Office of Fiscal Analysis - Connecticut General …

1 Fiscal Accountability Presentation to the Appropriations & Finance Committees November 21, 2014 Office of Fiscal Analysis Topic Areas 15 FY 18 Budget Estimates Expenditures 15 Deficiencies Reserve Fund and Debt Service Trends and Areas of Concern of Surplus Funds 2 Current Services Amount needed to continue current level of services in the next year(s); includes: of partial year costs changes requirements/court orders of multi-phase projects projections are driven by detailed account estimates totaled and compared to revenue 3 Methodology General Fund Projections (in millions) 4 ProjectionsFY 15 $FY 16 $FY 17 $FY 18 $Expenditures17, , , , , , , , SURPLUS/(DEFICIT)( )(1, )(1, )(1, )% of RatesFY 15FY 16FY 17FY FY 15 General Fund Summary1 (in millions) SummaryBudget Plan $Increase/ (Decreases) $Projected $Agency Appropriations17, 17, Requirements - ( )( )( )Total Expenditures17, , , , Revenue 1, ( )1, Sources1, ( )1, Revenue17, ( )17, SURPLUS/(DEFICIT) ( )( )ExpendituresRevenues1 Totals may not appear to add up due to rounding.

2 6 General Fund Growth: Incremental and Cumulative (in millions) FY 15 $FY 16 $FY 17 $FY 18$Expenditures17, , , , , Increase- 1, , , , , , , Increase- , , SURPLUS/(DEFICIT) ( )(1, )(1, )(1, )7 If the year-end General Fund deficit projected by the State Comptroller on the first of any month exceeds 1% of the budget, the Governor is required to submit a Deficit Mitigation Plan within 30 days. Pursuant to CGS Sec 4-85(b) 1% of the budget = $ million. The Comptroller has not projected a deficit yet in FY 15. The Governor has statutory authority to implement rescissions if a change in circumstances is determined. Pursuant to CGS Sec. 4-85(b) Deficit Mitigation 8 FY 16 FY 18 Major General Fund Expenditure Growth Areas (increases shown are above prior year base - in millions) Agency/AccountFY 16 $FY 17 $FY 18 $OTT - Debt DSS - SDE - Education Equalization SDE - Transportation of School SDE - Excess Cost - Student OSC - Amortize GAAP - Magnet OSC - State Employees Retirement OSC - State Employees Health Service OSC - Retired State Employees Health Service FY 15 General Fund Budgeted Lapses (in millions) Amount $Gross Appropriations17, Lapse( )Unallocated Lapse - Legislative( )Unallocated Lapse - Judicial( ) General Lapse - Executive( ) General Lapse - Judicial( ) General Lapse - Legislative1( )

3 Municipal Opportunities and Regional Efficiencies Program( )Statewide Hiring Reduction - Executive( )Statewide Hiring Reduction - Judicial( )Statewide Hiring Reduction - Legislative( )Subtotal ( )NET APPROPRIATIONS17, General Lapse - Legislative is $39,492. The state is under the cap in FY 15, assuming no deficiency appropriations are made. The state is projected to be over the cap in FY 16 FY 18. Spending Cap Calculations1 (in millions) 10 Items FY 15 $ FY 16 $ FY 17 $ FY 18 $ Appropriations Allowed by Cap 19, 19, 20, 21, Estimated Expenditures 18, 20, 21, 22, Over/(Under) the Cap ( ) 1 Totals may not appear to add up due to rounding. Spending Cap Per statute, the growth factor is the greater of: (A) The average of the five-year annual increase in personal income in Connecticut , or (B) The increase in inflation for the preceding year.

4 Spending Cap Growth Factor 11 Fiscal Year 5-Year Average Personal Income Growth % 12-month CPI* Increase % 10 11 12 13 14 15 16 17 18 * Consumer Price Index = Projected (source: Moody s) FY 15 General Fund Revenue Estimates1 (in millions) 12 Budget NovemberRevisions November Consensus Personal Income8, 8, 8, 9, - 9, Sales and Use3, 3, 4, 4, 4, Public Service - Inheritance and - Insurance - ( ) Real Estate - Oil ( )

5 Electric - - - Alcoholic - Admissions, Dues and - Health Provider ( ) ( ) Total Taxes14, 15, 15, 16, 16, Less Refunds of Taxes( ) (1, ) (1, ) (1, ) - (1, ) Less Earned Income Tax Credit( ) ( ) ( ) ( ) - ( ) Less R & D Credit Exchange( ) ( ) ( ) ( ) - ( ) Subtotal - Taxes Less Refunds13, 14, 14, 14, 14, Transfer Special - Indian Gaming ( ) Licenses, Permits and Sales of Commodities and - Rentals, Fines and - Investment ( ) ( ) - - Refunds of Payments( ) ( ) ( ) ( ) - ( ) Subtotal - Other Revenue1, 1, 1, 1, ( ) 1, Federal Grants3, 3, 1, 1, ( )

6 1, Transfer from Tobacco Settlement - Transfer (To) Other Funds2( ) ( ) - Subtotal - Other Sources3, 3, 2, 1, ( ) 1, TOTAL18, 19, 17, 17, ( ) 17, FY 15 ActualFY 12 $ActualFY 13 $ActualFY 14 $Fund/RevenueTaxes1 Totals may not appear to add up due to 14 Actuals include $ million bond proceeds for GAAP SourcesOther Revenue13 1 Revenue totals presented are on a gross basis and do not reflect reductions in revenue from refunds. FY 15 General Fund Consensus Revenue1 (in millions) Personal Income $9, Federal Grants $1, Sales and Use $4, Business $1, Gambling $ Other Revenue $ Other Taxes $1, Tobacco $ Salaries & Wages Taxable Interest Dividends Business/ Professional Net Income Net Capital Gains Taxable IRA Distributions Taxable Pensions/ Annuities Unemployment Taxable Social Security Benefits Partnership/ S-Corp Net Income 14 Personal Income Tax Revenue by Income Category (Income Year 2012) 15 Tax Revenue Less Refunds: FY 90 - FY 18 (in millions) 12, 13, 11, 12, $0$2,000$4,000$6,000$8,000$10,000$12,000 $14,000$16,000$18,000 90 92 94 96 9800020406081012141618 Amount Fiscal Year All Taxes (Less Refunds): ActualsAll Taxes Less Refunds.

7 Policy ProjectionNo Policy Changes Enacted (FY 09 - FY 18)FY 08 FY 12 FY 17 FY 15 Sources: Moody s Analytics, Office of State Comptroller Annual Reports, November 10, 2014 Consensus Economic Comparison to FY 90 16 -20%30%80%130%180%230% 90 93 96 99020508111417% Change from FY 90 Fiscal Year Total Tax RevenueTotal Personal IncomeGross State ProductTotal Tax Revenue ProjectionTotal Personal Income ProjectionGross State Product Projection $75 million in new revenue budgeted. $30 million has been achieved: Business Tax Initiative. Forty corporate taxpayers under audit chose to participate in the program. Participating taxpayers gain certainty regarding future tax treatment with conditions. $45 million more is possible: New federal data will enable the Department of Revenue Services to identify and serve warrants against any processors of credit card transactions.

8 Accounts receivable for Sales Tax is $135 million. Other initiatives will contribute. Tax Gap Initiative 17 18 FY 15 %FY 16 %FY 17 %FY 18 %Personal Estimates & and Service and ( )( )( )( )Real Estate Companies( )( ) & Provider - Special Gaming Payments( )( )( )( )Licenses, Permits and ( )Sales of , Fines and Escheats( ) ( ) Income Tax RevenuesOther RevenuesRefundsGeneral Fund Economic Growth Rates 19 Outlook $60 million in Town Aid Road being bonded in FY 15 and $30 million added back to the Department of Transportation s appropriation in FY 16 - FY 18; An increase of $ million in each Fiscal year for the State Employees Retirement System (SERS); and An increase of $ million in FY 16, $ million in FY 17, and $ million in FY 18 for Debt Service. Expenditures are Outpacing Revenue These expenditures are partially supplemented by an increase in the General Fund transfer to the STF of $ million in FY 16 and an additional $10 million in FY 17 through FY 18.

9 STF FY 15 $ FY 16 $ FY 17 $ FY 18 $ Beginning Balance Revenues 1, 1, 1, 1, Expenditures 1, 1, 1, 1, Surplus/(Deficit) ( ) Ending Balance Revenue Growth Expenditure Growth Transportation Fund Projections (in millions) 20 Explaining the Projected FY 16 General Fund Deficit (in millions) ItemAmount $ Starting Point: FY 15 Deficit( ) Revenue Issues+GF-STF Transfer( ) Re-establish Sales Tax Clothing Exemption( ) Expiring Revenue Policies( ) Expiring Revenue Transfers( ) New Revenue Policies( ) Other Adjustments( ) Federal Revenue Revenue Total Revenue Expenditure Issues+Debt Inflation - Other than Personal State Employee Growth - Salaries/Non Pension Fringe Caseload Adjustments to Statutory Federal GAAP (including amortization of GAAP deficit) Pension Obligations (state & teachers) Other Changes( ) Total Expenditure Issues1, PROJECTED FY 16 DEFICIT(1, ) =Income Tax: $ Tax: $ Other (Net).

10 ($ )21 $ million in the Motor Fuels Tax from slightly higher than anticipated consumption from the low gasoline and diesel fuel prices. Year to date collections have increased by approximately 1% compared to last year; $4 million in higher than anticipated revenue from PA 13-271, AAC Distracted Driving and Revisions to the Motor Vehicle Statutes, which increased fees for motor vehicle registrations and new operator licenses; $ million in higher than anticipated revenue from interest income; and $ million from increased collections from licenses, permits and fees. Explanation Transportation Fund Revenue (in millions) Revenue Source FY 15 $ Budget Consensus Revisions $ FY 15 $ Consensus Taxes Motor Fuels Oil Companies Tax - Sales Tax - DMV Refunds of Taxes ( ) ( ) ( ) Subtotal Other Revenue Motor Vehicle Receipts License, Permits, and Fees Interest Income Federal Grants - Transfer From/(To) Other Funds1 ( ) - ( ) Less: Refunds of Payments ( ) ( ) ( ) Less: Transfer to TSB Account ( ) - ( ) Subtotal TOTAL 1, 1, 1 This revenue stream consists of; (1) CGS 13b-61c, the statutory transfer between the General Fund and STF and (2) CGS 14-164m, the statutory transfer of $ million to the Emissions Enterprise Fund.