THE COMPTROLLER'S INITIATIVES FOR 1998
The State Comptroller's Tax Rebate Program
Too often in the past, tax bases and rates have been reduced in response to temporary economic
conditions or expectations of large budget savings that fail to materialize. Consequently, when the
economy turns down, taxes are then increased. Connecticut taxpayers are well aware of the erratic
history of tax relief in this state; years of tax reductions have been followed quickly by years of tax
increases. State Comptroller Nancy Wyman wants to ensure that today's tax cut does not become
tomorrow's tax increase.
Therefore, Comptroller Wyman is proposing legislation that ties tax relief to actual, rather than anticipated, state fiscal performance. The Comptroller's plan requires that a majority of any state surplus be rebated directly to taxpayers. A surplus indicates that the revenue collected by the state was higher than the amount required to provide services to our citizens. The excess revenue came, in large part, from taxpayers and should be returned to taxpayers. Like a successful corporation declaring dividend payments in good financial times, the state would acknowledge the contributions of its shareholders -- the taxpayers -- with a rebate check. To ensure that this commitment to tax relief is permanent, Comptroller Wyman is recommending that it be written into law.
The Comptroller's plan is straightforward. In Fiscal Year 1998, surplus dollars would first go to the state's Budget Reserve (rainy day) Fund to provide a cushion against any unexpected economic downturn. At present, the rainy day fund is $130.2 million short of its statutory target of 5 percent of net General Fund appropriations. Any remaining surplus would be deposited in a new Taxpayer Relief Fund to be used exclusively for rebate payments. In subsequent fiscal years, 90 percent of the surplus would be used for rebates, while the remaining 10 percent would be used to pay down state debt.
General Fund surpluses have been realized in each of the last six fiscal years, totaling $855.5 million. The state is well on its way to a seventh surplus in Fiscal Year 1998. If Comptroller Wyman's plan had been in place during these past years, the surpluses would have been sufficient to fill our rainy day fund, lower our growing state debt and still provide tax rebates of about $100 per year to each state taxpayer.
This system of tax relief is tied directly to the state's actual financial performance. It recognizes the importance of filling our Budget Reserve Fund for that inevitable rainy day and makes a real commitment to paying down the state's growing debt. It is a plan that offers real tax relief, funded with real dollars that can be sustained over time.
GAAP Budgeting and Performance Accountability
Connecticut's state budget is currently prepared and maintained on a modified cash basis of
accounting. This accounting system has allowed the state to consistently overcount the amount of
revenue collected and undercount the dollars expended during a fiscal year. It is a system that
provides a somewhat distorted picture of the state's true fiscal position. In addition, it is a system
that is susceptible to manipulation. By simply delaying the payment of certain bills until the next
fiscal year, total state spending can be lowered.
The state must convert its budgetary accounting system to Generally Accepted Accounting Principles (GAAP). The accounting profession developed GAAP as the standard for fair and accurate reporting of financial data. Businesses use GAAP because they need an accurate representation of receipts and spending to determine what products and services are most profitable in a given year. The state should bring this same disciplined approach to its financial management. It is extremely difficult -- if not impossible -- to determine the success of state-provided services without an accurate accounting of how much those services cost. Connecticut uses the motto: "the state that thinks like a business." It is time for Connecticut to keep its books like a business. Of the 28 states the Comptroller's Office surveyed, Connecticut was found to use the least conservative approach to budgetary accounting .
Under the provisions of Connecticut General Statutes, Section 3-115b, GAAP budgeting was scheduled for implementation during the 1997-99 biennium. During the 1997 legislative session, the administration attempted to repeal this section of law, thus eliminating any present or future conversion to GAAP. Comptroller Wyman vigorously fought the repeal of GAAP and was successful in negotiating a compromise that will implement GAAP budgeting in Fiscal Year 2000.
The conversion to GAAP in Fiscal Year 2000 also offers the state an opportunity to implement real performance measurements for its program expenditures. For the first time, GAAP will provide policy makers with accurate financial figures on the state's programs. Comptroller Wyman believes that it is important to use this opportunity to match finances to program outcomes. Over the past year, the Comptroller has been working with some key state agencies and the accounting firm of Deloitte & Touche to examine the potential for enhancing the evaluation of state program performance in conjunction with the conversion to GAAP. Deloitte has concluded that even if the state saved just one half of one percent on its annual expenditures through improved financial reporting and performance measurement -- a goal that is certainly attainable -- the yearly savings would be $50 million.
Alternative proposals for GAAP conversion and the implementation of performance budgeting are being reviewed as of this writing. Comptroller Wyman has a firm commitment to honest budgeting that enhances program accountability. Over the coming year, the Comptroller will be working to make her vision of improved financial management a reality.
Health Insurance Issues: Advocating for Connecticut's Families
Wyman v. Anthem Blue Cross and Blue Shield: In November 1997, Comptroller Wyman filed a class action lawsuit on behalf of approximately 900,000 Connecticut residents insured by Blue Cross & Blue Shield of Connecticut, which last summer merged with Anthem Insurance Company of Indiana. The lawsuit, pending in Hartford Superior Court, seeks to force the company to keep its $270 million surplus in Connecticut instead of sending it to corporate headquarters in Indiana.
The lawsuit alleges that Blue Cross & Blue Shield accumulated the surplus through decades of tax breaks and other preferential treatment, and should return it to Connecticut policyholders through a cash payment, a reduction in premium rates or the establishment of a fund to benefit those policyholders. State Comptroller Nancy Wyman filed the lawsuit to ensure that residents insured by the company are treated fairly and receive the vigorous representation they may not be able to afford themselves.
Health Care Coverage for the Uninsured: In response to the growing problem of the uninsured, Comptroller Wyman convened the Work Group for Health Care Access to recommend possible solutions. The Work Group had a diverse membership that included state legislators and legislative staff, the State Comptroller, representatives of Connecticut hospitals, physicians, health maintenance organizations, insurance companies, the business community, and advocates for the uninsured. One of the Work Group's consensus recommendations was to expand Medicaid to cover as many of Connecticut's uninsured children as possible. Another was to enhance outreach efforts to reach the estimated 37,000 uninsured children who are currently eligible but not enrolled in the Medicaid program. During the 1997 legislative session, a modest Medicaid expansion was enacted, making the program available to an additional 8,600 children.
The Federal Balanced Budget Act of 1997 included new funding for health coverage under the State Children's Health Insurance Program. Connecticut used this opportunity to create a new health insurance program called the HUSKY Plan -- Healthcare for UninSured Kids and Youth -- which was passed during an October 1997 Special Legislative Session and signed into law by the Governor. The program will be financed with state dollars (35 percent) and enhanced Federal matching funds (65 percent).
For policy reasons -- including a more comprehensive benefit package, existing quality assurance mechanisms and a more seamless system of coverage -- Comptroller Wyman would have preferred a Medicaid expansion to the creation of a new program for a relatively small number of children. (1) However, the HUSKY program did incorporate the major elements of the Work Group's original proposal and it represents a significant step toward the Comptroller's ultimate vision: that every child in Connecticut have regular access to high quality, affordable health care.
As HUSKY is implemented, it will be important to monitor and evaluate the program's performance on an ongoing basis. This will help ensure that taxpayer dollars are being spent wisely and that the children covered by HUSKY get the quality care they both need and deserve. In addition, despite this positive development for Connecticut's uninsured children, serious problems persist. The economic expansion has not reduced the number of uninsured adults in Connecticut; in fact, the number continues to grow. Therefore, Comptroller Wyman will seek new opportunities to provide affordable health insurance coverage for Connecticut's uninsured adult population.