Governor Rowlands Budget Proposal FY 2003-2005 Biennium March
4, 2003
Slide 2
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
Slide 3
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
Slide 4
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%
Slide 5
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
Slide 6
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
Slide 7
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
Slide 8
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
Slide 9
9 Putting the Deficit and State Fiscal Crisis in Context
Slide 10
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
Slide 11
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
Slide 12
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
Slide 13
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
Slide 14
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
Slide 15
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
Slide 16
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
Slide 17
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
Slide 18
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
Slide 19
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)
Slide 20
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.
Slide 21
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
Slide 22
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
Slide 23
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
Slide 24
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
Slide 25
25 The FY 2003-05 Biennial Budget Revenue Forecasts Revenue
assumptions are based upon the most prudent and realistic forecasts
currently available
Slide 26
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
Slide 27
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
Slide 28
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
Slide 29
29 Tax Changes and Revenue Enhancements Taxes were already
increased $250M last year
Slide 30
30 Tax Changes and Revenue Enhancements
Slide 31
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
Slide 32
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
Slide 33
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
Slide 34
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
Slide 35
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
Slide 36
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
Slide 37
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
Slide 38
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
Slide 39
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
Slide 40
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
Slide 41
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
Slide 42
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
Slide 43
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!!
Slide 44
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
Slide 45
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.
Slide 46
46 Tax Changes and Revenue Enhancements Net tax decrease of
$961M Economic Competitiveness fundamentally safeguarded
Slide 47
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
Slide 48
48 Education: Developing the Next Generation Reducing Racial
Isolation and Improving Urban Education Sheff Initiatives
Slide 49
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
Slide 50
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
Slide 51
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
Slide 52
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
Slide 53
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
Slide 54
54 Education: Developing the Next Generation 21 st 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
Slide 55
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
Slide 56
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
Slide 57
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
Slide 58
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.
Slide 59
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
Slide 60
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)
Slide 61
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
Slide 62
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
Slide 63
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
Slide 64
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
Slide 65
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
Slide 66
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
Slide 67
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
Slide 68
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
Slide 69
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
Slide 70
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
Slide 71
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)
Slide 72
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
Slide 73
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.
Slide 74
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
Slide 75
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
Slide 76
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
Slide 77
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
Slide 78
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
Slide 79
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 1/3 rd the estimated
cost of the plan effective July 1, 2005 Increase the states share
of the municipal health insurance subsidy from 25% to 1/3 rd of the
$110 subsidy effective July 1, 2005
Slide 80
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
Slide 81
81 Sizing Government To Fit The Times Under Governor Rowland,
unionized state workers have received wage increases on average of
43%
Slide 82
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
Slide 83
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
Slide 84
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)
Slide 85
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
Slide 86
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
Slide 87
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
Slide 88
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
Slide 89
89 Sizing Government To Fit The Times All monies for unsettled
contracts from FY 03-05 are removed in this budget
Slide 90
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
Slide 91
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
Slide 92
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
Slide 93
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
Slide 94
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
Slide 95
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
Slide 96
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
Slide 97
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
Slide 98
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
Slide 99
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
Slide 100
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 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
Slide 101
101 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
Slide 102
102 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
Slide 103
103 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
Slide 104
104 Any Questions?
Slide 105
105 For More Information This is the link to the Biennial
Budget Homepage:
http://www.opm.state.ct.us/budget/2004-2005BudgetBooks/GovBudget.htm
Governor Rowlands 2003-05 Biennial Budget The Economic Report of
the Governor 3 Year Forecast Midterm Budget PowerPoint
Presentation
Slide 106
106 Index (Final 2003-2005) Back to Basics..2 The Economic
Outlook16 Liquidating the FY 02-03 Deficit..17 The 2003-05 Budget24
Tax Changes and Revenue Enhancements..29 Education.47 Nursing Home
Alternatives.55 Human Services Safety Net.56 Investments in
Behavioral Health..68 Child Protection & Welfare....69 Ending
the Gridlock70 Homeland Security and Public 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