FISCAL ACCOUNTABILITY OF STATE GOVERNMENT

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FISCAL ACCOUNTABILITYOF STATE GOVERNMENT
Presentation Prepared for the Appropriations
Committee and the Finance, Revenue, and Bonding
Committeeby the Office of Policy and Management
November 18, 2008
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INTRODUCTION
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FINANCIAL SUMMARY OF FUNDS (in Millions)
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PROJECTED BALANCE OF THE GENERAL FUND
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DETERIORATING ECONOMIC CONDITIONS
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CONNECTICUT EMPLOYMENT IS FALLING
Cumulative CT Jobs Lost Since December 2007
Source Moodys Economy.com as of October 27,
2008 and CT Dept. of Labor
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UNEMPLOYMENT RATE IS RISING
Source Moodys Economy.com as of June 25, 2007
and October 27, 2008
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THE HOUSING MARKET CONTINUES TO SLOW

• According to the Warren Group
• Median sale price of a single family home in CT
  is down 7.7 to 277,000 in August 2008 compared
  to August 2007
• Home sales in CT have declined 26.4 during the
  first 8 months of 2008 compared to the same
  period in 2007

Source Moodys Economy.com as of June 25, 2007
and October 27, 2008
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A SERIES OF UNFORTUNATE ECONOMIC EVENTS
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STOCK MARKET DECLINES

• The stock market has fallen further than in 2000
• SP Peak Dates March 24, 2000 and October 9,
  2007

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CAPITAL GAINS WILL DROP
Capital Gains Realizations Reported by CT
Residents and Return on the SP (In Millions)
Note YTD Through 10/24/08 Sources Department of
Revenue Services and Internal Revenue Service
various years
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INCOME TAX GROWTH WILL SLOW
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CT WILL BE HIT HARDER BY A CONTRACTION IN THE
FINANCIAL SECTOR

• Whether measured by employment, output, or
  income, CT is overly dependent on the financial
  sector compared to the nation

Source Bureau of Economic Analysis and Internal
Revenue Service
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PERSONAL INCOME TAX TRENDS
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SALES AND USE TAX
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MAJOR COST DRIVERSLONG TERM
OBLIGATIONSREVENUE EXPENDITURE TRENDS
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WATCH LISTFY2009 AREAS OF CONCERN(In Millions)
General Fund
Special Transportation Fund
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STRUCTURAL HOLES
IMPACT ON FISCAL 2010 - GENERAL FUND (In
Millions)
no statutory mandate to fund in FY2010
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LONG-TERM OBLIGATIONS

• The states long-term obligations total 57.6
  billion, up 6.2 from last years reported amount
  of 54.2 billion
• This equates to approximately 16,626 for every
  man, woman and child in Connecticut, up 1,126
  from last years reported amount of 15,500
• In comparison, total Personal Income Tax
  collections in FY 2009 will only be 7.435
  billion

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DEBT BURDEN COMPARISON
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DEBT SERVICE OF SALES TAX
GENERAL AND TRANSPORTATION FUND DEBT SERVICE
EXPENDITURES
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CONNECTICUTS BOND RATINGCURRENT GENERAL
OBLIGATION BOND RATING
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UNFUNDED PENSIONS TEACHERS RETIREMENT SYSTEM
CONTRIBUTIONS
Millions
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UNFUNDED PENSIONS CONNECTICUT TEACHERS
RETIREMENT SYSTEM
AS OF 6/30
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STATE EMPLOYEES RETIREMENT SYSTEM CONTRIBUTIONS
CONTRIBUTIONS TO THE STATE EMPLOYEES RETIREMENT
SYSTEM
(In Millions)
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UNFUNDED PENSIONS
STATE EMPLOYEES RETIREMENT SYSTEM AS OF 6/30
Note the 2008 certified valuation has not been
issued
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2007 STATE RETIREMENT SYSTEM STATISTICS STATE
EMPLOYEE AND TEACHERS SYSTEM COMBINED
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STATE EMPLOYEES PENSION HEALTH INSURANCE ALL
FUNDS
SERS HEALTH INSURANCE EXPENDITURES As Of 6/30
?
Note Retiree Health includes offsets for the
Medicare Part D Employer Subsidy starting in
FY2007
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GROWTH IN SIGNIFICANT STATE EXPENDITURES
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OTHER POST EMPLOYMENT BENEFITS
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DEPARTMENT OF SOCIAL SERVICES MEDICAID
MEDICAID EXPENDITURES (In Millions)
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DEPARTMENT OF EDUCATION
EDUCATION COST SHARING GRANT (In Millions)
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SUMMARY OF LOCAL AID
ESTIMATED FORMULA GRANTS TO MUNICIPALITIES (In
Millions)
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COST DRIVERS

• OTHER FY2010 FY2011 -BIENNIAL BUDGET ISSUES
• Age of Jurisdiction
• Medicaid Funding
• Pension Issues Revaluation, Pension Obligation
  Bond Requirements
• UConn Health Center
• Health Care Worker Contracts expiration Nursing
  Homes Spring 2009
• Private Provider Increases
• Energy
• State Agency Costs
• Recent Legislation and Block Grant action
• Department of Education-
• Implementation of Sheff v. ONeill incentive
  programs
• Sunset of biennial caps on major education
  grants, like Adult Education and Transportation
• Special Transportation Fund
• Construction Cost Escalation
• Unknown Federal Commitments

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THE BUDGET RESERVE FUNDUSE OF SURPLUS
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BUDGET RESERVE FUND BALANCE
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CONSEQUENCES OF AN INSUFFICIENT BUDGET RESERVE
FUND

• Since the 594.7 million Budget Reserve Fund
  Balance in FY2001 was insufficient the state had
  to undertake numerous draconian measures to
  balance the budget such as
• Deficit financing of 319 million
• Implementation of an Early Retirement Program
• Lay-offs of over 2,500 employees
• Increase the Personal Income Tax rate by 11 from
  4.5 to 5.0
• Increase the Cigarette Tax by 200 from 0.50 to
  1.51 per pack
• Lower the clothing exemption on the sales tax
  from 75 to 50 per item
• Securitized the Energy Conservation and Load
  Management and Clean Energy Funds to raise a
  one-time 194 million
• Closed intake to the Child Care Program
• Limited the continued coverage under Temporary
  Family Assistance
• Reduced reimbursement levels to medical providers

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USE OF GENERAL FUND SURPLUSES
FY1992 to FY2003 3,392.0M
FY2004 to FY2008 3,716.3M
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ECONOMIC AND DEMOGRAPHIC TRENDS
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SIGNIFICANT DEMOGRAPHIC TRENDS
Projections of The Population in
Connecticut (Mid-Year Resident Population In
Thousands)
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DEMOGRAPHIC TRENDS
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HOUSING, MORTGAGES AND CREDIT QUALITY
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ECONOMIC INDICATORS
ASSUMPTIONS USED TO DEVELOP REVENUE ESTIMATES
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FIVE YEAR BOND PROJECTIONS
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PROJECTED GENERAL OBLIGATION BOND ALLOCATIONS
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DISTRIBUTION OF GO BOND FUND ALLOCATIONS
ACTUAL FY2004 FY2008
PROJECTED FY2009 FY2013
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SUMMARY
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SUMMARY

• The state is projected to experience
  unprecedented deficits at the end of 2009-10,
  2010-11 and 2011-12 based on current services
  requests
• The use of one-time revenues to support on-going
  programs and projects adds nearly 500 million to
  these projected deficits.
• The performance of the income tax is
  significantly influenced by events in the
  financial markets which have shown themselves to
  be extremely volatile, thereby increasing the
  uncertainty of this revenue source
• Projections indicate that spending will exceed
  available room under the expenditure cap in
  fiscal years 2009-10, 2010-11 and 2011-12
• Current Services requests for FY2009-10 and
  FY2010-11, and FY2012 Projections indicate that
  spending will exceed available revenue without
  further action
• The budget reserve fund balance is below the
  statutorily required 10 for 2007-08, putting the
  state at risk in the current economic climate
• Debt service will continue to grow and consume a
  significant portion of the budget despite efforts
  to maintain general obligation allocations and
  issuances at the current level
• Estimated State grants to local governments
  increase significantly from FY 2008-09 through FY
  2011-12
• Other significant cost drivers which include
  costs of personnel benefits including
  post-employment benefits, funding required for
  unfunded pension liabilities, and expenditures
  related to the Department of Social Services and
  the Department of Education
• The state faces significant long-term obligations
  including debt, unfunded pension liabilities and
  unfunded post-employment retirement benefits
  which are estimated to exceed 57 billion in total