From:  Susan Kniep,  President
The Federation of Connecticut Taxpayer Organizations, Inc.  (FCTO)
Website:  http://ctact.org/
email:  fctopresident@ctact.org

860-524-6501

April 13, 2005

 

 

 

With the legislature in session, it is difficult keeping up with the Legislative Bills initially proposed which are ultimately restructured contrary to the Bills initial intent or provisions tacked onto Bills without the public’s knowledge or their input.  Therefore, the following may be interesting to you as it pertains to what the Legislature, in 2004, planned to do in 2005.  The website below will take you to the full report.  I have highlighted some salient points.  In addition you may wish to visit this website http://www.cga.ct.gov/     to research Legislative Bills and Committee Agendas.   

 

OFFICE OF LEGISLATIVE RESEARCH

 

2005 LEGISLATIVE ISSUES REPORT

 

 

http://www.cga.ct.gov/2004/rpt/2004-R-0909.htm

 

 

HIGHLIGHTS

 

Structural Deficit

Faced with structural deficits in FYs 2006 and 2007 (exceeding $ 600 million based on OFA’s current services estimates and $ 1 billion based on agency requests) and spending cap problems, the General Assembly will need to consider various spending reduction and revenue enhancement alternatives. The structural deficits largely result from (1) the use of $ 382. 7 million in one-time revenue sources to balance the budget in FY 2005, (2) the increase in the maximum property tax credit from $ 350 to $ 500 which will cost $ 105 million in FY 2006 and subsequent fiscal years, and (3) a higher growth rate in expenditures versus revenues.

Spending Cap

In addition to the structural deficit, OFA’s current services estimate exceeds the state’s spending cap by $ 515. 8 million in FY 2006 and by $ 710. 5 million in FY 2007. In the current fiscal year (FY 2005), the state’s appropriations are $ 129. 1 million under the cap. If this year’s expenditures were raised by this amount, then the current services estimate would exceed the cap by $ 381. 6 million for FY 2006 and by $ 571. 5 million for FY 2007.

State Employee Collective Bargaining

Approval of state employee collective bargaining agreements and arbitration awards may put additional pressure on the FY 2006 and 2007 budgets. Of the 33 contracts, 16 (covering slightly more than half of state employees) are settled and funded and include a one-year wage freeze, and 17 have not agreed to any wage freeze. Preliminary estimates indicate that an additional cumulative cost of approximately $ 124. 5 million over FY 2005 through FY 2007 could result if a one-year wage freeze is not extended to the 17 remaining contracts.

Business Tax Incentives

A federal appeals court recently struck down Ohio’s investment tax credit on the grounds that it interfered with interstate commerce. While this decision does not bind Connecticut, it might cause the legislature to revamp Connecticut’s business tax incentives to protect them from a similar challenge. The decision could also reignite the debate about whether the incentives actually induce businesses to make investments or only reward them for investments they would have made anyway.

Education Cost Sharing (ECS) Grants

In 2004, the General Assembly abolished the ECS cap and appropriated money to begin phasing out its effects. This year, each capped town is set to receive just over 23% of the difference between its FY 2004 grant and its full FY 2005 ECS entitlement. In addition, no town can receive less than 60% of its full entitlement. But despite the formal abolition of the cap, towns still object to their ECS funding levels. Consequently, the General Assembly is likely to see proposals to fully fund ECS grants for the 107 towns that currently receive less than the formula says they should.

There may also be proposals to increase the ECS foundation amount from the current $ 5,891 per student - well below the almost $ 9,000 that districts spent on average to educate each student in FY 2004. A higher foundation would give every town a bigger grant but would also require the state to increase its total ECS appropriation (currently $ 1,562,870,000).

No Child Left Behind and School Accountability

As more schools face sanctions under the federal No Child Left Behind (NCLB) law for failing to make enough annual progress toward reading and math proficiency for all students, the state will be required to provide remedial help and alternative programs for students at these schools. In 2004, eight schools were cited for failure to make adequate progress for a fifth consecutive year. Under NCLB, if these schools fail to reach required achievement levels in 2005, they face one or more of the following sanctions: (1) closure and reconstitution as a public charter school, (2) replacement of most or all staff, (3) takeover by private management, (4) state takeover (if allowed by state law), or (5) some other fundamental reform.

To address achievement deficits at these and other schools, the General Assembly may consider proposals to increase the number of spaces in school readiness programs for low-income children in inner cities, raise the quality of those programs, and provide more and better pre-school facilities. Other likely proposals include increased financial aid to cities to support new teachers and financial incentives to both retain good teachers at, and attract highly qualified teachers to, schools in priority districts. The state may also be asked to help pay for programs to extend the school day or year at failing schools.

Finally, there may be requests to change state laws to allow or facilitate state takeovers of failing schools or school districts, or the reconstitution of failing schools as charter schools.

 

State Taxes

A November 12, 2004 OFA forecast projects a General Fund surplus of $ 251 million for FY 2005 followed by deficits of $ 604 million and $ 701 million for FYs 2006 and 2007, respectively. This fiscal outlook may lead the General Assembly to consider revenue increases in the coming session.

Possible revenue increases could include a so-called “millionaire tax” to raise the tax rate on income over $ 1 million above the current 5%. The General Assembly may also consider a new state estate tax that is not tied to the federal tax. The state already has such a “decoupled” tax on estates valued at $ 1 million or more, but it is temporary and applies only to deaths that occur between July 1 and December 31, 2004. The General Assembly may consider proposals to extend this tax or make it permanent.

The General Assembly may also consider tax reductions, including proposals to exempt some or all public, private, or military pension income from the state income tax.

Tax Expenditures

State law requires OFA to periodically compile a list of state “tax expenditures. ” Tax expenditures are tax exemptions, deductions, credits, or preferential rates for particular activities, situations, types of taxpayers, or types of goods or services. Tax expenditures reduce the amount of tax revenue that would otherwise be collected.

In the coming session, the General Assembly may consider proposals to (1) reduce or eliminate particular tax expenditures, (2) evaluate the benefits and costs of particular tax expenditures, or (3) require those benefiting from tax expenditures to make the benefit public.

Municipal Revenue Diversification

Property taxes are the main source of revenue for cities and towns. But with high property taxes becoming an increasingly contentious issue for municipalities and the legislature, the General Assembly may consider allowing towns to raise revenue in other ways.

One possibility is the municipal real estate conveyance tax. In 2003, the legislature temporarily increased the municipal real estate conveyance tax rate from . 11% to . 25% of a property’s sale price. In addition, it allowed 18 towns to increase their rates to . 5%, and 16 of them did so. The increases expire July 1, 2005. The General Assembly may see proposals to further extend the higher rates or make them permanent.

Also in 2004, the General Assembly required retailers, when they remit sales tax revenues to the state, to report the town in which each taxable sale occurred. The General Assembly could see bills to allocate a portion of sales tax revenues to the town where the sales occurred or to allow towns to impose their own sales taxes.

Property Tax Reform

In 2004, the legislature allowed towns to postpone scheduled property tax revaluations, which would have captured significant increases in the assessed values of homes and thus increased taxes for homeowners. In 2005, the legislature may consider longer-term solutions, such as homestead exemptions, income tax credits for property tax payments, local option sales taxes, and development impact fees.