FY2008 – FY2009 BIENNIUM GOVERNOR’S BUDGET

1. FY2008 – FY2009 BIENNIUM GOVERNOR’S BUDGET M. JODI RELL, GOVERNOR CONNECTICUT February 7, 2007

2. Introduction • Over the last two years, the Governor and the General Assembly have made major strides in addressing some of Connecticut’s long ignored problems • However, significant issues remain including: • Rising property taxes • Disproportionate reliance on property taxes to fund education • Irresponsible development growth • Rising energy prices • Healthcare coverage

3. Introduction • The State made a promise to provide 50% of public education costs • In 1990, the State paid 46% • The State’s share had dropped to as low as 38% in recent years • At the same time local property taxes have consistently risen in all Connecticut cities and towns • The State needs to ensure that Connecticut’s children receive an adequate education

4. Introduction Governor Rell’s vision for Connecticut continues with this biennial budget proposal. It includes: • Bold steps to revitalize our education system • Initiatives for property tax reform • Measures for responsible growth and development within the State • Governor Rell’s 2020 plan and other energy proposals • Innovative and aggressive approaches to providing healthcare coverage

5. FY 2007-09 Biennial Budget • We have fundamental problems with our revenues and expenditures. The General Fund is in the hole almost $500 million • General Fund revenues are projected to increase only 2%, or $315.4 million, in FY08 over FY07 revenues. Reasons for the small growth in revenues: • Legislatively approved changes to Connecticut’s tax structure • Changes in certain federal reimbursement programs • The slow revenue growth is coupled with a large increase in legally required expenditures totaling $807.9 million • The expenditures that are growing are typically outside the administration’s control and include obligations to the pension funds, arbitrated raises, benefits, debt service and growth in the Medicaid program

6. FY 2007-09 Biennial Budget • Governor Rell is proposing an all funds budget of $17.5 billion for FY08 and $18.3 billion for FY09 • The FY09 all funds proposal represents an increase of $866.1 million over the recommended level for FY08, or an increase of 5.0% • 72% of the increase is driven by increases in debt service, employees salaries and benefits, pensions obligations, Medicaid growth • 20% of the increase is driven by the Governor’s Education Initiative

7. FY 2008 Budget

8. Disposition of the FY 2007 Surplus • As of January 22, 2007, the OPM is estimating the surplus for the current fiscal year to be $507.8 million • The current general fund surplus forecast is calculated after using approximately $25 million for estimated deficiencies, lost lapses, and surplus adjustments. About $4.2 million are actual deficiency appropriations under the spending cap

9. Disposition of the FY 2007 Surplus Governor Rell proposes the use of the balance of the surplus in the following ways: • Deposit $151.2 million in the Budget Reserve Fund • Fund school textbooks and deferred maintenance- $50 million • Establish an Other Post Employment Benefit (OPEB) account- $21 million • Fund an Energy Conservation Account- $30 million • Carry forward $96.2 million for FY08 expenditures • Will be used to offset expenditures of $33.2 million in Medicaid, $20 million for State employees health services costs, and $36 million for debt service • Utilize $9.3 million to pay for one-time expenses in FY08 • Pre-fund the FY09 Teachers Retirement Pension Contribution- $150 million

10. Expenditure Cap • Since the cap was adopted, the average growth in spending (including Governor Rell’s first two budget years) was 4.8%. In the 5 years before the adoption of the constitutional cap on spending, the average growth in spending was 10.8% • For FY08, the expenditure cap will only permit growth of 3.31%. This is the lowest expenditure cap growth ever recorded and well below the average cap growth of 4.84% measured over the past fifteen years • The Governor’s proposed budget represents a blueprint for wholesale change in the way the State operates

11. Expenditure Cap • Achieving these goals within the 3.31% permitted growth rate is not possible. However, the Governor intends to address these issues in a forthright manner while respecting the integrity of the expenditure cap • At the appropriate time and in accordance with the State’s Constitution, the Governor will issue a declaration to exceed the State’s expenditure cap to address these significant reforms

12. Education • Connecticut has reached a critical juncture and we must redesign the education system to create the workforce the State’s economy will need • Connecticut needs to address the whole education continuum from pre-school through college in order fix the system • Governor Rell’s budget devotes unprecedented funding to programming that will increase achievement, and provide students with the education that the State’s economy needs

13. Education Recent trends in education funding have shown State support for education diminishing and the burden shifting to local property taxes

14. Education • Total new dollars over 5 years will be in excess of $3.2 billion • Governor Rell’s education plan increases the Education Cost Sharing (ECS) grant by $1.1 billion per year • Cognizant of the affordability of such a large investment, Governor Rell is prudently recommending that the ECS increase be phased in over 5 years

15. Education

16. Education The State’s largest communities will all receive noteworthy increases in their grants

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18. Education Details of the ECS changes are as follows: • The ECS cap is eliminated in the first year • ECS Foundation will increase from $5,891 to $9,687 • State Guaranteed Wealth Level (SGWL) will increase from 1.55 to 1.75 • Minimum Aid Ratio will increase from 6% to 10% • Resident Students will not include students from magnet schools • Need Students – Use updated and current data • Increase weighting for limited English proficiency students • Supplemental Formula Aid and Density Aid will be eliminated • All communities get at least a 3% increase

19. Early Childhood Education Phased in universal preschool for 13,000 children from low-income families • Governor Rell is recommending that $11.1 million in FY08 and $30.5 million in FY09 will be invested to subsidize about 4,100 pre-school slots • $4 million over the biennium will be used to support the construction of 4,000 placements • $1 million for a comprehensive data registry for all of the preschool centers • Equalize DSS child care center rates to SDE rates as long as DSS centers meet SDE standards

20. Early Childhood Education • Governor Rell is proposing a significant expansion of the Birth to Three program. The program is expected to cost: • $900,000 in FY08 • $1.2 million in FY09 • This expansion will provide eligibility for very low birth weight babies, babies born at fewer that 28 weeks, children with significant delays in speech or biological risk factors, and children with mild or unilateral hearing loss • This funding will provide early intervention and make a meaningful difference in the life of a child

21. Education • Governor Rell is proposing $1.1 million in FY08 and $3 million in FY09 for a series of education initiatives for early childhood workers • Governor Rell is supporting a series of initiatives to reduce racial isolation and improve urban education • $4.9 million in both FY08 and FY09 to increase financial incentives for the OPEN Choice program • $3.3 million for FY08 and $6.4 million for FY09 to phase in the increase to the per child charter school subsidy from $8,000 to around $10,600 per student • $4.2 million for FY08 and $8.5 million for FY09 to phase in over four years an increase to the per child magnet school subsidy

22. Education • With $1.4 million in each year of the biennium, the Department of Education (SDE) will begin to implement a new accountability system • SDE will take on a new leadership role, empowered to require school districts to undertake initiatives that will increase student achievement • SDE will develop new State benchmarks for both academic and behavioral accountability • Using these benchmarks the State will intervene when schools and districts under perform

23. Education Accountability • If the State Board so orders, districts where more than 30% of students are below proficiency standard would be required to create a full day kindergarten program • Require primary school students to be proficient in math and reading or a district will be required to provide a summer school opportunity. Children should not be allowed to fall behind • Increase graduation requirements to four years of math, three years of science • High school graduation requirement - passage of Connecticut Academic Performance Test (CAPT) or SDE approved alternative • If a local school failure continues, SDE will be empowered to: • Redeploy personnel within the district • Replace school leadership • Reconstitute school

24. Education By fully funding the main special education grant, Excess Costs-Student Based, a grant based on 4.5X the usual cost of educating a child in a community, Governor Rell is significantly increasing the State’s financial commitment to children with special education needs.  With the recommended level at $133 million in FY09, the funding for special education will have almost doubled since 2005.

25. Higher Education • Governor Rell does not want money to be a barrier to student access to higher education. Therefore, she is recommending $25 million in additional student financial aid for both public and private colleges • This amounts to a landmark 77% increase in the CICSG and CAPCS scholarship programs • $12.2 million in new funding for the Connecticut Independent College Student Grant will produce another 3,600 awards at the same level or an increase in current award levels • $12.8 million in new funding for the Connecticut Aid for Public College Students could mean another 9,800 awards or an increase in current award levels

26. Eliminating the Car Tax The current local system of taxing personally used motor vehicles is unfair as: • The same vehicle is taxed at different rates in different towns • Owners of luxury cars located in smaller towns pay less than owners of older vehicles who live in larger cities

27. Eliminating the Car Tax • Governor Rell proposes to begin the elimination of this unfair tax in 2007 • Will apply to local property taxes on non-commercial, privately owned or leased passenger cars, light duty trucks, pick up trucks and motorcycles • Tax will be phased out over 5 years • Net assessments reduced: • By $1,500 with July 2007 tax bill • By $3,200 with July 2008 tax bill • By $4,900 with July 2009 tax bill • By $6,700 with July 2010 tax bill • Eliminated completely by July 2011

28. Eliminating the Car Tax • Municipalities will be reimbursed based on a 100% collectionrate for revenues lost by eliminating this tax. A few municipalities collect 100% and some cities are as low as the mid 80’s% • How will we pay for it? • Casino revenue will pay for this. For the first 4 years, the Casino revenue received will cover the cost of this program. Each year some of the Casino revenue will be deposited into the Casino Assistance Revenue (CAR) Fund and used to reimburse municipalities for lost revenue • By year 5 ALL Casino revenue will be deposited into the CAR Fund • If the Casino revenue is not sufficient, it will be supplemented by a General Fund transfer • As more Casino revenue is intercepted each year, the loss of General Fund money will be offset by a phase out of the property tax exemption on the Connecticut income tax

29. Eliminating the Car Tax Governor Rell proposes to protect our senior citizens by: • Allowing those who are 65 years or older and who are single filers, heads of household or joint filers (where one is at least 65) to continue to get the full property tax credit on their Connecticut income tax returns, and • Also benefit from the elimination of the car tax

30. Eliminating the Car Tax • Municipalities would continue to receive the $86.25 million they currently receive via the Mashantucket Pequot and Mohegan Fund grant • Governor Rell’s proposal: • Eliminates an inefficient, inequitable and regressive tax • Provides an improved replacement revenue stream to keep municipalities whole • Provides for significant property tax relief for virtually all Connecticut taxpayers

31. Pensions State employee and teachers retirement systems include payments equal to 100% of what is actuarially required

32. State Employees • The State of Connecticut has thirty-one different contract agreements in place with State employee bargaining units • Thirteen bargaining units have contracts that expire on June 30, 2007. They represent 28.3% of the State’s full time unionized employees • Another four bargaining units have contracts that expire on June 30, 2008 • Funds to cover projected pay increases for the unsettled years for these bargaining units have been provided for in the reserve for salary adjustment account (RSA)

33. Responsible Growth • October 6, 2006 – Governor Rell issued Executive Order #15 to establish the Office of Responsible Growth in OPM • Demonstrates Governor’s understanding that housing, economic development, transportation, brownfield remediation, public health and open space and farmland preservation are all interrelated • Governor’s budget provides for: - Enhanced Planning at State, regional and local levels - Enhanced Education of local officials - Enhanced Tools to implement Responsible Growth Policies - New and enhanced Policies to promote Responsible Growth

34. Responsible Growth Enhanced Planning: • Increases annual OPM grant to Regional Planning Organizations to $1.2 million • Provides $1.5 million in FY08 and $105,000 in FY09 to DEP for enhanced Geospatial Imaging System use • Provides $1 million annually for municipalities to update local Plans of Conservation and Development • Creates a Responsible Growth Task Force to develop standards and criteria

35. Responsible Growth Enhanced Tools: • Increases annual funding for the Recreation and Natural Heritage Program to $10 million • Increases annual funding for the Open Space Acquisition Grant Program to $10 million • Increases annual funding for the Farmland Preservation Program to $10 million • Increases annual Clean Water Funding to $70 million in General Obligation bonds and $175 million in revenue bonds • Provides $20 million in FY09 for a Responsible Growth Incentive Fund

36. Responsible Growth Enhanced Policies • In FY09 Urban Act and STEAP funding for Economic Development projects must meet Responsible Growth criteria (unless waived by Bond Commission) • In FY09, all bond funded projects (except school construction) must be consistent with the State Plan of Conservation and Development (unless waived by the Bond Commission) • In FY09, municipalities who have not reviewed their local Plans of Conservation and Development will be ineligible for discretionary State funding (unless waived by Secretary of OPM) • In FY09, Regional Planning Organizations will have notice and opportunity to comment on development projects or land use regulatory changes that have a significant regional impact • Existing Brownfield funding programs will be consolidated and process expedited. Criteria and an inventory of sites will be developed

37. Transportation Rail Service and Facilities • Enhanced Shore Line East service starting in 2008 • Weekend service (eight round trips per day) • Weekday mid-day and evening service • Twenty four additional M8 electric rail cars • Twelve each for New Haven and Shoreline East • In addition to 342 cars previously authorized

38. Transportation Rail Services and Facilities • New Stamford Rail Station Parking Garage - $35 million • Rail Station Capital Improvement Fund - $5 million • New London Transportation Center Planning Study • Shore Line East station and parking improvements • Branford, Clinton, Madison, Guilford and Westbrook • Funded from 2006 initiative • Governor has directed DOT and other State agencies to expedite the development of one or more stations between New Haven and Milford • Bus Transit • Additional matching funds provided to allow local transit operators to access additional federal funds

39. Transportation • Bridges • $20 million in each year of the biennium to expedite priority bridge repair and rehabilitation projects • Southeast Tourism Circulator System • $3 million is included in each year of the budget to help fund a two year pilot of a shuttle bus service designed to serve visitors to tourism venues and casinos • State share can not exceed 50% of the cost of the pilot • Bus Fare Increase • Bus fares will increase from $1.25 to $1.50 for zone-one fares • Effective October 1st • Will generate about $4.4 million in FY08 and $6.5 million in FY09

40. Economic Development, Housing and Brownfields Southeastern Connecticut Initiatives • $10 million for the economic diversification revolving loan program • $500,000 in each year of the biennium for a Defense/Homeland Security Incubator in southeastern Connecticut • $200,000 in each year of the biennium for the first two years of a three year effort to develop a Southeastern Connecticut economic development marketing plan

41. Economic Development, Housing and Brownfields Housing • $15 million in bonding in each year of the biennium for housing programs. This funding is in addition in funding available under the Housing Trust Fund program and approximately $40 million that is already authorized to fund various other housing programs • $1 million to address lead paint in State assisted housing developments • $400,000 in each year of the biennium to address program shortfalls in the Elderly Rental Assistance Program, which provides rent subsidies to qualified residents of State elderly and disabled housing

42. Energy In September of 2006, Governor Rell unveiled Connecticut’s Energy Vision as a call to action to address the intense concerns over the future of energy prices and supply that have developed over the last several years There are 4 majors elements of the Governor’s plan: • Achieving immediate cost reductions for consumers • Re-emphasizing the role of energy efficiency • Making Connecticut a leader in promoting and using alternative and renewable energy technologies and conservation • Better coordination and integration of energy policy development and planning

43. Energy Governor Rell proposes several initiatives aimed toward achieving immediate cost reductions for consumers: • Create an Electric Conservation Incentive Program which will provide residents an incentive of up to $200 if they reduce their annual electricity usage by 18% • Eliminate the sales tax surcharge on businesses when their usage exceeds $150 per month • Cap the Petroleum Gross Receipts Tax, based on the wholesale price of $1.75 per gallon

44. Energy Governor Rell proposes several initiatives to encourage and re-emphasize the role of energy efficiency • Restores full funding of the Renewable Energy Investment Fund and the Energy Conservation and Load Management Fund - $35 million • Extends the current sales tax exemption on weatherization products until 2010 • Extends the current sales tax exemption for hybrid vehicles • Creates an immediate property tax exemption for hybrid vehicles

45. Energy Governor Rell proposes several initiatives to make Connecticut a leader in promoting and using alternative and renewable energy technologies • Promote development of the biofuels industry by providing incentives to: • Promote local production of biofuel crops • Develop an in-state biofuels production facility • Petroleum distributors to blend and utilize biofuels • Broaden “green building” standards to include local school projects funded with State funds

46. Energy Governor Rell proposes: • A new State Department of Energy which will assist the Governor in formulating a comprehensive, statewide energy policy • An integrated resource planning process • Reducing utility regulators at DPUC from 5 down to 4 • Transferring consumer complaint responsibility to Office of Consumer Counsel

47. Health Care Governor’s Health Care Initiative – The Charter Oak Plan • The Governor’s innovative Charter Oak Health Plan is aimed at providing access to affordable health insurance for those who currently have little or no access to it • Under this plan, the administration will work with health insurance carriers to develop an affordable, accessible product expected to cost $250 a month • The product will provide basic health insurance coverage, including a full prescription package • The Governor is developing a sliding-scale financial assistance program to buy down the premium to as low as $75 per month for low-income adults • The Governor’s budget contains $18.9 million in FY08 and $36.1 million in FY09 for this initiative which is expected to annualize at $45 million in FY10

48. Health Care Governor’s Health Care Initiative -- Maximizing the HUSKY Benefit • HUSKY Enrollment at Birth. All children who are not otherwise insured will be enrolled in HUSKY at birth and, if a family’s income is high enough to require a monthly premium, the State will waive the premium for 2 months • HUSKY School Enrollment. Require notification about children’s insurance coverage at the start of every school year to help school systems refer families • $1 million in each year of the biennium is dedicated to these enhanced outreach initiatives, including funding for 211 Infoline and for RESC training on benefits and referrals • Outreach efforts are anticipated to increase HUSKY costs by over $8 million in FY08 and over $13 million in FY09 • “No adverse change” legislation to eliminate fluctuations in benefits and coverage over the biennium

49. Health Care Governor’s Health Care Initiative • The Governor is also taking a strong stand with respect to the need for the HUSKY MCOs to open their records to public scrutiny. The Governor is proposing legislation that will require any new, amended, or extended MCO contracts to require the MCO to comply with the State’s FOI laws • $2 million for disease management initiative to improve health outcomes and prevent or manage chronic diseases such as hypertension, obesity, diabetes and asthma. The funding includes $500,000 for the statewide expansion of DPH’s “Easy Breathing” program

50. Health Care Premium Assistance • The Governor will propose legislation to allow DSS to assist HUSKY A clients with enrollment in their employers’ health plans, when available • DSS will do this by developing a “wrap-around” program that will coordinate coverage between Medicaid and the employer-sponsored insurance, assuring no loss of benefits or additional expense for the client • This premium assistance program will reduce Medicaid expenditures by ensuring employers contribute to health care coverage for the employed HUSKY A population, just as they do for their other employees • $4.9 million projected savings in FY09