Please note: The opinions expressed are solely those of the speaker and are independent of the views or policies of the presenting organizations. The Fiscal Situation in Connecticut and in Other New England States Presented to the Connecticut State Budget Education Symposium Hartford, CT Robert Tannenwald Assistant Vice President and Economist Federal Reserve Bank of Boston December 12, 2002

Please note: The opinions expressed are solely those of the speaker and are independent of the views or policies of the presenting organizations. The Big Picture Hit hard by dramatically reduced tax receipts in FY2002, New England states are facing difficult fiscal situations. Spending growth, although holding steady or cut-back, continues to outpace revenue growth. Deficits abound. Reserves are severely depleted.

Please note: The opinions expressed are solely those of the speaker and are independent of the views or policies of the presenting organizations. Surpluses to Deficits: FY1998 to FY2003 Sources: National Association of State Budget Officers, State Expenditure Reports, ; state budget documents. * *Note: “Deficit” = (Revenues + Carried-over Surpluses) - Spending. It does not include loan receipts or withdrawals from reserve accounts or tobacco settlement accounts. Anticipated as of May Prior to Beginning of Fiscal Year

Please note: The opinions expressed are solely those of the speaker and are independent of the views or policies of the presenting organizations. Revenues: Last Fiscal Year *Note: RI general revenues were down 4.5 percent for FY2002. Facing a budget gap, the state securitized its tobacco settlement revenues, thereby raising $544.2 million. This transaction alone accounts for the revenue growth indicated in the chart above. Sources: Official budget documents; state financial statements; conversation with state budget officials. Change from Prior Year in Total Revenues and Two Largest Taxes (FY2001 to FY2002)

Please note: The opinions expressed are solely those of the speaker and are independent of the views or policies of the presenting organizations. After the Boom: Falling Massachusetts Stock-Related Tax Revenue * Estimated Source: Reproduced from the Boston Globe, February 17, Massachusetts Executive Office for Administration and Finance; Alan Clayton-Matthews, UMass-Boston.

Please note: The opinions expressed are solely those of the speaker and are independent of the views or policies of the presenting organizations. Spending: Last Five Fiscal Years Sources: National Association of Budget Officers, State Expenditure Reports, ; state budget documents. Annual Rate of Growth in State Own-Source General Fund Spending FY1998 to FY2001 (actual), FY2002 (estimated)

Please note: The opinions expressed are solely those of the speaker and are independent of the views or policies of the presenting organizations. Source: U.S. Census Bureau

Please note: The opinions expressed are solely those of the speaker and are independent of the views or policies of the presenting organizations. Revenue Growth v. Spending Growth in the Six New England States FY1998 to FY2002 Revenues Expenditures Revenue line does not include tobacco securitization proceeds. Sources: National Association of State Budget Officers; Official state budget documents.

Please note: The opinions expressed are solely those of the speaker and are independent of the views or policies of the presenting organizations. Reserve Balances Note: Reserves equal rainy day fund balances plus carried-forward undesignated surpluses. Source: National Association of State Budget Officers, Fiscal Survey of the States, December May 2002.

Please note: The opinions expressed are solely those of the speaker and are independent of the views or policies of the presenting organizations. General Fund Deficits (Absent Corrective Measures) as a Percentage of Spending, New England States, FY1992 and FY2003 (Projected) Source: Author’s calculations and National Association of State Budget Officers.

Please note: The opinions expressed are solely those of the speaker and are independent of the views or policies of the presenting organizations. Rate of Growth in State Tax Collections from Previous Year (Percent) Source: U.S. Census Bureau; National Association of State Budget Officers.

Please note: The opinions expressed are solely those of the speaker and are independent of the views or policies of the presenting organizations. The Effect of Tax Changes on Revenues, FY and FY Source: The Nelson A. Rockefeller Institute of Government, "State Fiscal Brief", National Conference of State Legislatures, "State Budget and Tax Actions", and State budget documents.

Please note: The opinions expressed are solely those of the speaker and are independent of the views or policies of the presenting organizations. Revenues: Year-to-Date Change from Prior Year in Total Revenues and Two Largest Taxes (MA, NH, RI and VT collected through October FY03, CT and ME collected through September FY03) Sources: Official budget documents; state financial statements; conversation with state budget officials.

Please note: The opinions expressed are solely those of the speaker and are independent of the views or policies of the presenting organizations. Looking To the Future Despite positive signs in data for the first few months of FY2003, the revenue situation for the New England states is expected to worsen over the current and next fiscal years. Spending in all six New England states was curtailed in FY2002, FY2003, and will be cut further for FY2004. Despite budget cuts and tax increases, all six New England states anticipate budget shortfalls in FY2003 and, possibly, FY2004. “Rainy Day” funds are significantly diminished or depleted and, therefore, not sufficient to close anticipated budget gaps in FY2003 and FY2004.