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2009, 2010, 2011 Budget Issues STATE OF CONNECTICUT 2009, 2010, 2011 Budget Issues April 30, 2009.

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Presentation on theme: "2009, 2010, 2011 Budget Issues STATE OF CONNECTICUT 2009, 2010, 2011 Budget Issues April 30, 2009."— Presentation transcript:

1 2009, 2010, 2011 Budget Issues STATE OF CONNECTICUT 2009, 2010, 2011 Budget Issues April 30, 2009

2 Legislature’s Budget Process (Governor Proposes, Legislature Decides) Connecticut Has a Biennial Budget Governor Submits Budget to Legislature in Odd Numbered Years Appropriations Committee Holds Hearings for Each State Agency Subcommittees Review Budget Information Subcommittees Report to the Appropriations Chairmen Appropriations Chairmen Prepare Budget Recommendations Budget Report Submitted to Full Appropriations Committee and Voted Upon Finance Committee Produces Revenue Estimates and Capital Budget Bills Appropriations and Finance Bills Submitted to House and Senate Alternative Budgets May Be Presented by Minority Party Legislative Leaders and Governor Negotiate Budget House and Senate Debate and Adopt Governor’s Signature or Veto (Returned to Legislature) 1

3 The Spending Cap History Legislature Passes Income Tax and Spending Limit/Cap in 1991 Voters Approve by 4 to 1 a Constitutional Amendment to Limit State Spending in 1992 – Yet to Be Implemented by 3/5 Vote of House and Senate Key Features of the Cap Calculated From Previous Year’s Base (Total Appropriated Funds) Growth=Base Year Multiplied by 5-Year Rolling Average Income Growth (or Prior Year’s Inflation Rate, Whichever is Greater) Excluded: Debt Payments, Grants to Distressed Municipalities and Federal Mandates and Court Orders (1 st Year Only) Exceeding the Spending Cap Governor is Required to Issue a Declaration of Extraordinary Circumstances or Emergency Legislature along with the Governor Determines What Spending in Excess of the Cap Will Be Included or Excluded in the Base for Future Calculations Legislature Must Approve Additional Spending by a 3/5 Majority. (91 Votes in the House and 22 Votes in the Senate) 2

4 Data Source: Office of Fiscal Analysis 3 FY 09 General Fund Revenue Data Source: Office of Fiscal Analysis Special Transportation Fund Not Included - $1.04 billion Total = $16,537.3 million Corporate and Business Taxes, $1,010.7 6.1% Income Tax, $6,674.0 40.4% Sales and Use Tax, $3,380.0 20.4% Oil Companies Tax, $81.4 0.5% Cigarette Tax, $325.0 2.0% Gambling, $665.2 4.0% Other Taxes, $562.1 3.4% Other Revenue, $697.6 4.2% Federal Grants, $3,141.3 19.0%

5 Fringe Benefits$1,871.210.2% Other Misc. $239.4 1.3% (PILOT Grants, Workers’ Comp., Reserve for Salary Adjustment) Debt Service $1,966.9 10.7% Judicial $553.1 3.0% Corrections $1,599.7 8.7% Transportation $506.4 2.8% Health & Hospitals $1,686.5 9.2% (DPH, DDS, DMHAS, & others) Legislative $76.0 0.4% General Govt. $607.8 3.3% Regulation & Protection $377.3 2.1% (DPS, Banking, Insurance, & others) Conservation & Development $108.7 0.6% (DEP, DECD, Tourism, & others) Education $3,809.8 20.8% ECS Grants $1,889.2 10.3% Higher Ed. $747.7 4.1% Human Services $4,950.4 27.0% Medicaid $3,763.8 20.1% SAGA $182.4 1.0% Temp. Assist. To Families $112.0 0.6% Major Budget Components for FY09 Slide provided by the Office of Fiscal Analysis 4 (In Millions)

6 CT Income Tax Paid (2007 Income Year) Fairfield County $2,513,726,828 46.8% Non-Fairfield County $2,860,778,549 53.2% Source: Connecticut Department Of Revenue Services Grand Total Paid by 3.4 million State Residents = $5,374,505,377 5 895,000 residents

7 Town Comparison and Return on Revenue (Income Year 2007) 6

8 7 State revenues reflect previous 12 month economic activity

9 FY 09 Tax Revenue Drop-Off $1.8 Billion Loss Data Source: OPM monthly letter to the State Comptroller 8 - $944 million current deficit

10 General Fund Budget Projections FY 09 through FY 12 As of February 2, 2009 (in millions) »FY 2009FY 2010FY2011FY 2012 Revenue 15,60814,55114,78715,657 Expense 16,96118,51919,50020,479 Deficit (1,353)(3,068)(4,713)(4,822) % of Budget 8% 21% 24% 24% 9

11 Spending Increases FY 03FY 09 % Increase Medicaid$2,703$3,76439.3% State Employee Salaries$2,211$3,18744.1% Education Cost Sharing (ECS)$1,515$1,88924.7% Debt Service$1,396$1,96740.9% Health Care - Retired State Employees$240$484101.7% Health Care - State Employees$288$50073.6% State Employee Pensions$286$50476.2% Total Inflation (Avg. Rate of Inflation 2003-2009 is 2.9%) 18.7% Data Source: Office of Fiscal Analysis U.S. Bureau of Labor Statistics 10 (In Millions)

12 11 Shortfall$135.3 Proposed Rainy Day Fund$281.7 Potential Rainy Day Fund Exposure$417.0 Uncertain Measures$300.1 Total Potential Rainy Day Fund Exposure$717.1

13 “State government does not need to tighten its belt. It needs to go on a permanent diet in order to sustain a longer life.” ~ Nick Perna CT Economist 12

14 Governor Rell’s FY 2010-2011 Budget Proposal No Tax Increases Maintain Current Funding to Towns Eliminate and Consolidate State Agencies and Commissions Cancel a Significant Amount of Pending State Bonding Seek Concessions from State Employee Unions Eliminate Many Existing and Vacant State Employee Positions Financial Incentives to Towns that Voluntarily Regionalize Services Require 2/3rds Vote to Impose New, Costly Mandates Delay In-School Suspension & “Raise-the-Age” Mandates Suspend Binding Arbitration for Towns for 2 Years 82% of CT Residents Agree: it is time to shrink the size of state government (Quinnipiac Poll 2/10/09) 13

15 Democrat 2010-2011 $3.3 Billion Tax Increase Proposal 14 Increase in Taxes: New tiered income tax brackets increase up to 7.95% 30% Additional Surcharge on the Corporation Tax 30% Additional Surcharge on Estate and Gift Tax Eliminates the Property Tax Credit Sales Tax on Clothing Elimination of more than 50 Sales Tax Exemptions Other: No Consolidations and Eliminations of State Agencies or Commissions Accepts some of the Governor’s Spending Cuts Borrows to pay Debt and uses all of our Rainy Day Funds

16 Republican FY 2010-2011 No Tax Increase Budget Proposal 15 Budget Priorities: No Tax Increases Freezes State Employee Wages for 18 months Requires 6 annual furlough days Raises State employee medical co-pays: Current Proposed Generic Rx Drugs$3$6 Name Brand Rx Drugs$6$20 Doctor Visits $10$30 Outsources some Social Services Levels funding for Schools and Towns Provides some relief from State Mandates In addition to consolidations suggested by the Governor, Republican’s Propose: Consolidating state agencies from 23-6 Impose a hard hiring freeze of state employees

17 16 Governor & Union Concessions (4/24/09) RIP: (Retirement Incentive Program) If you're otherwise eligible to retire, the RIP adds 3 years of credit. Three-tiered prescription drug co-pays to: $5, $10, $25. Health care premiums increased by $350 per year. "Preferred Plan" closed to future retirees. Retirement age/years of service stays the same for those directly transitioning from state employment to retirement (55 with 10 years of service). Anyone with less than 5 years of service will now pay 3% of their salaries to a retiree health care fund until they have 10 years of service. State may choose to self-insure. Defers $14.5 million FY09 payment to OPEB liability, and reduces SERS payments by $50 million this year, $64.5 million in FY 10. No layoffs through 6/30/11. Wage freeze for FY 10. 7 furlough days between now and expiration of the biennium. Triggers for further negotiations if revenues are $300 million or more below adopted budget.

18 Tax Policy Drives Connecticut’s Economy Income Tax Enacted in 1991 Sources: US Census, the Internal Revenue Service, CT Dept. of Revenue, CT Dept. of Labor, and Secretary of the State 17 State and Local and Tax Burden-Connecticut ranked 24th in 1977, 18th in 1991, jumped to 5th in 1992, and has been in the top 3 since 1995 (State Income Tax Enacted in 1991) If you add the Federal Tax Burden, Connecticut ranks #1 Connecticut’s Tax Freedom Day is April 30 th - the latest in the country Connecticut’s Population Changes: 1980-1990 + 5.6% 1990-1995 0.0% 1995-2000 +3.6% 2000-2005 +2.6% 2005-2007 +0.45% Connecticut’s Employment Changes: 1980-1985+9.20% 1990-1995 -3.60% (Introduction of Income Tax) 2000-2005 -1.80% 2005-2009+.003%

19 Tax Policy Drives Connecticut’s Economy Connecticut Business Changes Business Size 1993 2006 % Change Over 1000 90 94 +4% 500-999 135 113 -16% 250-499 374 369 -1% Small Business Start Ups from 2006 – 2008 2006 2008 % Change 30,578 27,457 -10% Small Business Closings from 2006 – 2008 2006 2008 % Change 10,208 13,439 31% Source: Secretary of the State Source: Census County Business Pattern Prepared by DECD Nearly 3,500 Businesses Shut their Doors in the 1 st Quarter of 2009 16% Increase in Closings over 2008 1 st Quarter Data 18

20 19 Example: Estate tax filers dropped from 2,124 in 2002 to 770 in 2007 1995-2000+33.50% number of state tax filers 2006-2007 -25.54% number of state tax filers 893 Residents left Connecticut in 2002/2003 (before the re-introduction of the estate tax) 12,800 Residents left Connecticut in 2005 (the year the estate tax was re-introduced into law) 16,770 households left CT and moved to Florida between 2005-2008 (Florida has no income or estate tax) 76% cited the income and estate tax as their reason for leaving the state Tax Policy Drives Connecticut’s Economy Re-Introduction of Estate Tax in 2005

21 Tax Policy Drives Connecticut’s Economy Effects on Housing in CT from 1980-2009 Housing Permits down 50% in last year, 4 th Consecutive Decline (DECD) 20

22 “The best prospects for our people are education, industriousness and self-reliance” ~ Booker T. Washington That is as true today as it was in 1901 21


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