2015 budget recap - it could have been worse

 

The 2015 legislative session is over, and there is a lot to discuss. There were quite a few good bills passed, some good bills that fell short, and a budget that is not what we were hoping for, but that could have been much worse. Let´s have a quick look.
 

1. The budget: a general overview
The budget was late this year. So late, in fact, that it only got approved in the Senate half an hour before the official end of the session, meaning that many good bills never got a vote.
 
The final budget was the result of a compromise between the initial Governor´s proposal that included more cuts and the Finance and Appropriations Committee versions that included more revenue. As you might expect, the approved budget ended somewhat halfway between both.
 
Revenue:
 
Yes, the budget raises taxes. Quite a few of them, in fact; most of them fairly progressive, and with close to no effect on low-income families or the middle-class.
 
  • A more progressive income tax: the budget creates two new tax brackets, one for families making more than $500,000, one for families making over a million - roughly, 2% of taxpayers. This raises $151 million.
  • Data processing tax: data processing services paid a 1% tax in Connecticut, thanks to an exemption.  The budget raises it to 2% in FY16, for $40 million of revenue, and 3% in FY17.
  • Tax expenditures: things like internet services, car washes or motor vehicle parking are no longer tax exempt ($60 million)
  • Cigarette tax:  25 cents more a pack, raising $25 million.
  • Unitary/combined reporting: many companies that operate in more than one state declare that their earnings and profits happened outside Connecticut to avoid paying corporate taxes. Combined reporting is an accounting requirement used by every other state in the Northeast to prevent that from happening. It will raise $39 million.
The one tax change that it is somewhat middle-class unfriendly is the reduction of the  property tax credit from $300 to $200. Although it does affect the middle class, the budget includes a significant amount of property tax relief in other places - and for most, that tax cut will amount to more than $100.
 
All in all, the budget has $821 million in new revenue, with the rest of the money coming from delayed tax cuts to business and hospitals. A significant amount of the new revenue, however, will not go to the General Fund - the budget includes $159 million inproperty tax relief (more on that in a second) and $159 in new spending (in theory) for the Governor´s transportation fund.
 
One final note: despite all the chatter saying otherwise, Connecticut´s business´taxes are still very low compared to the rest of the country.
 
Spending:
 
What are we going to be paying for with this new revenue? Well, quite a few programs that were going to be completely eliminated or severely cut in the Governor´s initial proposal were fully or partially restored. Although there are still quite a few cuts (a lot of programs are either flat-funded or facing 5-10% reductions), the budget preserves many crucial services. The most important are:
  •  HUSKY A: pregnant women will not lose coverage. Regarding parents, eligibility will be reduced from families below 201% of the Federal Poverty Line to 155%. Significant, but much better than the initial cut to 138%.
  • Behavioral Services: the budget restores most of the cuts.
  • Higher Education: many of the cuts are reversed. Remedial education funding saw its cut reduced from $13 million to $4 million, retaining $19 million in the budget.
  • Medicaid rates: rates to Medicaid providers are cut $10 million, instead the $43 million originally proposed.
 
We are still compiling information on all the cuts, but the bulk of social programs fared fairly well. It is not a great budget, and some of the service reductions are going to be painful, but it is better than the Governor´s original proposed budget.
 

2. The good: 
Early childhood, education, housing and tax reform
 

The session ended with some very positive changes, with several good programs and policies passing the legislature, and some key programs being protected. Let´s go over the highlights:

Early Childhood

  • Many valuable programs that were under threat remain funded, albeit with some cuts: Community Plans, Early Literacy, Help Me Grow and Parent Trust Fund.
  • The early childhood teaching qualification mandate was delayed for two years, and the Office of Early Childhood will be preparing a plan to achieve the qualification goals.
  • Restrictions were passed on out-of-school suspensions and expulsions for students in grades between preschool and two.

Education

  • School absenteeism: the legislature passed legislation requiring districts to compile information about absenteeism rates and plans to address it. The Department of Education will also draft plans in this area.

Housing

  • Additional funding for support services and rental subsidies for re-entry programs ($1.9 million)
  • Additional funding for services for the homeless, including youth, wraparound services and veterans.

More information on housing here.

Health

  • Coverage for low-income pregnant women under HUSKY A was restored.

Tax reform:

The budget includes some significant changes to the municipal aid and property tax systems.

  • The formula used to distribute PILOT funding (state aid to compensate towns with non-taxable property owned by non-profits, colleges and hospitals) was revamped, providing more funding to the poorest cities in the state.
  • Car property taxes were capped at 32 mills in FY2017 (29.36 after), bringing significant tax cuts to many cities and towns. The state will use 0.5% of the sales tax revenue to compensate municipalities that lose revenue with this cap.

The one missing piece for S.B.1 that was weakened significantly was the commercial property tax revenue sharing; all towns in a region will have to approve it in order to go into effect, and only 20% of the new revenue will be shared.  You can find a full list of the new funding for each town, as well as the tax saving from the car tax cap, here and here.

In addition, the legislature approved some welcome changes to how it manages its rainy day fund (following the work from our partners at CT Voices for Children). You can find more information here and here.

Also, slightly unrelated, the legislature´s 20-year long fight around bow-hunting is finally over.

3. The bad: 
Two generation strategies, budget cuts

Two Generation Strategies

  • The bill passed the Senate with broad bipartisan support, was amended and passed the House, went back to the Senate... and missed the deadline for passage after the budget was filibustered.  The budget has funding for this program, so CAHS and other two-gen advocates will work with legislators to include it as part of the implementer bill during the upcoming special session.

Early Childhood

  • Early Care Wages: Despite the deadline for higher preschool teacher qualifications being pushed back two years, the low wages associated with early care remains an issue.  If teacher salaries are not addressed in conjunction with the higher qualifications, there remains the possibility of a continued shortage of qualified early care providers in state funded programs.

Health

  • Medicaid reimbursement rates for providers were decreased. There is a possibility that some providers might stop accepting Medicaid patients, weakening the program.
  • The income limit for parents under HUSKY A was cut from 201% of the Federal Poverty Line to 155%. This means that more than 23,000 parents will have to purchase insurance through Health Access CT, having to pay premium and face deductibles.
Cuts upon cuts:
 
  • Although many programs were preserved with small cuts, it is important to remember that many of these cuts come after years of level funding. The amount of money Connecticut spends on many crucial programs has been steadily shrinking for almost a decade, with no end to the cuts in sight. This budget is not as bad as we feared, but we need to keep in mind that we are not really keeping up with the needs of low income families in the state - on the contrary, we are allowing the safety net to erode, slowly and steadily.

4. The ugly: it is not over yet!

As mentioned above, the legislature´s job is not over yet. As the budget was approved so late, the implementer, the piece of legislation that includes all the details on how the money will be spent (as well as some additional bits and pieces that did not make it as a bill on time) did not get a vote.

This means we are facing a special session, with more budget discussions, before the end of the month. On the agenda we will likely see the implementer, the Governor´s Second Chance Society initiative and some talk to tweak the revenue package of the budget.

If we look beyond the next two years, it looks like the state will again be facing deficits in 2017. We will leave the ongoing fiscal crisis that the state faces and its sources, however, for another e-mail.

One final note: 

It would be a good idea to reach out to your legislators and thank them for their work on the budget. They made some hard decisions and tough choices, including a tax increase that has proven controversial.

The same way we have been hounding them to reverse the cuts for the past few weeks, it is time to call or e-mail them and support their work, and remind them that Connecticut business taxes are actually fairly low by US standards.

5. What´s next?
 

The implementer fight, and maybe yet another round of tax and revenue talks in the upcoming special session. Stay tuned!

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