16th Annual Budget Forum. Building a Budget for Connecticut's Future

Transcription

1 16th Annual Budget Forum Building a Budget for Connecticut's Future

2 Fiscal Overview State of the economy as it relates to children and families Investments in children General fund and revenue trends Looking forward

3 Investments Contribute to Quality of Life 9 th lowest child poverty rate 6 th lowest poverty rate 6 th highest median household income 5 th highest share of individuals with bachelor s degrees 3 rd most productive workforce #1 rated human development index American Community Survey, CERC, Measure of America

4 Disparities Remain By Race 30% 25% 20% 15% 10% 5% 0% 25% 21% 15% 9% 6% 3% White Black Latino Poverty (CT =10.5%) Uninsured (6%) CT Voices analysis of census data

5 Disparities Remain By Place 40% 28.3% 31.5% 30% 20.6% 26.8% 27.3% 20% 10% 10.5% 14.1% 10.0% 9.3% 0% CT Voices analysis of census data

6 Share of General Fund Spent on Children Reaches New Low 34% Children s Budget 32% 30% 32.8% 29.5% 28% 26% CT Voices budget analysis

7 $3,500 $3,000 $2,500 $2,000 $1,500 $1,000 $500 Children s Budget Cut by $0 $82.1 Million Spending on children, FY16 and FY17 (millions) 5.2% cut 1.4% cut K-12 Early Care and Ed CT Voices budget analysis 1.4% cut Higher Ed 0.01% cut Health and Human Services

8 Top 10 Cuts to the Children s Budget, FY16 FY17 Category Program Amount Cut K-12 Transportation of School Children -$22,336,353 K-12 Education Equalization Grants -$15,666,899 Higher-Ed Connecticut State University -$13,454,053 Higher-Ed University of Connecticut -$9,747,484 Human Services Juvenile Alternative Incarceration -$7,125,349 ECE Birth to Three/Early Intervention -$6,984,070 K-12 Magnet Schools -$5,665,134 Higher-Ed Office of Higher Education -$5,508,226 Human Services Personal Services (DCF) -$4,762,828 K-12 Excess Cost - Student Based -$4,287,828

9 Spending on Children Shrinking as a Share of the Economy 3.0% Spending on children as a share of personal income 2.8% 2.6% 2.6% 2.4% 2.2% % CT Voices budget analysis. BEA Total Personal Income, based on OPM estimates.

10 Modest General Fund Spending as a Share of the Economy General Fund spending as a share of personal income 10.0% 9.0% 8.0% 7.0% 6.0% 5.0% 8.7% 8.2% 8.0% General Fund with Federal Medicaid Share CT Voices budget analysis. BEA Total Personal Income, based on OPM

11 Major Revenue Sources Stagnant as a Share of the Economy Taxes as a share of personal income, % 3.34% 3.40% 3.0% 2.0% 1.73% 1.70% 1.0% 0.0% 0.30% 0.29% Personal Income Tax Corporate Income Tax Sales Tax CT Voices budget analysis. BEA Total Personal Income, based on OPM estimates

12 Fiscal Challenges Ahead $3 billion biennial budget deficit $1.4 billion in $1.6 billion in

13 A Balanced Approach

14 Address Budget Shortfalls and Build a Stable Revenue System Modernize Outdated Sales Tax Could lower rate and still raise $1.18 billion Strengthen Corporate Income Tax Address growth in business tax breaks and sophisticated avoidance strategies Reform Wealth and Income Taxes A half-percentage point increase on top one percent could raise $238 million

15 16th Annual Budget Forum Building a Budget for Connecticut's Future

16 Equal Funding for Equal Effort A Model Reforming Property Tax Funding for Local Education in Connecticut Ray Noonan Connecticut Voices for Children

17 Education Finance System Education Finance How you RAISE the money How you determine if there s ADEQUATE money How you DISTRIBUTE the money

18 Education Finance System Education Finance How you RAISE the money

19 Raising Education Funds in CT Majority of CT education funding comes from property taxes This has four major flaws

20 Equalized MIll Rate 1. Contributes to Educational Inequities Towns that have the same tax rate Canaan Equalized Mill Rate Groton Source: OPM, Municipal Fiscal Indicators. FY 2014 data.

21 Net Current Expenditures Per Pupil 1. Contributes to Educational Inequities can t always raise the same amount of money for education. Net Current Expenditures Per Pupil $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $0 Canaan Groton Source: State Department of Education school year.

22 Real Property 2. Stifles Economic 100% Development Share of Exempt Property by Town 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Darien Fairfield Bridgeport Non-Exempt Exempt Source: Office of Fiscal Analysis FY Budget Book.

23 Effective Property Tax Rate 3. Penalizes Poor Families 14% Effective Property Tax Rate by Income Decile 12% 10% 8% 6% 4% 2% 0% Income Decile Source: DRS Tax Incidence Report tax year.

24 Average Equalized Mill Rate 4. Exacerbates Racial Inequalities Average Equalized Mill Rate by Race Black Latino Asian White non- Latino Race Source: Connecticut Data Collaborative and OPM, Municipal Fiscal Indicators. FY 2014 data.

25 What can we do about this?

26 The Vermont Model Equal effort means equal spending

27 Why This Approach? 1. Learn from lessons of neighboring state 2. Honor tradition of local control 3. Honor property-tax-based education funding paradigm 4. Introduce equity into property-taxbased education funding paradigm

28 How it Works Let s follow Wolcott through this process

29 How it Works 1. Wolcott decides to spend $18 million on education from local property taxes (~$7,000 per pupil after adjusting for need)

30 How it Works 2. General Assembly sets three rates: - Nonresidential tax rate (15.35 mills) - Residential tax rate (14.03 mills)

31 How it Works 3. State calculates Wolcott s residential tax rate based on its per-pupil spending - More it spends per pupil, the higher its tax rate - Base per-pupil spending amount = $11,525 per pupil Wolcott s residential tax rate would be x ($6,981/$11,525) = 8.50 mills.

32 How it Works 4. Wolcott collects the residential tax + nonresidential tax and remits it to the state Wolcott would collect and remit $12.4 million in state education taxes.

33 How it Works 5. The General Assembly gives Wolcott its $18 million in education funding plus its $2,000 in statutory PILOT funds owed

34 How it Works 6. Wolcott cuts its local property tax levy by $5.6M. State ed. funds received State ed. taxes paid Net money received $18M - $12.4M + $5.6M

35 The Result Equal effort means equal spending Towns that spend the same per-pupil are taxed at the same rate

36 What are the Benefits? PILOT at Current Levels PILOT at Statutory Levels PILOT at 100% Number of people receiving tax cut 2.79 million 2.73 million 2.70 million Average tax cut $403 per person $400 per person $395 per person

37 Who Would Benefit? Predicted Property Tax Changes by Town Source: Connecticut Voices for Children analysis.

38 Create Your Own Model Source: Connecticut Voices for Children Tableau page.

39 What are the downsides? Town-based mill rate not responsive to individual finances Must pair with an income-based circuit breaker

40 Takeaway A Vermont-like model would reduce disparities and cut taxes

41 Need Further Research Education Finance How you RAISE the money How you DISTRIBUTE the money Whether there s ADEQUATE Money

42 Need Further Research Education Finance How you DISTRIBUTE the money - Funding formula Whether there s ADEQUATE Money - Adequacy studies

43 16th Annual Budget Forum Building a Budget for Connecticut's Future

44 A Fair Approach at Developing Connecticut s Economy

45 Growth in Business Tax Breaks, FY02 - FY17 (millions) $800 $700 $600 $500 $400 $300 $200 $100 $0 FY02 FY09 FY12 FY14 FY16 Personal Income Tax Insurance Premium Corporate Income Tax Single Sales Factor CT Voices analysis of state budget trends and OFA tax expenditure reports.

46 All Business Tax Breaks, FY 2017 Single Sales Factor Revenue Loss 44.2% Credits and Deductions 55.7% Corporate Income Tax 47.4% Insurance Premium 8.3% Personal Income Tax 0.04%

47 Business Tax Breaks Have Grown Faster Than Spending On Children 4.0% Change in Spending, 2016 to % 2.0% 3.1% 1.0% 0.0% -1.0% -2.0% -1.27% Children's Budget Business Tax Breaks CT Voices analysis of state budget trends and OFA tax expenditure reports

48 Among the Most Costly Business Tax Breaks Research and Development Tax Credit Est. cost of $26.1 million in FY 2017 $2.2 billion in carryforward credits Single Sales Factor Est. cost of $302.9 million in FY 2017 Reduced corporate income tax revenue by a third

49 Building on Connecticut s Commitment to Transparency Require Regular Review of Business Tax Breaks Just like spending on education, roads, and other spending Require Corporate Tax Disclosure To determine how much state and local taxes large corporations are paying Prepare for GASB 77 Forthcoming treasure trove of data on business tax breaks

50 Contact Information Ellen Shemitz, Executive Director x 114 Derek Thomas, Fiscal Policy Fellow dthomas@ctvoices.org x 111 Ray Noonan, Associate Policy Fellow rnoonan@ctvoices.org x 113 Website: Twitter (@CTVoices): Facebook:

51 16th Annual Budget Forum Building a Budget for Connecticut's Future