Governor Rowland

1
Governor Rowlands
Budget Proposal
FY 2003-2005 Biennium
March 4, 2003
2
Back to Basics Budgeting

• States are facing the worst budget crisis since
  WWII
• Drastic changes in the stock marketunprecedented
  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

3
From Boom to Bust

• CT enjoyed unprecedented surpluses in the mid and
  late 90s
• From 1995 to 2001, the surpluses were between
  81M and 700M per year
• But in 2002, the state registered an 800M plus
  gross deficit
• The deficit would have exceeded 1.2B if not for
  actions taken in Special Session

4
From Boom to Bust

• During the Boom of the 90s, 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 years surplus
  was tied to the stock market gains
• For six years in a row, CT residents capital
  gains increased by booming double-digit growth
• From 1994-2000, CT capital gains realizations
  grew by more than 500

5
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

6
From Boom to Bust

• But a series of major market corrections occurred
  
• 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

7
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

8
From Boom to Bust

• 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
• In the current fiscal year, a meager rebound from
  FY 02 of 1.6 is expected

9
Putting the Deficit and State Fiscal Crisis in
Context
10
Thank Goodness for the Spending Cap

• Clearly the spending cap isnt 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 worseour
  structural gap would be billions more
• Consequently, CTs fiscal situation is less
  severe than many other states

11
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
• Even if revenues were still growing at 7-9,
  there would still be a substantial structural gap

12
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

13
Bond Rating at Risk

• The gaps in our budget clearly put our states
  bond rating at risk
• Any significant revenue deterioration not offset
  by expenditure adjustments or revenue
  enhancements could cause a change in the
  ratingachieving structural budget balance in FY
  04 and beyond will be necessary to maintain the
  current rating. Standard and Poors
• 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. Moodys
  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

14
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 restrictedyou cant have it
  both ways anymore

15
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

16
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

17
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

18
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

19
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)

20
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 legislatures deficit plan also enacted some
  of the Governors forced lapses. Because the
  budget is balanced, the remaining forced lapses
  will not be taken and will be available for
  expenditure.

21
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

22
Liquidating the FY 2002-03 Deficit

• According to OPMs 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

23
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
• Its fair. Its equitable. The plan should
  preserve the states 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 years 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

24
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

25
The FY 2003-05 Biennial Budget

• Revenue Forecasts
• Revenue assumptions are based upon the most
  prudent and realistic forecasts currently
  available

26
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

27
The FY 2003-05 Biennial Budget

• Revenue Forecasts
• The Sales and Use Tax, the states 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

28
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

29
Tax Changes and Revenue Enhancements

• Taxes were already increased 250M last year

30
Tax Changes and Revenue Enhancements
31
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

32
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

33
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

34
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

35
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

36
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

37
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
• New proposal Eliminate sales-tax free week to
  save 3M in FY 04 and 3M in FY 05

38
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

39
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

40
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

41
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 homes value
• The incremental portion of a homes 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

42
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

43
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

Its Time!!
44
Tax Changes and Revenue Enhancements

• Internet sales tax
• Change Connecticuts 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

45
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.

46
Tax Changes and Revenue Enhancements

• Net tax decrease of 961M
• Economic Competitiveness fundamentally safeguarded

47
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

48
Education Developing the Next Generation

• Reducing Racial Isolation and Improving Urban
  Education Sheff Initiatives

49
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 towns 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

50
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 States 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

51
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

52
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 states
  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

53
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

54
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

55
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

56
Putting Reins on the Human Services Safety Net

• Health Care Costs 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

57
Putting Reins on the Human Services Safety Net

• Governor Rowland is recommending a series of
  changes to the states 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

58
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.

59
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

60
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)

61
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
• These measures will save 4.6M in FY 04 and
  10.78M in FY 05

62
Putting Reins on the Human Services Safety Net

• Pharmacy Changes
• The state has already enacted cost-cutting
  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

63
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

64
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

65
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

66
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
• 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

67
Putting Reins on the Human Services Safety Net

• Initiatives in DMR
• Make Birth to Three a non-entitlement program
  which could result in capping enrollment,
  reduction in benefits, and/or means testing and
  cost sharing
• 5M in FY 04 and 7M in
• FY 05 for new placements, including new high
  school graduates, age-outs from DCF, and
  emergency placements

68
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

69
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

70
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

71
Protecting the Homeland and Ensuring Public Safety

• The proposed bond package includes 3M to equip
  Connecticuts 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)

72
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

73
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.

74
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

75
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
• In addition, Governor Rowland is proposing
  closing down all legislative commissions

76
General Government Changes and Efficiencies

• From FY 95 to FY 03, Legislative Managements
  budget has increased 57
• Now they want ANOTHER 20 over the biennium
• The Governor cannot adjust the budget submitted
  to him by the legislative branch, but he CAN
  recommend lapses for the branch

77
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

78
Agency Consolidations and Downsizing

• The Department of Higher Education, the
  Chancellors 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

79
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 states share and the retirees
  shares for the Boards health insurance plan from
  25 to 1/3rd the estimated cost of the plan
  effective July 1, 2005
• Increase the states share of the municipal
  health insurance subsidy from 25 to 1/3rd of the
  110 subsidy effective July 1, 2005

80
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

81
Sizing Government To Fit The Times

• Under Governor Rowland, unionized state workers
  have received wage increases on average of 43

82
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 co-pays 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

83
Sizing Government To Fit The Times

• Administrations 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

84
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
  drugs 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 co-pay to 5
  and 10 for a months supply (double for a 90-day
  supply)

85
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

86
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

87
Sizing Government To Fit The Times

• Total work force reduction and savings
• Layoffs and ERIP together will reduce the states
  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 states ability to manage its business

88
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

89
Sizing Government To Fit The Times

• All monies for unsettled contracts from FY 03-05
  are removed in this budget

90
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

91
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

92
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

93
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

94
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 10-70 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

95
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

96
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

97
Municipal Aid

• Important to remember that many communities have
  significant undesignated fund balances while the
  state has completely depleted its 600M Rainy Day
  Fund

98
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 Governors
  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

99
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

100
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