STATE OF CONNECTICUT
NANCY WYMAN COMPTROLLER	OFFICE OF THE STATE COMPTROLLER 55 ELM STREET HARTFORD, CONNECTICUT 06106-1775	MARK OJAKIAN DEPUTY COMPTROLLER

Hartford, CT - State Comptroller Nancy Wyman today announced her plan to address the state budget deficit without state employee layoffs. Wyman's proposal effectively balances necessary budget reductions and revenue enhancements without creating a disproportionate burden or impact in any one area.

"I believe in the ability of the people of the state of Connecticut to understand the fiscal problems facing our state", Wyman said. "I also believe in their willingness to be part of the solution."

The Wyman plan addresses a projected a Fiscal Year 2004 deficit of $1 billion. This projection is based on revenues and expenditures following historical growth trends observed during periods of moderate economic growth. The plan also mitigates the Fiscal Year 2003 deficit.

"To eliminate a deficit of this size will require shared sacrifice", Wyman said. "Changes are necessary in both spending and revenues which can be achieved without negatively impacting the lives of 3,000 state employees and their families."

This proposal is weighted toward spending reductions totaling $560 million and revenue enhancements totaling $440 million.

"This proposal should serve as a discussion piece for all parties and, it is my hope, that it will accelerate progress toward a resolution. As always, I put the resources of my staff at the disposal of the Governor, the Legislature and the State Employee Unions as they take up this difficult task," Wyman said.

THE COMPTROLLER'S COMPREHENSIVE PLAN
TO BALANCE THE BUDGET WITHOUT LAYOFFS

I am presently projecting a Fiscal Year 2004 deficit of $1 billion. This projection is based on revenues and expenditures following historical growth trends observed during periods of moderate economic growth. The estimate further assumes that no Fiscal Year 2003 deficit is brought forward to Fiscal Year 2004. My plan provides for the elimination of the Fiscal Year 2003 deficit.

To eliminate a deficit of this size will require shared sacrifice. Changes are necessary in both spending and revenues. This proposal is weighted toward spending reductions. Spending reductions total $560 million; revenue enhancements total $440 million.

BALANCING THE FISCAL YEAR 2004 BUDGET

The $560 million in spending reductions are as follows:

• $40 million in a lower state contribution to the State Employees Retirement Fund.

It is estimated that restarting the amortization period for the State Employees Retirement System would save $40 million annually.

• $100 million in forced savings from a 2% across-the-board cut in non-fixed costs.

All agencies should be required to recalculate their Fiscal Year 2004 budget submissions to force a 2% cut in agency non-fixed cost spending. It is estimated that approximately $5 billion of Fiscal Year 2004 spending would fall into the non-fixed cost category.

** The following two items are the mandatory subjects of collective bargaining:

• $120 million in state employee concessions.

There are many alternatives that could be implemented to achieve this level of savings. All of the alternatives are mandatory subjects of bargaining. Therefore, details are not provided for this item. However, the level of savings requested is attainable if all parties bargain in good faith.

• $300 million in early retirement savings.

In order to achieve payroll savings of this magnitude, the retirement incentive must be applied to a large number of employees and be attractive enough to achieve a high participation rate. This plan calls for 5 years to be added to an employee's age or service in the State Employees Retirement System (often referred to as a 5-chip plan). It is estimated that 15,000 employees would be eligible. It is further assumed that 6,000 General Fund employees will participate for a General Fund gross savings of $452 million. In order to save $300 million in Fiscal Year 2004, the refill rate must be no greater than 1 in 4. Over $65 million of the gross savings is reserved for overtime, extensions, and temporary employment that will be required to make this transition to a smaller workforce possible. It should be noted that accrued time would be paid in three installments beginning in Fiscal Year 2005.

The $440 million in revenue enhancements are as follows:

• $19 million from a 50% increase in the alcoholic beverage tax.

This tax would be increased by 50% effective January 1, 2003. Other states have implemented or are considering similar increases.

• $57.9 million by closing corporate tax loopholes.

Corporation taxes a decade ago accounted for over 10% of total General Fund revenue. Today that figure has fallen below 5%. There is no doubt that corporation taxes were too high a decade ago, but it is time to reevaluate how some of the tax reductions were directed. This proposal seeks to end certain preferential treatment by eliminating combined reporting and the dividend exclusion from the corporation tax.

• $62 million by retaining the federal credit on the estate tax.

This tax allowed the state to keep revenue that would otherwise pass through to the federal government. The tax allowed the state to retain the maximum credit amount allowed under federal law. Decoupling the state's estate tax from the federal tax would retain $62 million in revenue. Twelve other states have already taken this action. A similar change was made in the last legislative session to decouple from the Federal Corporation Tax depreciation schedule.

• $66.1 million from increasing the cigarette tax from $1.11 to $1.50.

The negative health impact and high state medical costs associated with cigarette smoking are well established. Raising the tax to $1.50 effective January 1, 2003 is good public policy. Other states have either implemented or are considering similar tax rates.

• $235 million from a millionaire and multi-millionaire tax.

The income tax rate for income of $1 million or more but less than $2 million would increase effective January 1, 2003 from 4.5% to 5.5%. For income of $2 million or more the rate would increase to 6%. It should be noted that with a top rate of 6%, Connecticut's rate would still be below that of New York, New Jersey, and Maine.

By implementing the revenue changes detailed above on January 1, 2003, the Fiscal Year 2003 deficit would fall from $415 million to $248 million. This remaining deficit could be financed by securitizing a portion of the Tobacco Settlement Fund proceeds or through short term borrowing.

The State Comptroller appreciates input on this and other issues from residents of the state. Please feel free to contact her office by phone - (860) 702-3300; mail - OSC, 55 Elm Street, Hartford, CT 06106; or, via E-mail - osc.opinions@po.state.ct.us

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