House Bill 6443, An Act Concerning Revenue Items to Implement the Governor's Budget

This bill contains the major revenue elements of the Governor’s plan to balance the FY 2022 – FY 2023 biennial budget. General Fund revenue would increase by $1,464.5 million in FY 2022 and increase by $1,631.2 million in FY 2023 prior to accounting for the state’s revenue cap. The Special Transportation Fund revenue would not be affected in FY 2022and would increase by $47.5 million in FY 2023 prior to accounting for the state’s revenue cap.

Information about House Bill 6443.

Significant Impacts

The bill will have the following impact on the state’s revenue in FY 2022 and FY 2023 (all dollar amounts in millions):

Sections 1-6: Convenience Fee for Credit/Debit Card Use. This would require that a convenience fee be applied to credit/debit card transactions with the state in order to cover the additional charges credit card companies place on all transactions in both the General Fund (GF) and the Special Transportation Fund (STF) beginning in FY 2023.This would generate an estimated $2.5 million in revenue for the GF and $2.5 million in revenue for the STF. In FY 2019 alone, the total cost to the state was $5.2 million across all state funds. Effective 7/1/2022.

A third recommendation from the report was to disallow the usage of urban and industrial site reinvestment tax credits (URA tax credits) against the tax, but this recommendation has already been enacted as part of Section 9 of Public Act No. 19-186.Additionally, this proposal continues the exemption of taxing Medicaid and Medicare payments made to ambulatory surgical centers pursuant to Section 1 of Public Act No. 18-170.Effective 7/1/2021.

Section 24: Safe Drinking Water Assessment. FY 2021 represents the third year in which certain public water systems have been assessed for a portion of the costs of the Department of Public Health’s Drinking Water Section.

The rates shall be annually indexed on a pro-rata basis to reflect the weighted average of the percentage changes in wages applicable to the engineering, scientific and technical bargaining unit and applicable fringe benefit rates. General Fund revenues of approximately $2.2 million will be generated in each of FY 2022 and FY 2023. In subsequent fiscal years this amount will be adjusted to reflect the indexing factor described above.

Section 25: Implement Highway Use Tax. This will implement a new Highway Use Tax which taxes the mileage of heavy vehicles travelling through the state of Connecticut. The tax will apply to vehicle classifications 8 through 13 (tractor trailers) with a total gross weight is in excess of 26,000 pounds. The tax rate will be based on the gross weight of the vehicle and will start at 2.5 cents per mile and increase incrementally to 10 cents per mile for trucks who weigh between 78,000 and 80,000 pounds. Trucks above 80,000 pounds will be charged 17.5 cents. The following table shows the cost of traveling on specific major interstates:

This is expected to generate $90.0 million annually in revenue for the Special Transportation Fund. Effective January 1, 2023.

Section 26: Continue Current Practice for Bond Premium – Indefinitely. This would continue current practice of having the bond premium in the General Fund to offset the debt service appropriation. Without this change, beginning in FY 2022, any bond premium must instead be utilized for capital projects, similar to treatment in the Special Transportation Fund. This will increase the debt service appropriation approximately by $70.0 million over the biennium. Effective upon passage.

Section 26: Credit Revenue Bonds - Remove BRF Deposit. This would eliminate a feature of the law in Connecticut that dedicates any savings from Credit Revenue Bonds (CRB’s) versus traditional General Obligation (G.O.) bonds to the Budget Reserve Fund (BRF).This proposal would eliminate the deposit to the BRF because 1) the calculation of savings would be subjective, 2) the whole purpose of CRB’s was to lower the state’s debt service costs, but any savings would be extracted from the General Fund and placed into the BRF based upon the calculation, and 3) we already have a volatility cap and a revenue cap supporting the BRF. Effective upon passage.

Sections27-28: Hold Teachers' Pension Exemption at 25% for 2 Years. This would delay the phase-in of a pension exemption level of 50% for the teachers’ pension by holding it at 25% for 2 years.PA 14-47 originally had the phase-in of a 50% exemption level implemented by income year 2017, but it has been delayed twice. Current law increases the 25% exemption level to 50% in income year 2021.This proposal would reach the 50% exemption level in income year 2023.This would generate $8.0 million in revenue for the General Fund in each of FY 2022 and FY 2023.Effective 1/1/2021.

Sections 27-28: Hold Pension and Annuity Exemption at 28% for 2 Years. This would delay the phase-in of the pension and annuity exemption level by holding it at 28% for 2 years. Current law increases the pension and annuity exemption level to 42% for income year 2021 and to 100% by income year 2025.This proposal would maintain the 28% exemption level into income year 2022 and delay the increase to 100% to income year 2027.This proposal would generate an increase in revenue in the General Fund of $16.4 million in FY 2022 and $32.8 million in FY 2023.Effective 1/1/2021.

Section 29: Maintain current eligibility on the Property Tax Credit. This would limit eligibility of the Property Tax Credit to those over age 65 or with dependents for 2 additional years. The property tax credit can be used against personal income tax liabilities and has a maximum value of $200.The tax credit phases-out to zero for AGI greater than $107,500 for single filers and $130,500 for joint filers. Maintaining current eligibility requirements would generate $53.0 million in revenue for the General Fund in each of FY 2022 and FY 2023.Effective 1/1/2021.

Sections 30-31: Delay Municipal Revenue Sharing Account for 2 Years. This would delay implementation of this sales tax diversion for FY 2022 and FY 2023 thereby retaining those funds in the General Fund. Public Act 15-5, JSS dedicated 0.5% of the Sales and Use Tax to the Municipal Revenue Sharing Account (MRSA).This was originally scheduled to begin in FY 2016 but has been continually delayed since enactment. Effective upon passage.

Sections 32-33, 35: Maintain 10% Tax Surcharge. The proposal extends the 10% corporation tax surcharge permanently. The 10% surcharge is on top of the existing 7.5% rate. The surcharge does not apply to companies (1) with less than $100 million in annual gross revenues or (2) whose tax liability does not exceed the $250 minimum tax. Effective 1/1/2021.

Sections 34-35: Delay and Extend the Elimination of the Capital Base Tax. This proposal would extend and delay the phase-out of the Capital Base Tax. Current law phases-out the tax completely from 3.1 mills for income year (IY) 2020 to 0 mills for income year 2024.This proposal would extend the 3.1 mill rate into IY 2023 and add an additional step in the phase-out schedule of 1.6 mills for IY 2026 and ultimately phase-out the tax by income year 2028.The schedule would be as follows: IYs 2021 through 2023-3.1 mills; IY 2024-2.6 mills; IY 2025-2.1mills; IY 2026-1.6 mills; IY 2027-1.1 mills; IY 2028 and beyond-0 mills. Effective 1/1/2021.

Section 36: Limit Carryforward of New R&D Credits to 15 Years. This proposal prevents R&D tax credits issued on or after January 1, 2021 from being carried forward for a period of more than 15 years. Such credits can currently be carried forward indefinitely. Almost all other credits have carryforward periods of 0 to 15 years. Effective 1/1/2021.

Section 37: Eliminate exemption for gas sold to facility with 775 MW Capacity. This proposal eliminates an exemption in section CGS 12-264 effective 7/1/2021, which applies to natural gas sold to facility comprised of three gas turbines with a total capacity of 775 MW.

Section 38: Cap Credits Claimed Against the Public Utilities Tax at 50.01% of Liability. This proposal would drop the allowable credit to be 50.01% of the tax liability on the public utilities tax. The current cap on Public Utilities Tax is 70.0%.This brings the credit cap in line with corporate income tax credits. Effective 7/1/2021.

Section 39: DRS Tax Amnesty Program. This would allow the CT Department of Revenue Services (DRS) to offer a tax amnesty from November 1, 2021 through January 31, 2022.Penalties will be waived (typically 10%) and Interest charges will be reduced by 75% (typically 12% would be lowered to 3%).Taxpayers in Accounts Receivable would also be eligible for the program. This would generate an estimated $40.0 million in revenue for the General Fund in FY 2022 and result in a decrease in revenue of $4.0 million in FY 2023.Effective 7/1/2021.

Section 40: Transfer Excess RPIA Funding Above RSG Grant Requirements. This would transfer $3.0 million from the Regional Performance Incentive Account (RPIA) to the General Fund in each of FY 2022 and FY 2023.A portion of the Hotel Tax and Rental Car Surtax of the Sales and Use Tax helps fund the RPIA. After the $3.0 million transfer to the General Fund, the estimated balance would be sufficient to accommodate funding needs and leave the RPIA funding above RSG grant requirements in both FY 2022 and FY 2023.Effective upon passage.

Sections 41-42: Eliminate excess i-Lottery revenue to regionalization subaccount. This would eliminate the requirement that any excess i-Lottery revenue above the costs of the debt free community college program go toward the regionalization subaccount within RPIA as specified in section 365 of PA 19-117.Effective upon passage.

Section 43: Transfer to the Tourism Fund. This would transfer $9.8 million in FY 2021 and $3.1 million in FY 2022 from the General Fund to the Tourism Fund to ensure solvency. The Tourism Fund is funded by the Hotel Occupancy Tax (part of the Sales & Use Tax) which was negatively impacted by the COVID-19 pandemic resulting in lesser revenue generation compared to prior years. Effective upon passage.

Section 44: Delay GAAP Deficit Payment to FY 2024.This would delay the FY 2022 payment of $85.1 million and the FY 2023 payment of $85.1 million toward the cumulative GAAP deficit. This delay would increase payments due between FY 2024 and FY 2028 by $34.3 million annually bringing the fiscal year payments to $120.8 million. In 2013, the state committed to retiring the cumulative GAAP deficit by FY 2028.The last payment of $75.7 million was made in FY 2020.There remains an outstanding balance of $603.9 million. Effective upon passage.

Section 45: Federal Stimulus/Transfer from Budget Reserve Fund. This would use Budget Reserve Funds only if additional federal stimulus does not become available. Given the Bond Covenant, should that federal stimulus not materialize by the time of passage, a 3/5ths vote in each chamber would be required. In addition, the Governor would be required to declare an emergency or the existence of extraordinary circumstances and invoke his rescission authority. Effective upon passage.

Section 46: Budget Reserve Fund–Increase Threshold for Higher Education Matching Grants. This would update the language in the higher education matching grant program to the existing 15% maximum Budget Reserve Fund (BRF) limit. Public Act 17-2, JSS increased the maximum limit on the BRF from 10% to 15%, however, an equivalent change to the higher education matching grant that references the BRF was not made and statute still references the former 10% BRF maximum. Once the BRF reaches the 15% maximum, surplus state funds may be utilized to provide for state matching grants to any privately higher education funds. This is unlikely given there is already an existing waterfall in state statute the specifies amounts above the 15% BRF limit shall first be utilized for the unfunded liability in the State Employees and Teachers’ Retirement systems. Effective upon passage.

Section 47: Attorney General – Opioid Claim. This would authorize the Attorney General to enter into any agreement concerning any state-wide opioid claim. Opioid claims would include anything concerning the manufacturing, marketing, distribution or selling of opioids, or any activities related to the above. Claimants may not assert state-wide opioid claim that the state has entered into an agreement to compromise, release, waive, or settle such claim. Effective upon passage.

Section 48: Repealer Section. This would repeal section 368 of PA 19-117 that instructed the Secretary of the Office of Policy and Management to conduct a study of fees collected by the state and increase certain fees to generate $50.0 million of additional revenue to the General Fund. Many of CT’s fees are already some of the highest in the region. Raising fees would run counter to other Governor’s initiatives to reduce the frequency for renewing fees which would raise the cost at renewal. Many of these fees impact middle class residents. Effective upon passage.