OFFICE OF FISCAL ANALYSIS

Legislative Office Building, Room 5200

Hartford, CT 06106 ↓ (860) 240-0200

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EMERGENCY CERTIFICATION

HB-7001

AN ACT CONCERNING DEFICIT MITIGATION FOR THE FISCAL YEAR ENDING JUNE 30, 2013.

OFA Fiscal Note

State Impact: See Below

Municipal Impact: See Below

Explanation

Summary:

The bill makes expenditure modifications of $221. 5 million and revenue adjustments of $4. 2 million to the FY 13 Revised Budget totaling $225. 7 million. In addition to the changes in the bill, other revenue adjustments to be achieved administratively totaling $26. 6 million are anticipated, which together total $252. 3 million.

Based on a $251. 6 million deficit level¹ that was jointly projected by OFA and OPM on December 10, 2012, the impact of the bill and the administrative adjustments effectively eliminates the projected deficit for FY 13 and leaves a balance of $0. 7 million.

The bill does not affect the spending cap level for FY 13² as it does not alter FY 13 appropriations, but rather provides the authority to adjust expenditures under various accounts.

Further Explanation:

The table below identifies the $221. 5 million in General Fund expenditure reductions and $30. 8 million in increased General Fund revenue.

Summary of the FY 13 General Fund (GF) Fiscal Impact

(in millions)

Section(s)	Items	Expenditure Savings/Revenue Gain $
1 & 38	GF Expenditure Reductions1	221. 5
1	Revenue Loss due to Expenditure Reductions2	(54. 6)
16-19	Industry Funded Agencies Fund Transfers	4. 5
27-30, 43	Non-Appropriated Fund Transfers	15. 8
39 & 40	Convert Stem Cell to Bond Funds	10. 0
15	Reduce Regional Performance Incentive Grant	7. 5
20 & 21	Close Out Boating and Fuel Oil Conservation Accounts	4. 7
23	Reduce Transfer from the GF to the STF3	7. 4
41 & 42	Revise Insurance Premium Tax Credit	8. 3
24	DCF Enhanced Revenue - Admin Costs	0. 6
	Sub-Total Bill Impact	225. 7
(not in Bill)	Revenue Adjustments - Post Consensus4	26. 6
	Total Reduction to the General Fund Deficit	252. 3

¹ This includes $210. 5 million in the GF expenditure reductions included in Section 1 and $11. 0 million expenditure reductions included in Section 38.

² The bill contains $109. 2 million in expenditure reductions which yield a revenue loss of $54. 6 million.

³ There is $7. 4 million in expenditure reductions in the Special Transportation Fund that results in a GF revenue gain due to the change in the transfer in section 23.

⁴ $26. 6 million of revenue that occurred after November 9, 2012 consensus revenue is anticipated in FY 13, of which: 1) $12. 1 million is due to the Department of Developmental Services efforts to maximize federal reimbursement under Medicaid; 2) $5. 0 million in anticipated FEMA reimbursements from declared disasters; and 3) $9. 5 million in Fraud Detection at DRS.

Below is a section by section explanation of the fiscal impact of the bill.

Section 1 allows the Office of Policy and Management to make allotment reductions in FY 13 to the specific accounts listed totaling $210. 5 million in the General Fund and $7. 4 million in the Transportation Fund.

Section 2 requires the Connecticut Agricultural Experiment Station (CAES), within available appropriations, to conduct surveillance and testing for the existence of mosquitos carrying certain diseases. Section 1 of the bill reduces funding of $78,209 to CAES for this purpose in FY 13.

Section 3 requires the Department of Social Services (DSS) to establish prior authorization procedures for physical, occupational, and speech therapy services. The adjustments in Section 1 assume that these procedures will reduce Medicaid expenditures by $100,000 by June 30, 2013. This would result in a reduction in federal revenue of $50,000.

Sections 4 through 7 specify that utilization may be a factor in determining cost neutrality for certain Medicaid rates. This change allows DSS to realize savings of $29. 0 million that are assumed in the Medicaid adjustments in Section 1. This would result in a reduction in federal revenue of $14. 5 million.

Section 8 requires DSS to prior authorize the issuance of customized wheelchairs under the Medicaid program. It also requires DSS to utilize refurbished wheelchairs, parts and components whenever practicable. The adjustments in Section 1 assume that these procedures will reduce Medicaid expenditures by $1. 25 million by June 30, 2013. This would result in a reduction in federal revenue of $625,000.

Section 9 reduces the rate paid for hospice services for residents of long-term care facilities to 95% of the facility's per diem rate. The adjustments in Section 1 assume that this change will reduce Medicaid expenditures by $500,000 by June 30, 2013. This would result in a reduction in federal revenue of $250,000.

Section 9 also limits chiropractic services available under the Medicaid program to only those services required by federal law. The adjustments in Section 1 assume that this change will reduce Medicaid expenditures by $30,000 by June 30, 2013. This would result in a reduction in federal revenue of $15,000.

Section 10 requires Federally Qualified Health Centers (FQHC) to meet certain filing deadlines, resulting in more timely data for accurate rate setting. The adjustments in Section 1 assume that this change will reduce Medicaid expenditures by $150,000 by June 30, 2013. This would result in a reduction in federal revenue of $75,000.

Sections 11 - 13 conform statute to existing practice by requiring towns to pay tuition for pre-k students attending Sheff Region magnet schools. It is estimated that $4. 5 million in tuition charges are applicable to these students in the fiscal year ending June 30, 2013. A recent administrative hearing ruled that local and regional school districts were under no obligation to pay tuition costs for pre-k magnet school students. Additionally, state law provides no specific authority for the state to pay these costs, however the State Board of Education recently made a commitment to pick up the costs.

A reduction of $2. 0 million in Magnet Schools is included in Section 1. In addition, a $5. 0 million lapse was assumed in OFA's FY 13 projections in November, therefore it is anticipated that $7. 0 million will remain unspent in the Magnet School account.

Section 14 credits $236,117, appropriated to the Office of Higher Education, for the Capitol Scholarship Program, for the fiscal year ending June 30, 2013 to the General Fund rather than retaining such funds in the Office of Higher Education until the end of the fiscal year. This account has statutory non-lapsing provisions included in CGS 4-89(f). These savings are included in Section 1.

Section 15 transfers $7. 5 million from the Regional Performance Incentive account to the resources of the General Fund. This reduces the available balance, as of November 30, from $11. 3 million to $3. 8 million.

Sections 16 - 19 transfers a total of $4. 45 million from various funds identified below to the General Fund. This will result in a revenue gain to the General Fund in FY 13 and a corresponding reduction in available resources in the below funds.

Fund	Amount $	Section of Bill
Banking Fund	1,200,000	16
Workers' Compensation Administration Fund	450,000	17
Consumer Counsel and Public Utility Control Fund	2,300,000	18
Insurance Fund	500,000	19
Total	4,450,000

Section 20 transfers the balance remaining in the boating account, estimated to be $2,260,000, and credits this to the General Fund for the fiscal year ending June 30, 2013.  

Section 21 transfers the remaining balance of the Fuel Oil Conservation account to the General Fund.   The amount to be transferred is $2,440,000.

Section 22 reduces the dispensing fee for all pharmacies from $2. 00 to $1. 70 and reduces the average wholesale price (AWP) paid to independent pharmacies from AWP minus 14% to AWP minus 15%. The adjustments in Section 1 assume that this change will reduce Medicaid expenditures by approximately $600,000 by June 30, 2013. This would result in a reduction in federal revenue of $300,000.

Section 23 reduces the General Fund transfer to the Special Transportation Fund for FY 13 by $7. 4 million. This results in a revenue gain to the General Fund (GF) and a commensurate revenue loss to the Special Transportation Fund (STF). The decrease in the transfer from approximately $102. 7 million to $95. 2 million results from a reduction in expenditures as a result of the bill from the Department of Transportation in the following accounts: 1) Equipment ($489,061), 2) Pay-As-You-Go ($3. 0 million), 3) Minor Capital Projects ($60,361), 4) Highway and Bridge Renewal Equipment ($1. 6 million), 5) Personal Services ($337,090) and 6) elimination of the Transit Improvement Program ($1. 9 million).

Section 24 will result in $625,000 in additional General Fund revenue. This section eliminates the ninety day limitation on the temporary placement of a child with (1) a relative who is not licensed by the Department of Children and Families (DCF), (2) with a nonrelative who is related to the sibling of the child being placed as long as the child's sibling is also placed with that individual and (3) with a special study foster parent. ³ The elimination of this restriction will enable DCF to obtain $625,000 in additional Title IV-E reimbursement in FY 13 and $2. 5 million annualized in the out years.

DCF receives Title IV-E reimbursement from the federal government for applicable child welfare expenses. DCF could also receive Title IV-E reimbursement for administrative costs associated with relative placements if (1) the period of time that it takes DCF to complete relative placements does not exceed the period of time that it takes DCF to complete non-relative placements and (2) DCF adheres to its own policies and relevant state statutes. Currently, the agency is meeting the time period requirement for placement completion⁴ but it is not meeting limitations on temporary placements pursuant to state statute.

Sections 25 and 26 allow stretcher vans to provide non-emergency medical transportation for individuals who are medically stable and do not require medical attention but must lie flat during transport. The adjustments in Section 1 assume that this change will reduce Medicaid expenditures by $400,000 by June 30, 2013. This would result in a reduction in federal revenue of $200,000.

Section 27 transfers $4. 7 million from the non-appropriated School Bus Safety Belt account to the General Fund for the fiscal year ending June 30, 2013.

Section 28 reduces the maximum amount deposited into the Municipal Video Competition Trust account in FY 13 from $5. 0 million to $1. 5 million, resulting in a General Fund revenue gain of $3. 5 million.

Section 29 transfers $3. 6 million from the non-appropriated Public, Education, Government Programming and Education Technology Investment Account to the General Fund. This will result in a revenue gain to the General Fund in FY 13 and a corresponding reduction in available resources in the Public, Education, Government Programming and Education Technology Investment Account.  

Section 30 results in a $2. 0 million General Fund revenue gain by transferring this amount from the Biomedical Research Trust Fund to the General Fund in FY 13. It is anticipated that the balance of the Biomedical Research Trust Fund at the end of the fiscal year will be approximately $9. 2 million following this transfer, the annual Tobacco Settlement Fund deposit of $4. 0 million, grant expenditures, and total projected interest payments of $9,775. It should be noted that by reducing the balance of this Fund the total amount of grants-in-aid made during the fiscal year will also be reduced. Pursuant to CGS Sec. 19a-32c, the total amount of Biomedical Research Trust Fund grants-in-aid made during the fiscal year by the Department of Public Health shall not exceed 50% of the total amount held in the trust fund as of the date such grants-in-aid are approved.

Section 31 results in a savings to the State Department of Education of approximately $2. 0 million by reducing the per student grant to charter schools from $10,500 to $10,200 for the fiscal year ending June 30, 2013. The savings is included in Section 1.

Sections 32 - 37 eliminate longevity payments for certain non-union employees on or after April 1, 2013.   The dollar amount of the annual longevity payment will be included in the employee's annual salary base effective July 1, 2013.

In FY 13, these provisions may result in a minimal savings as certain non-union employees who retire between April 1, 2013 and June 30, 2013 will not receive a pro-rated longevity payment as part of their retirement from state service.

In FY 14, there are no savings associated with the elimination of these longevity payments as the annual longevity amount will be included in the employee's annual salary base.

There will be costs in the outyears as the accrued leave payouts (i. e. unused vacation and/or sick accruals) will be calculated using a higher annual salary base. Currently, longevity amounts are not included in accrued leave payout calculations. The elimination of the prorated longevity payment for retiring employees will mitigate some of this cost.

Section 38 reduces by $2. 0 million the available funds in the Statewide Marketing line item of the Department of Economic and Community Development, and credits these funds to the balance of the General Fund in order to help reduce the projected General Fund deficit. The savings are included in Section 1.

Section 39 allows the Secretary of OPM to recommend the following reductions: 1) $4. 0 million to the executive branch (of which $1. 5 million is for Personal Services), 2) $2. 0 million to the legislative branch, and 3) $5. 0 million to the Judicial Department.

Section 40 results in a $10. 0 million General Fund revenue gain by preventing the disbursement of $10. 0 million from the Tobacco Settlement Fund (TSF) to the Stem Cell Research Fund and, instead, requiring that amount to be disbursed from the TSF to the General Fund. Section 40 authorizes $10. 0 million in General Obligation (GO) bonds for the Stem Cell Research Fund. See the write-up below for additional detail.

Section 41 authorizes $10. 0 million in General Obligation (GO) bonds for the Stem Cell Research Fund. The authorization is effective January 1, 2013 and the fiscal impact to the General Fund is summarized in the table below.

Fiscal Year	Authorization Amount $	General Fund Debt Service Cost over 20 Years1 (in millions)
		Total $	Interest $	Principal $
FY 13	10. 0	15. 3	5. 3	10. 0

¹The figures assume that the GO bonds are issued at 5. 0% for a term of 20 years.

There is no General Fund impact associated with the bonds in FY 13. Assuming that: 1) the authorization is allocated through the State Bond Commission and expended during FY 13 and 2) the bonds are issued in the spring of 2013, the debt service costs in FY 14, FY 15 and FY 16 are summarized in the table below.

Fiscal Year	General Fund Debt Service Cost1 (in millions)
	Total $	Interest $	Principal $
FY 14	1. 00	0. 50	0. 50
FY 15	0. 98	0. 48	0. 50
FY 16	0. 93	0. 43	0. 50

¹The figures assume that: 1) the authorization is allocated and expended and 2) the bonds are issued in FY 13.

Sections 42 and 43 reduce, from 55% to 30%, the maximum amount by which an insurer can reduce its insurance premium tax liability in 2012 through the use of the Film Production and Film Production Infrastructure tax credits. This results in an estimated revenue gain of $8. 3 million in FY 13.

Section 43 clarifies that there will be no penalty for underpaying 2011 estimated payments to the extent that the provisions of Section 42 are the cause for that underpayment.

Section 44 transfers $2. 0 million from the non-appropriated Community Investment Account and credits this to the General Fund for the fiscal year ending June 30, 2013.

Section 45 which requires the State Board of Education (SBE), upon the request of the board of education of Newtown, to shorten the school year ending June 30, 2013 results in no fiscal impact as the granting of such requests by the SBE is already allowable under current statute.

Section 46 directs the Health Care Cost Containment Committee, in consultation with the Comptroller, to review prescription claims data for the state employee and retiree health insurance plans and to increase the use of generic prescriptions in accordance with the SEBAC agreement. Section 1 reflects the savings of $6. 6 million in the state employee health service cost account from increasing the utilization of generic prescriptions. The FY 11 total gross pharmacy cost for the state employee and retiree health insurance plans was $415 million.

Section 47 is permissive. It allows towns to use Local Capital Improvement Program (LoCIP) grant-in-aid funds for security system improvements in buildings, including schools. The provision has no fiscal impact on the General Fund because it does not authorize additional General Obligation (GO) bonds for LoCIP.

LoCIP grants-in-aid are distributed according to the statutory formula in CGS 7-536(c). There is currently $32. 5 million in unallocated LoCIP funds available in FY 13.

Section 48 makes changes to CGS Sec. 46b-140 by strengthening DCF's role in the decision of a trail judge to place a child into an out-of-state residential facility upon conviction of the child as delinquent. It is anticipated that by increasing DCF's authority in this process that there will be an associated decrease in out-of-state placements made by the courts upon implementation of the new statutory language. It is unknown how many court direct placements have occurred in the past and, as such, it is unknown to what extent out-of-state residential costs will be avoided in the future.

As of the first quarter of FY 13 (July 2012 through September 2012), the per day cost for out-of-state residential facilities averaged $382 with an average length of stay of 619 days ($236,458 total per child). During this same period of time, per day cost for in-state residential facilities averaged $447 with an average length of stay of 280 days ($125,160 total per child). As such the net savings to the state from an in-state placement as compared to an out-of-state placement is $111,298 per child.

Out Years

Out year impacts have been identified above for the following: 1) Debt Service; 2) DCF Title IV-E enhanced revenue; and 3) Longevity provisions.

The preceding Fiscal Impact statement is prepared for the benefit of the members of the General Assembly, solely for the purposes of information, summarization and explanation and does not represent the intent of the General Assembly or either chamber thereof for any purpose. In general, fiscal impacts are based upon a variety of informational sources, including the analyst's professional knowledge. Whenever applicable, agency data is consulted as part of the analysis, however final products do not necessarily reflect an assessment from any specific department.