1. The State of the State: A Presentation on CTs Budget and the Issues That Defined the 2013 Legislative Session State Representative John Shaban

2. State Spending: Time to Change Direction Source: CT Business & Industry Association 1 Ll The cost of state government grew dramatically over the last 20 years, outpacing population growth, inflation, and median household income. Taxpayers dont have the means to support that rate of spending, which drains dollars from the economy and discourages job creation and private sector investment.

3. 2 The High Cost of Living and Doing Business in Connecticut CT has negative job growth over the past 25 years. (DOL data) CT is last in nation in economic growth (Bureau of Economic Analysis) CT is second worst in nation in personal income growth (Bureau of Economic Analysis) CT ranks as 6 th worst state to do business. (Survey of 700 CEOs - Chief Executive Magazine) CT ranked 45 th - economic competitiveness. (ALEC) CT Legislature has been voted Least Business Friendly in the nation. (Expansion Management Magazine) State Business Tax Climate – 40 th. (The Tax Foundation) Cost of Doing Business – 5 th Highest in the country. (Milken Institute, 2007) Worst place to practice medicine in the Northeast (Medscape Medical News) Worst state for business property tax burden. (The Tax Foundation) 3 rd Highest Gas Tax in the US at 48.6 cents (American Petroleum Institute) * Prior to 7/13 increase Percent Funding of State Retirement System Liabilities – 3 rd worst in the country at 58.3%. (Public Fund Survey) CT ranked worst state for retirement. (money-rates.com) Per Capita State and Local Tax Burden as a Percent of Income – 3 rd highest in the country. (The Tax Foundation) CT has the latest tax freedom day in the Nation: May 13 (The Tax Foundation) Ranked 7 th for the state with the highest number of residents leaving. (Forbes Mag.) Ranked 40 th in Most Free States (George Mason University) States Roads Worst in Nation (American Society of Civil Engineers)

4. 3 How Did We Get Here? Budget July 2011 - June 2013 Despite facing a $3.5 billion annual deficit, state spending continued to increase and taxes continued to go up to the highest levels in the history of our stateto the tune of $1.8 billion in new taxes. $222 million was borrowed to cover the operating deficit $70 million was swept from the Special Transportation Fund Annual spending increased by $1.3 billion between FY 2011 and FY 2013 No funds were available to begin conversion to GAAP accounting The states cash pool was down more than $800 million from 2011 levels, trending downward according to the state Treasurer Republican proposals to reduce spending were defeated and our warnings ignored Warnings at the time: future deficits, more borrowing, further rating downgrades, higher costs of debt, declines to service quality to citizens, and additional tax increases

5. 4 December 2012: Bipartisan Deficit Mitigation The deficit mitigation plan was one example of the good work the legislature can get done when both parties are sitting at the table. We passed the first budget-related bill in a long time that had no tax increases. The plan closed the ENTIRE budget deficit, with legitimate spending cuts. Aid to municipalities was left virtually untouched - sparing property owners unexpected tax increases relating to state aid. Republicans attempted to make significant reductions to the Earned Income Tax Credit; in the negotiating process, we had to settle for a commitment to reduce rampant fraud in the EITC. Going into negotiations, proposals to increase taxes on businesses, consumers, and energy generators seemed imminent, but our strong opposition resulted in the rejection of these proposals.

6. 5 This Years Budget July 2013 to June 2015 Removes $6 billion from the constitutionally adopted spending cap Adopted in 1991 by the CT legislature with the support of 80% of Connecticut voters. The Spending Cap is supposed to represent the maximum amount the state legislature is allowed to expend in a given year. Democrats shifted money out from under the cap without any support from Republicans. Spends $44 Billion over the next two years, which is an increase in spending of nearly 10%. Borrows $750 million for day-to-day operating expenses

7. Delays the payment of almost $400 million in debt, costing taxpayers tens of millions of dollars in unnecessary interest charges in the long run. Extends tax increases that were supposed to sunset this year including the: 20% corporate surcharge on businesses adopted two years ago has been extended for another two years costing $74 million over a year Establishes Keno gambling in the state for the first time –The state is expecting to raise only $3.8 million in revenue from the game in 2014 and $27 million in 2015 This Years Budget July 2013 to June 2015 6

8. 7 This Years Budget July 2013 to June 2015 Raids over $130 million from funds with dedicated purposes: Transportation Fund- $100 million devoted to fixing roads and bridges after a recent report shows 407 bridges in the state and 102 in Fairfield County alone are structurally deficient and 73% of roads are in mediocre condition. Stem Cell Research Tobacco Trust Fund Dedicates almost $1 million to process drivers licenses for illegal immigrants

9. INCOME July 2013-June 2014 8

10. EXPENSES July 2013-June 2014 9

11. 10 Businesses are concerned about the budgets spending increase and one-time revenues that do little to get Connecticut off its cycle of deficits, debt, and taxes. The budget will not instill the confidence that businesses need in order to plan ahead and make the job-creating investments necessary to drive the states economy. Business Death Tax Not only do we require businesses to pay a tax of $250 to open its doors, but we also require a fee when a business closes their doors, too. Gas Tax Increase On July 1 st a portion of the gas tax will increase by almost 17%. CT already has the 3 rd highest tax in the U.S. Increase in Minimum Wage The law will change minimum wage to $8.70 on January 1, 2014 and to $9.00 on January 1, 2015. CT was already in the top 5 states for highest minimum wage rates. Corporate Business Tax A 20% tax imposed on businesses two years ago was supposed to sunset this year and instead was extended for another two years. How Did The Business Community Fare?

12. 11 Republican Budget Proposals: Not Adopted Defined-Contribution Plans Proposed requiring newly hired employees to enroll in retirement plans that more closely resemble whats offered in the private sector (Defined-Contribution Plans) to reduce retirement costs by 25%. Health Savings Accounts Proposed restructuring state employee healthcare by requiring newly hired employees to enroll in Health Savings Accounts, reducing health costs by 25%. Currently, taxpayers foot the bill for 91% of state employee health plans. Gas Tax Proposed repealing the scheduled 16% increase in the gas tax. (Gross Receipts Tax)

13. Earned Income Tax Credit Proposed lowering it to just 10% -- meaning fewer individuals who do not pay any taxes will receive a tax refund check. Anti-Fraud Initiative Proposed a comprehensive anti-fraud initiative. The proposal included increased staff; cutting edge technology; enhanced penalties; additional compliance verification; reporting requirements. These efforts would have saved taxpayers hundreds of millions of dollars by stopping welfare fraud in all forms - unemployment, Medicaid, food stamps, and more. Pay Debts Now Rather than push off debt payments to future budgets, we proposed to start paying off debt nowto the tune of $400 million. 12 Republican Budget Proposals: Not Adopted

14. Hospital Funding Proposed to restore over $500 million in Democrat cuts to hospitals, which will cost hospital workers their jobs. Business Death Tax The State currently charges companies to shut down – the so-called business death tax. Republicans proposed eliminating these fees, which range from $20 to $150, depending on the type of company. State Employee Reductions Proposed limiting future hirings to reduce the number of state employees by 3,000. 13 Republican Budget Proposals: Not Adopted

15. 14 Drivers licenses for Illegal Immigrants Requires the DMV to issue a drivers license to illegal immigrants who reside in our state in violation of federal immigration laws. Campaign Finance Changes Rolls back the reforms enacted in response to the Rowland scandals. Doubles the amount that a donor can give to state party committees from $5,000 to $10,000 and doubles the amount that a person can give to a town committee from $1,000 to $2,000. Removes limits on what committees can spend in support or opposition to candidates. Allows organization expenditures to be used for negative campaign communications. Mattress Recycling This new law requires mattress manufactures establish methods for the disposal and recycling of used mattresses. Consumers are charged a tax at the time of purchase that will fund the recycling program. Major Legislation Notable and/or Controversial Measures Adopted

16. 15 Major Legislation Notable and/or Controversial Measures Adopted UCONN Bonding Next Generation Connecticut is a $1.5 billion investment in classrooms, dorms and lab equipment, as well as a move of UCONNs West Hartford branch into downtown Hartford and the creation of dorms at UCONN Stamford. It will cost taxpayers $2.3 billion total due to interest payments. GMO Labeling This new law requires the labeling of foods containing genetically modified organisms. There are trigger clauses built in: four other Northeastern states need to pass similar labeling laws, and one of those states needs to border Connecticut. The combined population of these states needs to be at least 20 million. Early Voting The legislature removed the final hurdle leading the way to a Nov. 2014 ballot question asking voters if they support some form of early voting. FOI A new law was adopted that will block the release of photos, videos, or digital video images "depicting the victim of a homicide, to the extent that such record could reasonably be expected to constitute an unwarranted invasion of the personal privacy" of the victim or surviving family members. This is in response to the Sandy Hook shootings.

17. 16 Elimination of the Independent Party Republicans fought against a Democrat proposal to remove the word "independent'' from any political party in Connecticut. This provision would have required that those voters registered as Independent would have to register under a new party. Decrease of the Drug-Free Zone Republicans objected to a measure that would have reduced the size of a drug-free zone around a school or daycare facility. Democrats would have reduced the boundary from 1,500 feet to just 300 feet. Energy User Auction Proposed to force energy users to move from the standard offer to a retail supplier of electricity. Conflicts of Interest with Municipal Employees Blocked by the Democrats was a proposal to prohibit municipal employees from serving on any governmental body charged with preparing the municipal budget Major Legislation Controversial Measures Blocked

18. 17 Hurricane Sandy Response Legislation was adopted to make the process of rebuilding after a major costal storm easier for shoreline homeowners. The new law grants more flexibility to property owners to protect properties in advance of a hurricane or tropical storm. DUI Arrests for Driving with Minors in the Vehicle This bill will make it a felony to drive while intoxicated with passengers under the age of 16. A first offense would carry a five-year sentence. It would increase to 10 years for a second offense and 15 years for subsequent offenses. Continuation of Education Reform The legislature committed $355M additional money to improving education in our state. Four new charter schools will be funded, more students to attend magnet schools and funds will be available for the new statewide teacher evaluation system. Small Business Express Expands the existing program to include companies with up to 100 employees, and provides additional funding to meet the demand from small businesses. Bipartisan Legislative Agreements

19. 18 Frivolous Lawsuits Allows the judicial system to deny fee waivers for people who frequently file frivolous lawsuits. Renewable Energy Tax Exemption Phases in a requirement to offer property tax exemptions for businesses that use renewable energy sources to provide power for their business. Early Release Program Reforms the early release program to ensure that no violent offender gets out of prison before serving at least 85% of their sentence. Gun Trafficking Provides $1 million for the Gun Trafficking Task Force and increase penalties for illegal trafficking of guns. Sex Trafficking Imposes increased penalties for sex trafficking and requires additional reporting. Bipartisan Legislative Agreements

20. Additional questions? Additional questions? Please Contact Us State Representative John Shaban Legislative Office Building Room 4200 Hartford, CT 06106 800-842-1423 John.Shaban@housegop.ct.gov John.Shaban@housegop.ct.gov www.RepShaban.com 19 State Senator John McKinney Legislative Office Building Room 3400 Hartford, CT 06106 800-842-1421 John.McKinney@cga.ct.gov www.SenatorMcKinney.com