the spending cap – spending cuts must occur
– Revenue gap exists – tax increases must occur
• This budget seeks to balance spending cuts with tax increases
• Like the bullish stock market over the last several years, budget
surpluses gave policy makers the ability to be all things to all
people
• And like the bullish stock market….that too has come to an end
103
Any Questions?
104
For More Information
• This is the link to the Biennial Budget Homepage:
http://www.opm.state.ct.us/budget/2004-2005BudgetBooks/GovBudget.htm
• Governor Rowland’s 2003-05 Biennial Budget
• The Economic Report of the Governor
• 3 Year Forecast
• Midterm Budget PowerPoint Presentation
105
Index (Final 2003-2005)
• Back to Basics ………………..2
• Child Protection & Welfare...….69
• The Economic Outlook………16
• Ending the Gridlock……………70
• Liquidating the FY 02-03
• Homeland Security and Public
Deficit………………………..17
• The 2003-05 Budget…………24
• Tax Changes and Revenue
Enhancements………………..29
• Education…………………….47
• Nursing Home Alternatives….55
• Human Services Safety Net….56
• Investments in Behavioral
Safety…………………………..71
• Agency Consolidation and
Downsizing…………………….73
• General Government…………..76
• Sizing Government to Fit The
Times…………………………..81
• The Capital Budget…………….90
• Municipal Aid………………….96
• Conclusion...………………….103
Health………………………..68
106