As Connecticut faces another year of economic sluggishness, it becomes increasingly important that all sectors of Connecticut society -- government, businesses, and private citizens -- work together to improve the quality of life in our state. In that spirit, the Comptroller's office is providing this overview of Connecticut's economic health. The report seeks to provide the information necessary to begin planning for Connecticut's future.
The report is divided into three sections that cover the state budget, the state economy, and the changing demographics of Connecticut. A brief summary of each section follows, along with a description of the priority initiatives the Comptroller's office will be pursuing in 1996.
The State Budget
The first section provides an overview of the state budget for the 1995-97 biennium and highlights specific areas of concern. As of this writing, a budget deficit of over $20 million is projected for Fiscal Year (FY) 1995-96; however, this deficit projection may rise due to lower than expected revenues from slow wage growth, poor retail sales, and proposed federal tax changes currently under debate. While this deficit presents a challenge for FY 1995-96, the second year of the biennium may prove even more problematic. The budget for FY 1996-97 was balanced by using speculative revenue sources and revenue projections that may prove overly optimistic in light of Connecticut's present economic condition.
One major area of concern is the proposed creation of a quasi-public Connecticut Lottery Corporation and the sale of a partnership interest in that corporation. Connecticut's lottery has generated $2.9 billion in state revenues since its inception 24 years ago. In terms of per capita profits, this performance ranks near the top of the nation and makes the lottery a valuable state asset. The lottery proposal is structured to generate $160 million in revenue for FY 1996-97 through the sale of revenue enhancement anticipation notes (RANs). Repayment of the RANs will be accomplished through the sale of an approximate 6% share of the lottery to private investors. This additional revenue is required to balance the FY1996-97 budget.
Partial privatization of the lottery raises many questions that have yet to be answered. First, partial privatization may expose the Connecticut Lottery Corporation to a 35% federal corporation tax, which would dramatically alter the underlying cash flow analysis. Second, the Federal Communications Commission places various restrictions on the advertising and sale of private lottery games, which could also have an impact on the plan. Third, Connecticut's continued participation in the multi-state Powerball game could be compromised, since the Multi-State Lottery Association is opposed to any form of privatization. Since the $160 million in additional revenue must be raised quickly in order to close the FY 1996-97 budget gap, the legislature may be asked to vote on this proposal before these and other relevant questions are answered. Accordingly, passage of the proposal is highly speculative at best. This issue will be carefully monitored due to its potentially enormous budgetary impact.
Connecticut also faces large federal funding cuts under the proposals presently being debated in Washington. Because federal funds account for nearly 16% of the state's total revenues, it is difficult to project the state's budget position in the absence of a budget for federal Fiscal Year 1996, which began on October 1, 1995. Under the most recent budget proposals, the state would lose close to $2 billion in federal receipts over the next seven years. The magnitude of these cuts needs to be monitored closely as they hold the potential to create significant state budget deficits in FY 1996-97 and in future fiscal years.
The State Economy
The second section of this report provides an overview of Connecticut's current and projected economic performance. Unfortunately, as state residents are well aware, a stagnant economic environment has existed in Connecticut over the past several years.
The recent recession cost Connecticut approximately 162,000 jobs. Over 40% of the losses came from manufacturing and this sector continues to decline. By the second quarter of 1995, the state had recovered only 14% of the total recession-based job losses. Throughout 1995, the state has experienced little sustained job growth. The employment pattern has been mixed -- a month of job gains followed by a month of job losses. While there has been some job creation in niche industries and the service sector, especially among smaller businesses, to date this has not offset the dramatic cuts to key industries across the state. Projected cuts in defense, insurance, and general manufacturing are expected to leave Connecticut's 1995 employment level slightly below that of 1994.
In addition, other economic indicators -- housing permits and retail sales, for example -- also show weakness. This provides further evidence of a stagnant state economy and supports concerns about overly aggressive revenue estimates built into the state budget.
Demographic and Income Trends
The last section of the report provides a profile of demographic and income trends in the state. Between 1970 and 1991, Connecticut's population grew at a moderate and consistent rate. In 1970, the state had 3,032,000 residents; by 1991, the state's population reached its peak of 3,291,000 people. The years of steady population increases ended in 1991, however, as Connecticut experienced its worst economic downturn in 50 years. By mid-1995, total state population stood at 3,276,000.
The population decline was particularly pronounced in the state's cities and adjacent suburbs. Hartford and New Haven ranked first and second in the nation, respectively, in population loss by large cities between 1990 and 1994.
Projections show that Connecticut's population will begin to grow again in the year 2000. Between 2000 and 2010, state population is expected to increase from 3,272,000 to 3,413,000 (growth of 4%). By the year 2020 total state population is projected to total 3,616,000.
Over the next quarter century, the demographic characteristics of the state's residents will change. The elderly and minority populations are expected to comprise a larger share of the state's total population.
While Connecticut continues to rank first in the nation in per capita income ($29,044 in 1994), state residents have been losing ground. Connecticut experienced the slowest personal income growth in the nation between 1989 and 1994. Moreover, because the cost of living in Connecticut is 20% above the national average, a good portion of income is lost to higher prices. In addition, the income disparity between rich and poor in Connecticut is large and continues to grow. For example, Fairfield is the richest county in the state, with 1993 per capita income of $37,642; by contrast, Windham is the poorest with 1993 per capita income of $20,225.
In 1990, poverty in Connecticut's cities was significantly above the statewide average of 6.8%. For instance, Hartford's poverty rate was 27.5%, New Haven's was 21.3% and Bridgeport's was 17.1%. Slow wage growth has made escape from poverty more difficult. During Fiscal Year 1994-95, average weekly gross wages in the state rose by less than 1%, representing the smallest rate of increase in 25 years.
Lack of health insurance has been a growing problem for Connecticut in recent years as well. According to estimates by the Employee Benefit Research Institute, the percentage of non-elderly uninsured state residents rose from 8.5% in 1990 to 12.1% in 1993. A demographic profile of the uninsured shows that the vast majority (88%) come from working families and that most (65%) are employed by small and medium-size businesses.
Connecticut's present system of financing and delivering care to the uninsured is costly and inefficient. Lack of insurance and gaps in coverage affect everyone--not just the uninsured. When an uninsured person goes to a hospital, a clinic, or an emergency room and cannot pay the full cost, the bill is passed on to those who do pay through higher prices and higher insurance premiums.
The state's uncompensated care program only covers a small part of the true costs of uncompensated care in Connecticut. Private payers continue to shoulder the majority of this burden through cost-shifting. The Office of Health Care Access (OHCA) recently estimated that the total cost shift onto private payers averaged about 30% on hospital bills. OHCA equated this "hidden" cost to a premium tax and estimated that the total cost-shift amounted to $570 million in state Fiscal Year 1992-93. When this figure is added to the amount generated by the hospital tax, the annual cost of uncompensated care exceeds $900 million.
A preliminary analysis by the Comptroller's office shows that it would cost less to provide health insurance for the state's uninsured population. Depending on the richness of the benefit package, such an effort would cost between $650 million and $750 million a year.
1996 Initiatives
As one reads this report, it becomes clear that Connecticut is still struggling to regain its economic vitality. Connecticut's future depends largely on our ability to reverse these trends. The initiatives that follow involve areas where the Comptroller's office can take the lead in helping to improve the lives of Connecticut's citizens.
Assisting Connecticut's Municipalities
The Comptroller's office is pursuing two initiatives that will help Connecticut's cities and towns:
Municipal Health Insurance: Health insurance is one of the largest and fastest growing items in municipal budgets. The Comptroller's office is exploring the possibility of opening the state employee health plan to Connecticut's municipalities. The state's plan presently covers 166,000 lives including employees, retirees and their dependents. The idea is simple: by leveraging the purchasing power of this large group of people, the state can negotiate better rates on health insurance. By including municipal employees, this approach has the potential to generate significant savings for Connecticut's cities as well. In this case, the dollars saved by participating municipalities can be viewed as a form of property tax relief.
Supporting and Promoting Regional Cooperation: The State's ailing economy, exacerbated by the impact of proposed federal cuts in local aid, will inevitably squeeze the budgets of Connecticut's cities and towns. These pressures have moved local officials to think of collective solutions and have fostered many examples of inter-local cooperation. Through these efforts, cities and towns are seeking ways to maintain the same level of services at a lower cost. One notable example, the Capital Region Partnership, was created in June 1995 to provide a formal, permanent forum to enable independent regional organizations to take collaborative action to seize opportunities and solve problems. This group is currently working on a long-range plan to strengthen the region's economy and define ways to facilitate inter-town and inter-agency cooperation.
The state must do more to support and promote regional efforts in order to encourage further cooperation. To this end, the Comptroller's office will begin offering technical assistance to municipalities concerning their accounting systems on a voluntary basis. This will help improve municipal reporting of financial data to the state and allow state and municipal officials to better evaluate policy outcomes associated with public expenditures. In addition, the Comptroller's office will play a role in analyzing this data. Ultimately, this effort should help all parties gain a better understanding of the impact state policies have on Connecticut's cities and towns.
Enhancing Fairness in State Contracting
A fair and open bidding process for the acquisition of state goods and services will benefit both state government and the business community. To further this aim, the Comptroller's office established the following ongoing initiative:
Vendor Advisory Committee: Over the years, many businesses have offered goods and services to state employees through payroll deduction. The agreements the state had with these vendors were frequently informal and undocumented. As a first step, a Vendor Advisory Committee was established to bring more openness and equity to the selection process for payroll deduction slots. Comprised of appropriate agency staff and union leadership, the committee carefully reviews all requests for payroll deduction slots and recommends those firms that will provide state employees with the best products or services at the best price.
Later this year, an innovative new long-term health insurance product will be offered to state employees through payroll deduction at attractive group rates. The policies, offered at no cost to the state, will insure state employees against the high cost of nursing home care or in-home care services. By purchasing the insurance, subscribers can protect their assets and thus avoid the impoverishment that can result from long-term illness. If replicated statewide, this type of program has the potential to save the state millions of dollars in Medicaid long-term care expenditures.
Expanding Coverage for the Uninsured
The Comptroller's office is coordinating an effort to bring together a task force responsible for finding a means to expand affordable health insurance coverage to Connecticut's uninsured. Membership will be bipartisan and include a diverse group of health-care providers and advocates. The objective will be to research this issue thoroughly and submit a legislative proposal to the 1997 General Assembly.
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