governor rowland’s fy 2002-2003 february 6, 2002 midterm budget adjustments summary

Governor Rowland’s

FY 2002-2003

February 6, 2002Midterm Budget Adjustments Summary

2

Facing the Economic Realities of Our Times

• The longest period of national economic expansion, lasting ten years, ended last March.

• The September 11th attack on our nation changed the course of much in American life, including the economy. The length of the recession grew and it has prolonged recovery.

• Decreasing revenues and increased costs for programs and safety net services have led to substantial deficits in many states.

• Connecticut has not been immune from terrorism’s fallout.– A gap of $550 million gross deficit in FY 01-02

– An anticipated gap of $633 million in FY 02-03

3

Connecticut has Fared Better in this Recession

• Connecticut has fared remarkably well in comparison to many other states in the current recession because of our historic conservative budgeting of tax revenues and the spending cap.

– Our current budget deficit has never exceeded more than 3% of its total expenditures.

– The FY 90-91 deficit was 14.5% of spending.

– NCSL found that 43 states had revenues below budgeted forecasts; 26 states had costs exceeding or about to exceed appropriations.

– Many other states are dealing with deficits in the range of 10% or greater of spending.

– Moody’s reported that as many as 13 states could see their bond ratings downgraded because of their fiscal plight.

4

Lessons Learned from the 1980s Raiding of the Rainy Day Fund

• By FY 86-87, the state’s Rainy Day Fund reserve peaked at 5% of General Fund expenditures, with a balance of $319.6 million.

• By FY 90-91, the Rainy Day Fund was dry but the storm wasn’t over and the shortfall rose to $965 million.

Rainy Day FundDepletion Of Reserves (FY '88-'90)

(102.3)(101.7)(115.6)

104.8

$319.6

$204.0

$102.3

$0.0

($150)

($75)

$0

$75

$150

$225

$300

$375

'87 '88 '89 '90 '91

Fiscal Year

Deposits/(Withdrawals)

Account Balance

Mill

ion

s

5

Lessons Learned from the 1980s Raiding of the Rainy Day Fund

• The only remedy left was deficit bonding, $1 billion in new and increased taxes, the introduction of the income tax, and major spending reductions.

• The unwillingness to make difficult decisions early on created the need for dramatic and much more painful decisions later.

• The swift liquidation of the Rainy Day Fund taught us that the Fund is a precious resource, not to be squandered.

• Governor Rowland is committed to protecting the Rainy Day Fund from being prospectively raided, especially in light of the lessons learned from the premature raiding of the fund in the 1980s. The Rainy Day Fund is for stabilizing the budget and not for subsidizing spending we can’t sustain.

6

Connecticut has Fared Better in this Recession

• The spending cap clearly controls spending and put us in a better position to weather the recession.

– Despite some healthy economic times, the cap held the average annual growth in spending to just 4.9%.

'87-'91 '91-'95 '95-'02 '96 '97 '98 '99 '00 '01 '02Est.

5.6%

4.2%

6.0%6.4%

3.5%3.8%

4.8%

10.8%

6.4%

4.9%

0%

2%

4%

6%

8%

10%

Budgeted Expenditure Growth RatesBy Fiscal Year

7

What Explains the Huge Change from Surpluses to a Deficit?• Connecticut had 10 years of surpluses, with windfalls of

between $500 and $700 million for the last four years.

19.7

80.5

250.0

381.4

609.8

702.3

511.7

612.9

113.5110.2

$0

$200

$400

$600

$800

'92 '93 '94 '95 '96 '97 '98 '99 '00 '01

General Fund SurplusPrior To Disposition

(In Millions of Dollars)

Fiscal Year

19.7

80.5

312.9

71.8

300.4

30.7

-122.6

110.2 113.5

250.0262.6

-$150

-$75

$0

$75

$150

$225

$300

$375

'92 '93 '94 '95 '96 '97 '98 '99 '00 '01 '02

General Fund Unappropriated Surplus/Deficit

(In Millions of Dollars)

Fiscal Year

8

What Explains the Huge Change from Surpluses to a Deficit?• CT’s surpluses have largely been driven by capital gains.

– According to federal data, capital gains realizations for CT residents went up 37% on average each year from 1995 to 1999.

– State data for the estimates and finals portion of the income tax went up 20% per year from FY 95-96 to FY 00-01.

Capital Gains RealizationsReported By CT Residents

(In Billions)

Income Capital PercentYear Gains Change

1994 $2.547 -16%1995 $3.832 50%1996 $4.732 23%1997 $7.787 65%1998 $9.867 27%1999 $11.800 20%

Estimates & Finals ComponentOf The Personal Income Tax

-6.2%

22

.6%

14

.5%

32

.3%

14

.2%

14

.9%

19

.0%

-7%

0%

7%

14%

21%

28%

35%

'96 '97 '98 '99 '00 '01 '02Est.Fiscal Year

Eco

no

mic

Gro

wth

9

What Explains the Huge Change from Surpluses to a Deficit?

• CT’s surpluses have largely been driven by capital gains.

– Revenue variances in the general fund averaged 42% for estimates and finals for the previous 6 fiscal years because of the booming stock market.

– In FY 00-01, the revenue variance attributable to estimates and finals was 68.9%, meaning that almost $400 million of last year’s surplus was attributable to better than anticipated capital gains activity.

10

What Explains the Huge Change from Surpluses to a Deficit?

• Without capital gains to provide growth in revenues, the budget will rely more heavily on the withholding portion of the income tax and the sales tax.

• Instead of seeing modest growth, revenues have dipped as a whole in the current fiscal year.

FY '00 FY '01 FY '02

8.5%

7.1%

*3.5%

-0.4%-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

Forecasted Actual* Appropriated

G. F. Economic Growth RatesSlower Revenue Growth

11

What is the Impact on FY 02-03?

• Economic recovery will not mean immediate recovery in revenues.

• Because of the steep drop in revenues in the general fund this fiscal year, the FY 02-03 adopted budget was put well out of balance.

– Budget assumed 4.5% growth

– Need 8.8% growth to balance

• General Fund revenue is estimated to grow by about 4.1%, leaving a gap of $525.8 million next fiscal year.

FY '02 FY '03

$11,894.1

$12,432.0

$11,426.5

$11,250

$11,450

$11,650

$11,850

$12,050

$12,250

$12,450

Forecasted Revenue Appropriated Revenue

1/20/2002

8.8%Growth

4.5%Growth

Impact Of The FY '02 Revenue Shortfall OnThe Originally Adopted FY '03 Budget

Mill

ions

.Beginning Balance $ 0.6

Revenue Gap (525.8)

Expenditure Increases (108.0)

Surplus/(Deficit) $ (633.2)

GENERAL FUNDChanges from Adopted Budget

(In Millions)

12

Liquidating the FY 01-02 Deficit

• The $551.1 million gross deficit is made up of two parts:

– The first part is a $467.6 million revenue shortfall from budgeted levels.

– The second part is $83.6 million in expenditures that exceed budgeted levels.

20-Jan

Adopted Forecast Diff.

Personal Income Tax $4,841.4 $4,652.0 ($189.4)

Sales & Use Tax 3,193.7 3,089.8 (103.9)

Corporation Tax 501.2 431.2 (70.0)

Inheritance Tax 210.0 160.0 (50.0)

All Other 3,147.8 3,093.5 (54.3)

Total G.F. Revenues $11,894.1 $11,426.5 ($467.6)

FY 02 Major Revenue Shortfalls

13

What if No Special Session or Reductions Occurred?

• Under the strong leadership of Governor Rowland, effective steps have been taken to mitigate the deficit this fiscal year.– Implemented rescissions of $29.5 million in September.– Called for a Special Session for further reductions, leading to $171.1 million in reductions or surplus reallocations in November.

• Further erosions in revenue led the Governor to:– implement $28.1 million in additional rescissions in December.– call for a reallocation of the remaining FY 00-01 surplus of $157.3 million.– propose increasing the tobacco tax by 61 cents effective 4/1/02, generating another $42.5 million in revenue.

• Without the Governor’s actions and proposals of $428.5 million in deficit mitigation actions, the current deficit would be at least $551.1 million, rather than just $122.6 million.

• If the Special Session or Governor’s reductions did not occur, the Rainy Day Fund would have only $43.6 million left.

14

Liquidating the FY 01-02 Deficit

• Despite the cutbacks, many programs continue to receive major funding from the FY 00-01 surplus.

• About $300 million of that surplus has been used for new programs and investments.

15

Ensuring an Adequate Rainy Day Fund

• The Governor is committed to increasing the Rainy Day Fund.

• Under the Governor’s deficit reduction plan, as we emerge from the recession the state should still have over $470 million in the Fund to cover shortfalls.

• The Governor is proposing to increase the Rainy Day Fund threshold from 5% to 7%.

General Fund ReservesEst. Fiscal 2001

Reserves % Of

Rank State Millions Expenditures

1 Alaska $2,860 124.9%

2 Wyoming $147 23.3%

3 Nebraska $374 15.2%

4 Michigan $1,264 12.9%

5 Nevada $242 12.9%

16 Massachusetts $1,760 8.5%

22 Rhode Island $192 7.8%

26 New Jersey $1,277 6.1%

33 Connecticut $593 5.0%

40 New York $1,098 2.8%

National Average 7.2%

16

Economic Outlook

• Due to better economic diversification, our recessions will now mirror national ones and will not be as deep as earlier years.

• What does the future hold?

– Our unemployment rate is up from a low of 1.9% to 3.6% currently and is estimated to rise to 4.6%.

– We may lose another 13,000 jobs by the end of the fiscal year, for a total loss of 35,000 jobs.

– Personal income growth will slow to 3.5% for FY 01-02, but will rebound to 4.3% in FY 02-03.

– Retail sales were flat for the fourth quarter of 2001.

– Equity markets are still acting whimsically.

– Average weekly initial unemployment claims peaked at about 6,000 in October 2001, to below 5,000 in December 2001.

17

Economic Outlook

• Two-thirds (2/3) of all economic activity is generated by consumer spending.

• This index is a bellwether for manufacturing purchasing.Institute Of Supply Management Index

50(12/01) 48.2

38

40

4244

46

48

50

52

5456

58

60

J an-97 J an-98 J an-99 J an-00 J an-01

MonthSource: Institute for Supply Management

Expansion

Contraction

Ind

ex

U.S. Consumer Confidence Index

80

90

100

110

120

130

140

150

J un-99 Dec-99 J un-00 Dec-00 J un-01 Dec-01

MonthSource: The Conference Board

P eak144.7 (5/00)

97.3(1/02)

Ind

ex

18

A Record To Be Proud Of

$252.2

$293.9

$480.5

$496.8

$11.3

$25.9

$57.7

$65.8

$148.7

$183.4

$186.7

$189.7

$0 $100 $200 $300 $400 $500

Dept. of EnvironmentalProtection

Dept. of Public Health

Dept. of Public Safety

Dept. of Transportation

Dept. of Correction

Judicial Dept.

Dept. of Mental Health &Addiction Services

Higher Education Units

Dept. of Mental Retardation

Dept. of Children &Families

Dept. of Social Services

Dept. of Education.

34.4%

.15.9%

.114.7%

.56.5%

.50.1%

.60.1%

.112.6%

.39.5%

.22.8%

.71.9%

.51.1%

.40.2%

Growth In Agency ExpendituresFiscal 1995 - Fiscal 2002

(In Millions of Dollars) %Change

( 1 ) Includes Riverview , School Based Child Health and Medicare Part B Payments( 2 ) Actual expenditures after adjustment for Psychiatric Disproportionate Share

(1, 2)

(2)

19

A Record To Be Proud Of

$15.0

$29.9

$69.1

$160.1

$214.0

$407.0

$639.4

$769.0

$0 $200 $400 $600 $800

ConnPACE

General Assistance(DSS/DMHAS)

Child Care Subsidies

Sheff Initiatives

ECS

State Employee Fringes

Statutory Grants ToMunicipalities

Medicaid, HUSKY & StateHome Care

43.6%

.41.0%

.73.8%

.17.2%

,758.8%

.178.1%

.22.0%

'53.8%

Growth In Program ExpendituresFiscal 1995 - Fiscal 2002

(In Millions of Dollars) %Change

(1) '95-'96 - Start date because of ECS & regular Special Education Grant mergers

(1)

20

• Based on these mixed signals, a blend of healthy optimism and fiscal prudence is the right recipe for capitalizing on the coming recovery.

• Governor Rowland is mindful of both the needs of residents for basic services in such times, as well as the accomplishments of the past few years in terms of tax cuts and an improved state business climate.

• To safeguard basic services and to repair the FY 02-03 deficit, the Governor recommends a combination of spending reductions, permanent revenue enhancements, and reasonable one-time revenues.

The Spending Plan – Adjusted 02-03 Budget

21

The Spending Plan – Adjusted 02-03 Budget

• Governor Rowland proposes an adjusted FY 02-03 all funds appropriation of $13.5 billion, about $28 million less than the original appropriation.

• The growth rate will be 4.1% over estimated spending this fiscal year.

Appropriated Funds Of The State

Estimated RecommendedFY '02 FY '03

General Fund $11,898.7 $12,387.8Special Transportation Fund 844.3 878.2Mashantucket Pequot & Mohegan Fund 135.0 135.0Soldiers’, Sailors’ & Marines’ Fund 3.4 3.6Regional Market Operating Fund 0.9 0.9Banking Fund 15.0 15.9Insurance Fund 21.5 21.3Public Utility Control Fund 20.4 21.0Workers Compensation Fund 23.4 24.3Criminal Injuries Compensation Fund 1.5 1.5 Grand Total $12,964.0 $13,489.6

22

The Spending Plan

• The adjusted budget is $94.4 million under the spending cap, leaving a comfortable amount of room to cover deficiencies, based on historical patterns.

State Deficiencies

FY Amount

2002 * $93.0M2001 $139.8M2000 $68.2M1999 $27.7M1998 $108.8M

5 Yr. Avg. $87.5M* Estimate

23

The Spending Plan

• Governor Rowland continues his record of fiscal prudence.

10.8%

6.4%

4.8%

3%

6%

9%

12%

'87-'91 '91-'95 '95-'03

Average Nominal Growth RatesBy Fiscal Year

2.3%

3.4%

5.8%

1%

3%

5%

7%

'87-'91 '91-'95 '95-'03

Average Real Growth RatesBy Fiscal Year

24

Revenue Forecasts

• Anticipated revenues are based on prudent and realistic assumptions coming out of the recession.

*-0.8%

4.1%

5.6%6.9%

-5.0%

-2.5%

0.0%

2.5%

5.0%

7.5%

FY '00 FY '01 FY '02 FY '03

Actual Growth RatesGeneral Fund Revenues

Prior To Proposed '02 & '03 Revenue Changes

*4.5%

-4.7%* Appropriated

Economic Growth RatesGeneral Fund Revenues

-0.4%

7.1%

8.5%

3.9%

-2.0%

0.0%

2.0%

4.0%

6.0%

8.0%

10.0%

FY '00 FY '01 FY '02 FY '03

*4.3%*3.5%

* Appropriated

25

Revenue Forecasts

• Connecticut’s largest revenue generators are:

FY 2003 Forecasted Revenues

$464

$427

$2,291

$3,245

$4,871

$0 $1,000 $2,000 $3,000 $4,000 $5,000

Income Tax

Sales Tax

Fed. Grants

Corp. Tax

Motor FuelsTax

Millions

26

Revenue Forecasts

• Following the slowdown, personal income tax revenues are expected to rebound modestly in 2003.

1.0%

6.0

%

8.7

%

9.5

%

8.9

%

15

.1%1

0.4

%

7.5

%

-6.2

%

2.5%

19

.0%

22

.6%

14

.5%

32

.3%

14

.2%

14

.9%

-8%

0%

8%

16%

24%

32%

'96 '97 '98 '99 '00 '01 '02Est.

'03Fcst.

Fiscal Year

Eco

no

mic

Gro

wth

Ra

te

Withholding Tax

Estimates & Final

Personal Income Tax Growth Rates

27

Revenue Forecasts

• Revenues from the Sales & Use Tax will return to a moderate growth pattern.

5.5%

4.0%

5.4%

3.6%

8.6%

7.3%6.7%

7.1%

4.8%

2%

4%

6%

8%

10%

'95 '96 '97 '98 '99 '00 '01 '02Est.

'03Fcst.

Fiscal Year

Eco

no

mic

Gro

wth

Ra

te

Sales & Use Tax Growth Rates

28

Closing the Gap

• Governor Rowland’s adjusted budget closes the entire $633 million gap without prospectively raiding the Rainy Day Fund.

• Some of the ways the gap was closed include:

– Gross expenditure reductions totaling $204 million offset by $53 million in expansions.

– Increasing the cigarette tax to generate $129 million.

– One-time transfer of $100 million from three quasi-public sources.

– Use of $98 million in Anthem demutualization.

– Increased use of tobacco settlement funds of $57 million.

– Tax deferrals and other miscellaneous tax/fee increases of $38 million.

29

One-Time Revenues

• Between $250 and $300 million of the $633 million hole was closed with one-time revenues.

• While not normally a recommended practice, it is a good idea now because:

– The one-time revenues add up to only about 2% of total spending.

– The one-time revenue is a stopgap until healthy revenue growth returns.

– We can avoid reducing important programs during a time of need.

– We retain the Rainy Day Fund, just in case the economic picture worsens.

– We are also recommending increasing the Rainy Day Fund threshold from 5% to 7% in the future.

30

Tax Changes and Revenue Enhancements

• Governor Rowland has a strong record of reducing taxes and continues to resist raising broad-based taxes.

$57.8

$190.2

$190.4

$193.3

$496.6

$711.5

$158.1

$68.0

$0 $100 $200 $300 $400 $500 $600 $700

Income Tax

Corporation Tax

Sales Tax

Hospital Tax

Gas Tax

Inheritance Tax

Mach. & Equip.

Other Taxes

Tax Cuts Fully Implemented

Total: $2,065.9 Million

Millions

31


• To deal with revenue shortfalls, Governor Rowland proposes to:– Delay the Gift Tax phase-down until 1/1/04 ($2.6 million in FY 03).– Maintain the Sales Tax on Computer & Data Processing Service at 1%

until 6/30/04 ($9.7 million in FY 03).– Delay the increased exemption on single filers for 2 years ($9 million in

FY 03).

• To both raise revenue, safeguard health and human service programs and reduce teen access to cigarettes, the Governor proposes increased taxes on cigarettes.

Date Last Current Proposed TaxState Changed Tax Per Pack Per Pack

Connecticut 1994 0.50 1.11Massachusetts 1996 0.76New Hampshire 1999 0.52New Jersey 1997 0.80New York 2000 1.11 1.50Rhode Island 2001 1.00Vermont 1996 0.44

Cigarette Tax Rates

32


• The Governor proposes a one-time cash infusion of $100 million from three quasi-public agencies.

– $85 million from CHFA

– $7.5 million from CDA

– $7.5 million from CT Innovations

• Use of $98 million of the proceeds of the sale of Anthem stock.

• Escheating unclaimed bottle deposits to the State, $15 million.

33

Education: Developing Our Children’s Great Abilities• Funding for Sheff initiatives to improve urban education and reduce racial isolation will increase from $165.6 million estimated in the

current fiscal year to $181.2 million. – For magnet schools, an increase of $12.2 million from this fiscal year’s estimated expenditures, to $45.2 million. In FY 02-03, 10,800 students will be in 33

magnet schools throughout the state, up by 2,600 students in one year.– For charter schools, an increase of $1.8 million from this fiscal year’s estimated expenditures, to $16.3 million. Enrollment is expected to grow in FY 02-03 by

12.5% or 260 students, to 2,320 students.– The Open Choice Program will increase from an estimated expenditure this fiscal year of $7 million to $8.7 million next fiscal year. An additional 400 students

will be served in FY 02-03, bringing the number to 2000 students participating.– Early childhood education, early reading success, priority schools, extended school hours, school accountability, and interdistrict cooperation will be maintained

at existing levels.

34

Education: Developing Our Children’s Great Abilities• Magnet School Funding Reform

– Proposed bill will create a more equitable distribution of funding for the Regional Educational Service Center (RESC) sponsored schools.

• School Choice– Connecticut has a large network of private schools, of which the majority are parochial schools.– Approximately 77,000 students attend private school, of whom about 58% are in parochial schools.– This option would allow Connecticut parents whose children attend failing schools to choose a public, charter, magnet, or parochial school.– New state law will build on H.R. 1, No Child Left Behind Act of 2001.

• Regional Vocational-Technical Schools– Adjusted budget adds $2.9 million in operating funds and 18 positions; this is in addition to 30 new positions already in the adopted budget.– Adjusted budget adds $925,000 in the Capital Equipment Purchase Fund to properly equip the schools.

35

Education: Developing Our Children’s Great Abilities• Education Cost Sharing Changes

– Reduce adopted budget by $46 million.

– Reduce from $25 to $15 million for phase-out of the cap.

– Net out special education adjustments from appropriation (save $3 million).

– Eliminate one-time COLA of $4 million.

– After including cap money in the formula, reduce grant by 2%.

$1,246$1,261

$1,358$1,348

$1,299

$1,459 $1,470

$1,100

$1,200

$1,300

$1,400

$1,500

'97 '98 '99 '00 '01 '02Est.

'03Fcst.Fiscal Year

EC

S G

ran

t

Connecticut's Education Cost Sharing Grant(In Millions)

36

Education: Developing Our Children’s Great Abilities

• Special Education Changes– Increased appropriation of $5 million for caseload, after increasing this fiscal

year’s budget after adoption by $6.5 million for additional caseload.– Delay for one year the lowering of the threshold for state funding of per pupil cost.– The threshold would remain at 5 times for FY 02-03. In FY 03-04, the threshold

would go to 4.5 times.

Special Education Expenditures(Student Based & Equity)

$71.0

$34.9$33.9$29.6

$74.5$69.9

$58.3$53.9

$20

$30

$40

$50

$60

$70

$80

'96 '97 '98 '99 '00 '01 '02Est.

'03Fcst.

Mill

ions

Fiscal Year

– Elimination of the special education equity grant, saving $7.5 million.

– Special education funding reductions are expected to be offset by additional ($13-14 million) federal special education funding.

37


• Other elementary and secondary education changes:

– Capping Adult Education - $1.6 million

– Reducing reimbursement rate for RESC leases - $1.1 million

– Reducing Regional Educational Service Centers Grant - $329,738

– Eliminating the Transitional School District grant - $1 million

– Capping the Public School Transportation grant - $2.2 million

– Capping the Non-Public Transportation grant - $240,000

– Reducing funding for Vocational Agriculture grant - $281,670

• Total savings of $6.75 million.

38


• Investments in educational technology:

– $7.5 million and $2 million will be available in bonding in each fiscal year for school wiring.

– The Connecticut Education Network will receive $4.5 million this fiscal year and $10 million next fiscal year in bonding.

– The Digital Library received $1.4 million for this fiscal year from the FY 00-01 surplus. The Governor’s adjusted budget includes an additional $600,000 next fiscal year to continue the program.

– Distance learning programs received $1.9 million this fiscal year from last fiscal year’s surplus plus an additional $500,000 general fund appropriation. The FY 02-03 adjusted budget includes $1 million in funding to continue this effort.

39


• Higher Education Block Grants– Increases in the state commitments to the higher education block grants from FY 94-95 to the available FY 01-02 (after rescissions

and reduced appropriations) levels:

University of Connecticut from $135 million to $180 million, a 33% increase

Connecticut State University System from $98 million to $130 million, a 33% increase

Community-Technical System from $82 million to $121 million, a 48% increase

40

Education: Developing Our Children’s Great Abilities• Block Grant Reductions from Adopted Budget

– In the current fiscal year, between rescissions and November Special Session appropriations reductions, a total of $4.9 million was reduced from the University of Connecticut’s FY 01-02 original block grant appropriation.

– The University of Connecticut Health Center saw total reductions in the current fiscal year of about $1 million. The FY 02-03 adopted budget is being modified down by that amount as well.

– The Connecticut State University saw total reductions this fiscal year of $3.1 million. The FY 02-03 adjusted budget will reduce the appropriation by $2.8 million.– The Community-Technical Colleges saw total reductions this fiscal year of $2.8 million. The FY 02-03 adjusted budget will reduce the appropriation by $3.0

million.

• Total reductions in the block grants from the adopted budget are $11.6 million; total expenditures from estimated FY 01-02 will still increase by $26.6 million in the adjusted budget.

41


Expenditures on Higher Education

$139 $148 $168 $166 $185 $179 $188 $199

$101 $110$114 $120

$135 $131 $137 $143$90$94

$96 $105$115 $116

$123 $127$57

$59$64 $69

$76 $92 $73$75

$0

$100

$200

$300

$400

$500

$600

$700

'96 '97 '98 '99 '00 '01 '02Est.

'03Fcst.

Fiscal Year

Exp

en

ditu

res

($M

) .

UCONN CT State Univ.

Community Tech. UCONN Health

Constituent Units Of Higher Education

$387$411

$442 $460

$511 $518 $521 $544

42


• Given the significant growth in administrative positions in the CTC and CSU systems, the Governor recommends:

– a merger of the administrative structure of the two systems.– a merged Board of Trustees.– a streamlined central office to govern the system.

• The merger will be effective January 1, 2003, saving $2.5 million in FY 02-03 and $5.1 million in FY 03-04.

SFY 95 SFY 02 GrowthCommunity-Technical CollegesPositions 54 70 29.6%Est. Exp. (in millions) 2.7$ 5.4$ 95.1%

Connecticut State UniversityPositions 51 74 45.1%Est. Exp. (in millions) 2.7$ 5.0$ 85.5%

The Chancellors' Offices - CTC and CT State UniversityPositions and Expenditure Growth from 1995-2002

43


• Restructuring the Connecticut Independent College Student Grant:

– Private universities whose endowments exceed $100 million will not receive the CICSG grants.

– Impacted universities are: Yale, Wesleyan, Connecticut College, and Trinity.

– Savings of $2.3 million will result from this change.

44


• Governor Rowland, in his legislative package, is recommending a new program, 21st Century UCONN.

• It will be an eleven-year bond program beginning in FY 04-05 with a supplemental bond authorization of $50 million.

• The total 11-year program will be a commitment by the state to the University of Connecticut of $1.3 billion.

• About $1 billion will be invested at Storrs and the regional campuses, with about $300 million going to the Health Center.

• All told, over the 20-year period, a total of $2.28 billion will have been invested in the UCONN system.

45


• As announced in the original biennial budget, Governor Rowland is extending his original commitment to the capital program of the Connecticut State University System (CSU) and the Community-Technical College System (CTCs) by 5 years.

• The first capital plan ran from FY 95-96 and expires this fiscal year. It was actually formalized as an initial 5-year plan in FY 97-98.

• Since FY 95-96 through the current fiscal year, CSU received a total of $426 million in authorizations to revamp its campuses. The CTCs received over the same time frame $343 million.

• Beginning next fiscal year through FY 06-07, Governor Rowland is committing to additional capital dollars of $400 million for CSU and $335 million for CTCs.

46

Education: Developing Our Children’s Great Abilities• Governor Rowland has ensured that over $1.5 billion through FY 01-02 in higher education capital authorizations have

passed.• In total, the Governor’s total commitment to higher education capital projects will be almost $3.8 billion.• This commitment has translated into a high level of debt service paid by the State Treasurer on behalf of the higher ed units.

– $117.6 million in the current fiscal year, rising to $136.5 million in FY 02-03.

• In FY 02-03, $916 million in bond authorizations, including about $100 million in previously authorized school construction bonds and surplus debt avoidance set aside, will be utilized for primary/secondary and higher education purposes.

47


Cost of Higher Education

Higher Education Authorizations

$287

$188 $193

$152

$172

$292

$258 $262

$100

$150

$200

$250

$300

'96 '97 '98 '99 '00 '01 '02 '03Fcst.

Fiscal Year

Mill

ions

$0

$20

$40

$60

$80

$100

$120

$140

'96 '97 '98 '99 '00 '01 '02Est.

'03Fcst.

Fiscal Year

Exp

en

ditu

res

($M

) .

UCONN Health

Community Tech.

CT State Univ.

UCONN

Higher Education Debt Service

$13.6

$28.8

$46.5

$64.8

$80.0

$98.3

$117.6

$136.5

48


• While $8.7 million was transferred to the Department of Higher Education to match the fundraising efforts of the units for FY 01-02, about $10 million to match the efforts in FY 02-03 was removed.

• While no money remains to match the fundraising for next fiscal year, Governor Rowland is committed to ensuring that the public colleges and universities receive the FY 02-03 monies once the Rainy Day Fund is full again and there are available surpluses.

49

Developing a True Continuum of Long Term Care

• Governor Rowland’s FY 01-03 budget expends $154.5 million for alternatives to nursing home care.

Growth In Nursing Home Alternatives

$154.5

$140.0

$130.8

$118.3

$108.1

$87.5$77.4

$71.0

$50

$75

$100

$125

$150

$175

'96 '97 '98 '99 '00 '01 '02

Est.

'03

Fcst.Fiscal Year

Exp

end

iture

s ($

M)

50


• Expanding Home Care Eligibility– $3 million to continue expansion of the Connecticut Home Care Program.

• Expanding Assisted Living Options– $5.3 million to continue assisted living in:

Congregate HousingHUD ComplexesFree-Standing Units

51


• Rate Increases and Hardship Fund

– $1.2 million to increase the FY 02-03 Home, Community and Adult Day Care Provider rate from 1.5% to 2%.

– $2.5 million in additional funding for home and community care providers and adult day care agencies experiencing financial distress.

• New Assisted Living Pilots

– To prevent elderly private pay assisted living residents who have “spent-down” their resources from entering a nursing home, state-funded and Medicaid pilots are established to help pay for their assisted living services.

– The total pilot program serves 75 people.

52

Governor Rowland’s Continuum of Care

• Jan. 1997 – No Waiting List Policy Instituted for Home Care Program

• Jan. 1998 – Home Care Program Waiting List Eliminated

• July 1998 – St. Jude Congregate Assisted Living Pilot Launched

• Oct. 2000 – Home Care Program Eligibility Expanded

• Jan. 2001 – Assisted Living in Congregate Housing Initiated

• Jan. 2001 – Assisted Living in HUD Pilots Initiated

• Dec. 2002 – 300 Subsidized Assisted Living Units Begin to Come Online

• Sept. 2003 – 800 Assisted Living Clients Covered by Medicaid and State-funded Programs

53

Protecting the Safety Net

• The Health of Our State

– CT ranks as 4th healthiest state in the nation (up from 9th)

– CT ranks in the top 10 on 10 health-related measures (out of 17)

– CT ranked in the top 10 for the last 12 years

– 19.9% of the CT population smokes (down from 29.6%)

– 9.8% of the CT population has no health insurance (down from 12.8%)

– CT has a 6.6% infant mortality rate (down from 7.1%)

Source: UnitedHealth Foundation (2001 Report)

54


• Aiding Private Providers

– Adjusted budget maintains original 3.5% increase in FY 01-02 budget for contract with providers ($33.3 million).

– Maintains additional 1.5% COLA increase for FY 02-03 ($14.3 million).

– Adds $3.0 million for serving complex client populations and distressed agencies.

55


• ConnPACE Expansion Preserved

– Eligibility increases on April 1 to 233% of thefederal poverty level.

– Additional 12,100clients will cost $4.3million in FY 02 and$18.1 million in FY 03.

– Program will place areasonable asset teston future eligibility($50,000 per individual and $75,000 per couple); individuals willbe required to detail all assets.

Singles MarriedCurrent $15,600 $18,700

4/1/2002 $20,000 $27,100

7/1/2002 $25,800 $34,800or later (if federalwaiver granted)

ConnPACE Income Limits

56

Protecting the Safety Net• Further ConnPACE expansion if federal waiver granted

– CT is seekingfederal waiver toallow Medicaidto supportConnPACE.

– If waiver granted, eligibility wouldincrease from 233% to 300%of federal povertylevel.

– Waiver would allow11,200 additional clientsto enroll at an increased cost of $12.7 million.

$22.1

$20.1

$22.6

$25.0

$32.8

$37.9

$47.9

$63.7

$12.7

$0

$20

$40

$60

$80

'96 '97 '98 '99 '00 '01 '02Est.

'03Fcst.Fiscal Year

Exp

endi

ture

s ($

M)

18

26

34

42

50

58

Ave

rage

Cas

eloa

d (T

hsd)

Expansion to 300%Net Expenditures

Caseload

ConnPACE Expenditures & Caseload

$76.4

57


• HUSKY Enrollment

– Program is a huge success - more than 40,000 children enrolled since July 1998.

– 20,000 new adults since adult expansion.

– Total enrollment for children and adults in 2001 increased by 28,000 people.

– Total enrollment will reach almost 300,000 adults and children by June 2003.

– Increased enrollment due to introduction of presumptive eligibility.

– Future presumptive eligibility expansions include school-based health centers, community health centers, Head Start providers, WIC programs, and child care centers.

– Budget adds $48 million for anticipated increase in caseload.

58


• HUSKY Adult Program Changes

– Adults will be offered the HUSKY B benefit:$5 co-pay for physician services$3 or $6 co-pay for pharmacy (generics or brand

names)

– Adults will be charged a $30 premium per month.

– Federal waiver is required to implement changes.

– Program will be implemented January 1, 2003.

– Changes will save $5.6 million.

– Portion of savings will be reinvested in the new“small employer health insurance subsidy program.”

59


• Small Employer Health Insurance Subsidy Program

– New, non-entitlement program for between 3,000 and 5,000individuals who: do not wish to enroll in HUSKY A or HUSKY B cannot afford the premium of an employer-sponsored plan

– DSS would contract with small employer purchasing pool(s).

– Subsidies also provided to new state nonprofit insurance program.

– State would provide subsidies (capped at $3.6 million) to offset employee premium shares.

– Employers could not reduce existing commitments to providinghealth insurance for their employees.

– Requires federal waiver.

60


• Small Employer Health Insurance Subsidy Program

– Eligible Participants:

Individuals and families under 185% of federal poverty level.

Childless workers (eligible for max. $60 monthly subsidy).

Families (eligible for max. $100 monthly subsidy).

Individuals or families may decline HUSKY A and other Medicaid coverage to participate.

– Non-Eligible Participants:

Anyone enrolled in General Assistance, Medicaid fee-for-service, HUSKY A managed care or HUSKY Adults.

– Benefit designed to mirror commercially available HMO coverage.

61

Protecting the Safety Net • Restructured Rates for Managed Care Organizations

– Makes major changes in reimbursements to HMOs.– Starting July 1, tax credit will be an appropriation for all 4 HMOs.– Rates will be increased by 4% for all 4 HMOs to offset loss of tax credit.– Two supplemental payments for two HMOs to make up loss of tax credit

for 18 months.– 3% rate increase budgeted for July 1, 2002 delayed until January 1, 2003

(savings of $6.9 million).– HMOs will share more risk in the psychiatric reinsurance program ($3.2

million savings).Restructure Rates for MCOs

Fiscal Fiscal2002-03 2003-04

Additional Appropriations $ (26.3) $ (20.6) Additional FFP 20.2 10.3 Insurance Tax Collections Increase 15.6 16.2 Net Savings from Conversion $ 9.5 $ 5.9

Participating in HUSKY(In Millions)

62


• Hospital Increases– $15 million add to new DSH (“disproportionate share”) program

for urban hospitals.– Hartford Hospital and St. Francis Hospital will be held harmless

going forward.– Additional $500,000 subsidy for LifeStar.– Other hospitals in distressed municipalities will receive increased

reimbursements.

FY 03FY 02 Proposed

Urban DSH Urban DSH Increase

Bridgeport Hospital $2,144,296 $3,706,804 $1,562,508Hartford Hospital 2,205,993 4,105,360 1,899,367 New Britain Gen. Hosp. 968,270 2,421,287 1,453,017 St. Francis Med Center 2,179,552 4,600,676 2,421,124 St. Mary's Hospital 789,474 1,541,238 751,764 St. Raphael's Hospital 1,398,892 2,748,426 1,349,534 St. Vincent's Med Center 1,090,405 2,439,717 1,349,312 Waterbury Hospital 793,251 2,158,655 1,365,404 Yale - New Haven Hospital 3,429,867 6,277,837 2,847,970

Total Urban DSH $15,000,000 $30,000,000 $15,000,000

Urban Disproportionate Share Payments FY 02 and FY 03

63


• Nursing Home Changes

– Maintain 2% rate increase (over $22.3 million in new dollars)and delay COLA for one month (until August 2002).Estimated savings: $2.1 million.

– Require all nursing homes to obtain dual licensing (Medicare and Medicaid) status. This would allow the facility to bill Medicare for the first 100 days of stay upon return rather than billing Medicaid, which is the payer of last resort.Estimated savings: $1.9 million.

– Eliminate Medicaid funds earmarked to nursing homes forincreased staffing on January 1, 2003. Currently, all nursinghomes staff above the minimum levels required by the Connecticut Public Health Code.Estimated savings: $7.0 million.

64


• Provider Rate Increases

– Physicians and other practitioners will receive a 2% rate increase ($1.0 million) in FY 02-03.

– All other rate increases remain the same.

– Eliminates $3.9 million for rate relief to physicians who serve dually eligible clients.

FY 03

Physicians 2.0%Home Health 2.0%Vision* 2.0%Durable Medical Equipment* 2.0%Other Practitioners 2.0%Community Care 2.0%Traumatic Brain Injury 1.5%Personal Care Attendant 1.5%Long Term Care 2.0%Home Care - State Funded 2.0%

*Inflation-not a rate adjustment

Enhanced Medical Provider Rates

65


• Maintaining Temporary Family Assistance (TFA)– No proposed changes

to this program.

– Adds $10 million fora caseload adjustment.

– Continues to make healthcare and child careassistance availableto recipients.

– Continues to supportemployment by allowingrecipients to earn wages up to the federal poverty level.

– State received over $5.0 million in federal bonuses for successin job retention and wage gains; funds were used for innovative programs for low-income families.

60,823

58,874

56,273 51,362 38,268 30,769

27,659

26,485

24,967

14,000

22,000

30,000

38,000

46,000

54,000

62,000

'95 '96 '97 '98 '99 '00 '01 '02Est.

'03Fcst.Fiscal Year

Avg

. M

onth

ly F

amily

Cas

eloa

ds

$0

$80

$160

$240

$320

$400

Exp

endi

ture

s ($

M)

Avg. Monthly Caseload

Expenditures

Family-Cash Assistance

66


• Investing in Child Care

– Continues to providechild care to those onTFA, those transitioningoff TFA, and those whomay be at risk ofseeking TFA.

– Provides approximately $113million in child care subsidies.

– Reflects legislature’s decision to close intake for new casesentering the Child Care Certificate program.

– Removes about $7 million in supplemental federal child caredollars that were not allotted by the federal government.

Child Care Subsidy Payments

$112.8

$108.1

$104.3

$103.9

$105.8

$103.0

$75.8

$47.3

$38.7$20

$40

$60

$80

$100

$120

'95 '96 '97 '98 '99 '00 '01 '02Est.

'03Fcst.Fiscal Year

Mill

ions

67

Protecting the Safety Net• Housing and Homeless Services

– A total of $615,000 in new resources for shelters including restoration of rescissions and a reallocation from Anti-Hunger advocacy and support.

– Discontinue the $2 million rescission for RAP in FY 02.

• State-Funded Food Stamps– Continue state-funded support for eligible resident aliens.

– Add $770,000 based on current expenditure and caseload trends.

• Resident alien programs – Freeze enrollment on 6/30/02

– State will fund next fiscal year, consistent with the adopted budget.

• Fuel Assistance– Transfer SAFA expenditures to federal LIHEAP to maintain benefits

and save the General Fund about $2.1 million.

68

Protecting the Safety Net• Public Health Initiatives

– Expand dental access with an additional $1.5 million bonding in FY 03 to support dental community providers with equipment purchases. Using bond funds, a pilot program using an FQHC will be established and $200,000 will be reserved for a loan forgiveness program for dentists and dental hygienists in community public health settings.

– Develop a new public health laboratory on land granted by the UConn Health Center with the previously authorized $10 million as an initial investment.

– Restructure OHCA within DPH to result in administrative economies and more efficient regulation of health care facilities.

– Continue to fund $1.1 million for asthma prevention and surveillance.

– Continue and enhance grants to school-based health centers.

– $500,000 to expand community respite services for children with special health care needs and two additional case managers for the program.

69


• Drug expenditures are increasing at an alarming rate and are crowding out other spending.

FY 01 FY 02 FY 03Actual Estimated Estimated

Department of Social Services 342.6$ 395.9$ 446.3$ Department of Mental Retardation 0.4 0.4 0.5Department of Mental Health and Addiction Services 6.0 6.4 6.7Department of Correction 12.0 13.6 15.3Department of Children and Families 0.4 0.5 0.5Workers' Compensation 0.9 0.9 1.0State Employees 121.1 144.1 171.4Teachers' Retirement 7.8 10.9 13.2

Grand Total 491.2$ 572.7$ 654.9$

Estimated Pharmacy Costs(In Millions)

70


• Proposed pharmacy changes to Medicaid, ConnPACE and SAGA programs will save as much as $19.7 million.

– Reduce dispensing fee from $4.10 to $3.50 to save $3.7 million inFY 03.

– Reduce the reimbursement to pharmacies from AWP–12% to AWP–13.5% to save $5.6 million in FY 03.

– Implement MAC for generic drugs to save $4.2 million in FY 03.

– Strengthen law requiring nursing homes to participate in drug return program to save $3.7 million in FY 03.

– Implement a voluntary mail order prescription program to save $2.5 million in FY 03.

• As an alternative to the above reductions the Governor is also proposing that DSS explore the possibility of contracting out pharmacy services.

71

Protecting the Safety Net• Medicaid Changes

– Add $50.4 million for updated caseload and expenditure trends.– Submit a federal waiver to impose stricter limits on transfer of assets to save $10 million in FY 03.– Develop a state-of-the-art fraud and abuse detection system for a savings of $10 million in FY 03.– Add $1 million to serve 130 women under the Breast and Cervical Cancer Early Detection Program.– Eliminate two DSS PCA programs which serve 10 people and transfer clients to Medicaid PCA waiver to save $600,000.

• Restructure Medical Services under SAGA– Add $7.1 million to reflect higher costs and caseloads.– End coverage for home health, vision, other practitioner and durable medical equipment for a savings of $4.1 million.– $5 million savings in adopted budget for contracting with FQHCs and use of federal supply schedule for drugs.

72


FY 03 FY 04

Pursue DSH for Connecticut Children's Medical Center 3,500,000 3,500,000

Incorporate the cost of Social Workers in DSS' standard RandomMoment Sampling for Cost Allocation purposes 2,000,000 2,000,000

Capture enhanced federal reimbursement at 90% for familyplanning services paid to Managed Care Organizations servingMedicaid clients 1,000,000 1,000,000

Pursue DSH for qualifying public hospitals that serve low-incomeindividuals beginning in SFY 04, ending the last day of the nextSFY 0 6,500,000

Pursue DSH for qualifying individuals, in a penal institution, whouse the services of an acute care inpatient hospital 3,000,000 3,000,000

Implement the rehabilitation initiative for Private Non-MedicalInstitutions (PNMI) beginning July 1, 2002 ($9 million ongoing; $10 million retroactive) 19,000,000 9,000,000

Federal Revenue Maximization Efforts

73


74


• Mental Retardation Initiatives– Increase DMR expenditures by $30.6 million or 4.4%.– Preserve $7.8 million in new funding to serve an additional 83 youth aging out of DCF and LEAs, 23 individuals from the judicial and mental health systems, and 204 high school graduates.– Increase Early Intervention Program by $2.25 million.– Add $500,000 to place 8 people from STS in the community.

$467

$514

$540

$579

$627

$655

$699

$729

$400

$450

$500

$550

$600

$650

$700

$750

'96 '97 '98 '99 '00 '01 '02Est.

'03Fcst.

Fiscal Year

Mill

ions

Department Of Mental Retardation Expenditures

75

Investing in Mental Health and Alternatives to Incarceration• Children’s Mental Health

– Connecticut Community KidCare was recently launched providing Emergency Mobile Psychiatric Services, care coordinators, day treatment programs, and in-home and respite services. Adjusted budget calls for $14.8 million in FY 03, an increase of $7.5 million over FY 02.

– Funding in the amount of $9.8 million for KidCare specialized residential beds is included in the adjusted budget.

– $6.4 million is reallocated from the DCF residential account to increase community services.

– $475,000 is included in FY 03 for a statewide ChildServ program to train pediatric health care providers to detect children with concerns.

– Various new initiatives will be funded from the Community Mental Health Strategic Investment Fund.

76

Investing in Mental Health and Alternatives to Incarceration

• Adult Mental Health– Because of the looming deficit, recommend $9.2 million in reductions to the Community Mental Health Strategic Investment Fund from FY 01 surplus. $15.6 million will still be available for new initiatives.

– The Community Mental Health Strategy Board has approved $5.3 million in spending and an overall financial plan for adult and children’s community based initiatives.

– Adjusted budget preserves $13 million in new funding in DMHAS general fund for community mental health enhancements.

– Adjusted budget calls for $800,000 in new funds to aid distressed DMHAS providers or to enhance mental health services by providers.

• Jail Diversion– Numerous initiatives are funded in FY 02 and FY 03, including $3.3 million preserved for expansion of the Jail Diversion Program and $5 million preserved for the creation of Community Justice Centers.

77


• Supportive Housing

– Creation of 650 supportive housing units which combine affordable housing and support services for homeless persons with mental illness or substance abuse problems.

– Adjusted budget provides:

$3 million in annual service funding through DMHAS in FY 03.

$20 million in previous bond authorizations.

$4.3 million from the Community Mental Health Strategic Investment Fund.

In addition, an interagency MOU calls for up to $18 million from CHFA and DECD from sources such as HOME funds, loans, and tax credits.

78


• DMHAS Changes

– Adjusted budget calls for a total increase of $26 million or 6.2%.

– Add $1.7 million for 13 new staff at Whiting Forensic Institute.

– Continue FY 02 savings plan with $6.8 million in reductions.

– Restructure agency management structure to save $1.35 million.

– Restructure state-operated residential services to save $1.1 million.

– Reduce contract with Connecticut Mental Health Center by $1 million.

– Restructure inpatient services in Hartford to save $900,000.

– $3.5 million reduction to DMHAS General Assistance.

• A total investment in mental health across state agencies of $36.7 million in FY 02, increases to $74.3 million in FY 03 and $35.3 million in bonding and surplus.

79

Investments in Child Protection and Welfare

• DCF budget has leaped from $256.3 million in FY 95 to a proposed adjusted sum of $579.6 million, an increase of $323.3 million or 126%.

$295.3

$329.7

$343.8

$399.0

$447.5

$478.9

$550.2

$579.6

$200

$300

$400

$500

$600

'96 '97 '98 '99 '00 '01 '02Est.

'03Fcst.

Fiscal Year

Mill

ions

Department Of Children & Families Expenditures

80


• Adoptions on the Rise

– Since 1996, the total number of permanent homes grew 445%. In FY 01, permanent homes were found for 795 children through adoption and subsidized guardianship.

• Negotiating an Exit Plan to the Consent Decree

– The state has worked in good faith, fulfilling mandates and adding even more dollars.

– Adjusted budget adds significant resources to improve the DCF LINK system, including $4 million for accountability measures and $728,000 in capital budget for hardware.

81


• Juvenile Justice Reforms

– This budget transfers half the funds from the closing of Haddam Hills residential program - $1.5 million - to build community services for juvenile justice clients. Services in the continuum of

care include:

Additional slots to monitor youths after release

More job programs

Planning for productive employment

Expanding mentoring

In-home therapy for substance abusers

– Already authorized is $20 million in capital funding to pay for residential programs for females.

82

Economic and Workforce Development• Cluster Initiative

– Total $4 million over biennium from operating budgets and surplus.• Jobs Funnel Project

– $1 million on an ongoing basis for Hartford and New Haven.• School to Work (“Connecticut Career Choices Initiative”)

– Addresses the shortage of technological skilled workers by guiding young people into emerging and competitive careers.– $1 million on an ongoing basis.

• Jobs Access transportation– $6.5 million annually from DSS, TSB and a federal grant

• DOL Funding– $23.7 million through Workforce Investment Act– $15.4 million for Jobs First Employment Services– $1.8 million for vocational manpower training– $732,000 for Summer Youth Employment

• CETC Workforce Development– FY 02-03 appropriation of $4 million

83

Economic and Workforce Development

• The Governor’s bond package has many significant economic development initiatives:– $142 million is already authorized for urban development projects

– $20 million is authorized for the Small Town Economic Assistance Program

– $30 million is authorized for the Manufacturing Assistance Act

– $10 million is authorized for biotechnology and high technology laboratories

– In the biennium, special economic development acts were passed for New Haven, New London, and Norwalk.

– The new 21st Century UCONN and the 5-year renewal of the capital programs for CSU and the CTCs will positively impact linkages between business and higher education.

– Bond funds are included to continue school wiring and building the Connecticut Education Network.

84

Ending the Gridlock: The Transportation Strategy Board (TSB)

• The TSB has prepared its initial strategic plan that identifies 5 major goals and objectives to implement those goals.• In addition to the $16 million in surplus funds, the Governor is recommending $27 million in bonding for the TSB.• Initial allocations include:

– Test of Shoreline East direct service to Fairfield County.– Study New Haven/Hartford/Springfield commuter rail service.– Fund gaps in the Jobs Access Program.– Expand interregional, feeder and express bus service.– Improve marketing of “Deduct-A-Ride” Program.– Study feeder barge possibilities between NY and CT ports.– Design new station and expand maintenance facility for NH Rail Line.

• The governor’s adjusted budget continues to include $198 million in bonding for various transportation improvements that will leverage some $498 million in federal dollars.

85

Connecticut’s Response to 9/11• Legislation to extend tuition waivers at Connecticut public colleges and universities for relatives of victims of the September 11

tragedy.

• Legislation to exempt the income of the victims of the tragedy from the Connecticut income tax for the 2001 tax year.

• $500,000 in additional funds for 9 positions at the Department of Public Health to provide additional capacity in the areas of surveillance support, environmental health activities, response to non-biological incidents and the public health laboratory.

• $35,000 to augment available federal funding to finance the start-up costs of a Connecticut-based Disaster Medical Response Team.

86

Connecticut’s Response to 9/11

• $250,000 to establish a State Disaster Contingency Fund to enhance the state’s ability to prepare for and recover from a disaster.

• $500,000 to support training needs and preparedness activities to ensure a uniform response to any and all incidents.

• $100,000 to the Office of Emergency Management to augment state and local anti-terrorism and security activities.

• $600,000 from the Byrne grant to achieve interoperable communication between state and local law enforcement agencies.

87


• An additional $3 million in bond funds for security improvements at state buildings. $8 million has already been authorized and allocated.

• $3.5 million in bond funds for DEP’s aerial pictometry imaging to augment the state’s emergency preparedness and homeland security needs and a Multi-Hazard CRISIS Management System to assist in damage assessment, planned response and crisis logistics.

88


• Legislation to enhance public safety, including:– Instituting penalties for the possession or release of weapons of mass destruction.– Criminalizing the act of providing material support to terrorists.– Allowing electronic intelligence legally gathered during investigations of terrorism to be admissible in state courts.– Amending the racketeering laws to include terrorism.– Interfering with the operation of a public water system with harmful intent to a Class A felony.– Expanding grand jury duties to the investigation of terrorist activities.– Strengthening consumer protection laws and penalties in the area of price gouging.– Making an act of terrorism resulting in the death of a person a capital felony; making an act of terrorism resulting in the serious physical injury

of a person a non-capital felony.

89

Ensuring Public Safety• Other Public Safety Initiatives:

– Lowering DUI blood alcohol content levels to .08 BAC, strengthening open container laws, and requiring ignition inter-locking devices for repeat DUI offenders.– Funding for an additional State Trooper training class– Continuing support for the out-of-state prison contract ($12.3 million).– Including nearly $4.5 million of net new funding for 142 new staff and facility-related costs for the expansion of the MacDougall Correctional Institution in Suffield.– The expansion at the MacDougall facility, tentatively scheduled to open March 2003, will increase the existing facility capacity of nearly 1,000 beds by an additional

600 beds.– Funding for additional parole officers ($416,000).– Half-year funding for 25 Juvenile Probation Officers that are currently funded by the Juvenile Accountability Incentive Block Grant. Those grant funds will expire

January 2003.

90

Ensuring Public Safety

DPS/DOC Expenditures

$84.5

$89.9

$91.0

$99.8

$118.3

$118.6

$138.0

$146.8

$70

$80

$90

$100

$110

$120

$130

$140

$150

'96 '97 '98 '99 '00 '01 '02Est.

'03Fcst.

Fiscal Year

Mill

ions

Department Of Public Safety Expenditures

DOC Expenditures & Population

$551

$525

$494

$471

$415

$392$401

$373

14,967

15,588

15,909

16,776

17,45917,697

18,348

18,902

$350

$400

$450

$500

$550

$600

FY '96 FY '97 FY '98 FY '99 FY '00 FY '01 FY '02Est.

FY '03Fcst.

Expe

nditu

res

In M

illion

s

14,000

15,000

16,000

17,000

18,000

19,000

Inca

rcer

ated A

t End

Of Y

ear

Expenditures

Incarcerated

91

General Government

• Judges’ Salaries

– Proposed legislation for pay increases starting April 1, 2002:

Superior court judges will increase from $116,000 to $125,000, with commensurate increases for more senior judges and family court magistrates

– Salary increases of superior court judges for next 3 years:

$135,000 effective July 1, 2003 $145,000 effective April 1, 2004 $155,000 effective April 1, 2005

– Magistrates and other judges will receive commensurate increases

92

General Government

• Employee Fringe Benefits– Retirement contributions,

active employee healthinsurance and retiree healthinsurance will total $1.052billion next fiscal year(8% increase).

– Costs increased in the currentfiscal year by 14 %. At 7%,these costs will go up $40to $50 million per year forthe foreseeable future.

– Costs could be even higher. The market correction may meanthe value of the pension fund has dropped and higher unfundedliability payments may have to be made. Double-digit growthis more likely.

$335 $316 $343 $376 $415 $426

$253 $250$299

$308$356

$394$128 $129

$172$172

$205$232

$200

$400

$600

$800

$1,000

$1,200

'98 '99 '00 '01 '02 Est. '03 Est.

Expenditure

s (

$M

) .

SERS Active Health Ins. Retiree Health Ins.

SERS & Health Insurance ExpendituresAll Funds As Of 6/30

$716 $695

$814 $856

$976

$1,052

93

General Government

• Reserve for Salary Adjustments

– Net increase in funding is required due to large arbitrationawards

– General Fund: additional $9.5 million for 1199 Health Careand $2.2 million for Maintenance and Service

– Special Transportation Fund: additional $1.5 million forMaintenance and Service

– Overall net additional requirements:General Fund = $11.6 millionTransportation Fund = $1.8 million

– Fringe benefit accounts had to be adjusted upward, including$2.1 million for increases in position count

94

General Government

• Energy Funding– Restored $12.4 million to agency budgets across state government

for expected energy costs.

• Legislative Lapse– Recommends increasing

Legislative Lapse from$1.2 to $2.4 million.

– Graph shows expendituresfor staff and related costs(e.g., Personal Services,Other Expenses, InterimStaffing Costs and InterimSalary/Caucus Offices).

– Legislative Management’s growth in staffing and relatedexpenditures is much greater than OPM’s for the period shown.

$3

2.1

$3

3.6

$3

8.5

$4

1.3

$4

3.0

$4

7.2

$5

0.4

$1

3.3

$1

5.0

$1

3.3

$1

6.2

$1

6.0

$1

6.7

$1

1.7

$0

$10

$20

$30

$40

$50

$60

'97 '98 '99 '00 '01 '02 Est. '03 Fcst.

Fiscal Year

Exp

endi

ture

s ($

M)

175

215

255

295

335

Pos

ition

s

Leg. Mgt. OPM Exp. Leg. Mgt. Positions OPM Positions

Growth In Legislative Management vs.The Office Of Policy & Management

95

The Capital Budget

• Because of the major drop in revenues and the statutory debt limit, the adjusted budget contains only a few major capital initiatives:– $35 million to replace state’s core financial systems– $50 million for school construction– $10 million for Bridgeport– $30 million to comply with Health Ins. Portability Act

• Numerous cancellations are also recommended, including:– $33 million for CDA Works Fund – $120 million TIF authorization for Bridgeport

• Net new General Obligation authorizations are reduced by $43 million, leaving the amended capital budget at $1.158 billion; we are within $150 million of the 90% soft debt limit because of revenue slowdown.

96

The Capital Budget

• Total new school construction authorization of $500 million

• School Construction Changes:

– The school construction conversion program, while costly now as we retire old bonds, will save hundreds of millions in the long term by avoiding the double bonding of the past system.

• The Governor is proposing 3 sensible reforms to limit the annual exposure of school construction priority lists:

– Reduce the reimbursement rate from 100% to 95% for VoAg Centers, Regional Special Education Facilities and Magnet Schools.

– Require local approval prior to submittal for inclusion on School Construction priority list.

– Limit School Construction priority list projects to $1 billion annually beginning with the list submitted December 2002.

97

Local Aid

• Overall municipal aid does not drop despite the State’s financial crisis; formula grants increase by $21 million next fiscal year.

• Statutory formula grants have increased from $1.56 billion in FY 94-95 to $2.22 billion in FY 02-03: a 42% increase.

• $2.48 billion in total State payments to, or on behalf of, towns for FY 02-03: up $23 million. This includes 100% of town’s share for teachers retirement.

• The teacher retirement contribution is $205 million this fiscal year and $215 million in FY 02-03.

• Authorizes $989 million in bonds to, or on behalf of, towns.

• $601 million to towns next year for school construction, up from $479 million this year.

98

Local Aid

Summary - Estimated Formula Grants to Municipalities (Appropriated, In Millions)

Fiscal Fiscal FiscalGrant 2001 2002 2003

State-Owned PILOT $64.8 $66.0 $63.8College & Hospital PILOT 97.2 100.9 97.2Pequot Grant 135.0 135.0 135.0Town Aid Road Grant 35.0 35.0 35.0LoCIP 30.0 30.0 30.0Miscellaneous General 20.0 24.0 22.0Machinery & Equipment 76.1 75.0 74.2

Sub-total - General Government $458.1 $465.9 $457.2

Public School Transportation $45.2 $47.5 $47.8Non-Public School Transportation 4.8 5.0 4.7Adult Education 17.9 17.7 17.8Education Cost Sharing 1,388.0 1,459.0 1,469.5Miscellaneous Education Grants 196.6 202.5 222.2

Sub-total - Education $1,652.5 $1,731.7 $1,762.0

Total - Formula Grants $2,110.6 $2,197.6 $2,219.2

Statutory Aid To Municipalities

$2.22$2.20

$1.67

$1.79

$1.97

$2.05

$2.11

$1.6

$1.7

$1.8

$1.9

$2.0

$2.1

$2.2

$2.3

'97 '98 '99 '00 '01 '02Est.

'03Fcst.

Fiscal Year

Bill

ion

s

Aid to Municipalities

99

Local Aid

• Municipal formula aid changes or increases in the adjusted budget include:– Sheff Initiatives

Increase funding by $15.6 million to $181.2 million for FY 03.

– PILOTs

Maintain at the adopted budget level.

– Pequot/Mohegan

$500,000 to 5 towns for casino impact aid.

– FREEZE Program

$875,000 increase in FY 03 for tax relief for elderly homeowners.

– Exempting Anthem stock/cash payments

Prevent disqualification of elderly or disabled from tax relief programs as a result of receiving stock or cash payments from Anthem for OPM grants and ConnPACE.

100

Local Aid• Municipal formula aid changes or increases in the Governor’s adjusted budget include:

– Distressed Municipalities

$2.7 million increase to meet expenditures resulting from increased qualifying business construction and personal property.– Wastewater grants

OPM grants eliminated as part of Governor’s deficit mitigation plan.– Commercial Trucks

Repeal reimbursement on trucks over 55,000 pounds.– Interlocal revaluation payments

Fulfill State’s obligation to 15 towns that contracted for revaluation services before repeal of PA 01-09 of June Special Session.– Governor is supporting revaluation waiver legislation for towns that meet statistical measures of property assessment equity.

101

For More Information

This is the link to our midterm homepage:

www.opm.state.ct.us/budget/2003MidTerm/MidtermHome.htm

We include the following documents in their entirety:1. Governor’s Midterm Budget Adjustments

a. Introductionb. Section A – Financial Summaryc. Section B – Budget Detaild. Section C – Proposed Appropriation Acte. Section D – Capital Programf. Section E – Municipal Aid

2. Economic Report of the Governor

3. 3 Year Forecast – book

4. Midterm Budget PowerPoint Presentation

102

Index

• Facing the Economic Realities of Our Times 1

• Economic Outlook 16

• Education 33

• Long Term Care 49

• Protecting the Safety Net 53

• Mental Health 75

• Investments in Child Protection and Welfare 79

• Economic and Workforce Development 82

• Ending the Gridlock 84

• Public Safety 85

• General Government 91

• The Capital Budget 95

• Local Aid 97

• For More Information 101

• Index 102

governor rowland’s fy 2002-2003 february 6, 2002 midterm budget adjustments summary

Documents

states rainy day fund

spending cap

recession connecticut

greater of spending

subsidizing spending

general fund expenditures

current budget deficit

current recession