New Protection from Up-Front Debt Settlement Fees

There is a new Federal Trade Commission (FTC) rule prohibiting debt relief firms from collecting up-front fees. Most companies selling debt relief services over the telephone are no longer allowed to charge a fee before settling or reducing a consumer’s credit card or other unsecured debt. Under this new rule, debt settlement companies must provide consumers with agreements from creditors indicating how much their debt will be reduced. If a consumer gives consent to move forward, then a debt settlement company may charge a fee for their services. The rule, however, does not apply to businesses selling debt settlement services in-person. The FTC is also considering whether the rule applies to tax debt relief services.

Market Drop and State Budget Maneuvers Bring State Employee Pension Fund Liability to 22-Year High

"The state's pension fund now holds less than 45% of the funds it needs to meet future obligations to workers, plunging below the halfway mark for the first time in more than two decades, according to the latest, biennial report from fund analysts," reports the Connecticut Mirror

The new actuarial valuation also found that while fund investment earnings rebounded over the last year, they could not overcome significant losses from 2009, coupled with various pension-weakening maneuvers ordered due to the state budget crisis.

State government had $9.35 billion in assets in the pension fund as of June 30, 2010 compared with $21.1 billion in obligations, which together represent a funded ratio of 44.4 percent according to the valuation. Actuaries typically cite a ratio of 80 percent as fiscally healthy the Mirror noted.

The state's annual pension contribution, which currently stands at $844 million, is projected to grow just beyond $1 billion next year according to the valuation.

Reduction in Care4Kids Eligibility

Beginning November 6, 2010, the Department of Social Services’ child care program, Care4Kids, reduced the income limits from 75% of the state median income to 50% for families enrolling in the program on and after that date. For a family of three, allowable income dropped from $64,035 per year to $42,690.

More States Privatizing Economic Development

An increasing number of states are moving to privatize some or all of their economic development efforts, according to a recent article on Stateline.org, a nonpartisan news site funded by the Pew Charitable Trusts. States that have privatized aspects of their economic development functions include Florida, Indiana, Michigan, Texas, Utah, and Virginia. Other states considering proposals to privatize include Arizona, Iowa, Ohio and Wisconsin.
States choosing to privatize structure their plans in different ways, with varying levels of involvement and oversight by government officials. Privatization efforts have shown mixed results. The issue can be summarized as “how to empower business leaders to play a more meaningful role in state economic development efforts without sacrificing the accountability and transparency with which public funds are used[.]”

Bradley Airport Authority?

An article in HartfordBusiness.com discusses governor-elect Malloy’s proposal to create an independent authority to administer Bradley Airport. It quotes Tim Bannon, Malloy’s chief of staff as stating that “early action on this will be important to send a message that Connecticut is committed to economic growth.” Among the issues yet to be decided are whether the (1) authority would have jurisdiction over the state’s seaports and (2) changes will be incremental or all at once. The airport currently operates on a budget of $55 million that comes exclusively from the Bradley Enterprise Fund.

E-Commerce and the Implications for State Sales Tax Revenues

The U.S. Census Bureau reports that U.S. e-commerce retail sales for the third quarter of 2010 were up 13.6% from the same quarter in 2009 and up 4% over the previous quarter. E-commerce sales accounted for 4.2% of total sales in the third quarter of 2010.

Because some of the largest internet retailers (like Amazon) do not collect state and local sales taxes, many states typically lose revenue from these transactions. Researchers at the University of Tennessee, who periodically estimate state and local revenue losses from e-commerce sales, estimate that Connecticut will lose between $56.7 and $63.4 million in FY 2011 in sales tax from e-commerce sales. They project over $10 billion in revenue losses nationwide in FY 11 attributed to e-commerce.

For more information, see OLR's report, 2010-R-0193.

Did the Subprime Crisis Tank the Economy and Reduce State and Local Revenue Flows?

No, according to experts who participated in a conference last May on what the subprime mortgage crisis did to state and local revenues. The conference was sponsored by the Lincoln Land Institute and Urban-Brookings Tax Policy Center. The mortgage crisis may have sparked the downturn, but overleveraged financial institutions fueled it.

Experts separated the crisis’ effects on the downturn from other economic factors and found they had little effect on state and local revenues. Real estate transfer, income, and sales tax revenue generated by real estate sales and construction accounted for 2% of the revenue loss nationwide, about $15 million. Property taxes remained high, even increased in some states, the experts reported.

(“What the Housing Crisis Means for State and Local Governments,” State Tax Notes, November 29, 2010  is available in the Legislative Library)

Race to the Top Round Three In Doubt

As it winds up its post-election “lame duck” session, Congress faces several unfinished education appropriation decisions of interest to Connecticut. Among them is a proposed extension of the “Race to the Top” (RTTT) grant program, which rewards states for their progress on teacher quality, academic achievement, and school improvement. Despite passing a major education reform law in 2010, Connecticut received no money in the first two rounds of the RTTT competition.

Because Congress has not passed any appropriations bills for the 2011 federal fiscal year, which began on October 1, 2010, programs are funded at 2010 levels under a series of continuing resolutions, the latest of which expired on December 21. Even if Congress approves it, third-round funding will be lower than the $4.3 billion already awarded. The administration requested $1.35 billion and, in the initial appropriations bills, the House approved $800 million and the Senate, $675 million. After those bills failed to pass, a House-approved “extender” appropriated $550 million for RTTT Round 3. Senate Majority Leader Harry Reid pulled the appropriations bill from the Senate floor because of a disagreement over earmarks, leaving RTTT Round 3 funding on hold probably until at least mid-February or March.

Funding for other major competitive education grants is looking less likely. These include an Early Learning Challenge Fund designed to encourage states to improve early childhood education and funded in the House extender at $300 million, and a new round of “i3” (Investing in Innovation) grants intended to spur innovative practices for improving student achievement and closing achievement gaps and funded in the House extender at $240 million.

Don’t Ask, Don’t Tell

A new Pentagon report says the long-standing ban on openly gay Americans serving in the military could be lifted with minimal disruption to unit cohesion and retention in the short run. And “longer term, with a continued and sustained commitment to core values of leadership, professionalism, and respect for all. . .the U.S. military can adjust and accommodate this change, just as it has others in history.” Seventy-percent of service members surveyed believe that lifting the ban would have a positive, mixed, or inconsequential impact on their units. The report says that while moral and religious objections to homosexuality should be taken seriously, many fears are groundless.

New GAO Report Examines the Effect Raising the Retirement Age Would Have on Older Workers

By 2050, people age 65 and older are expected to comprise more than 20% of the nation’s population, up from 13% in 2010. This demographic is expected to put further strain on the Social Security Trust Fund, which is predicted to be exhausted by 2037. A new report by the U.S. Government Accountability Office (GAO) looks at suggested ways to reduce the strain on the trust fund—increasing the earliest eligibility age (EEA) for Social Security benefits, the full- benefit retirement age (FRA), or both.

The authors suggest that while many workers could stay in the workforce longer and thus save more for retirement by delaying the collection of Social Security benefits, many older workers would face health challenges that could prevent this. Some older workers would become disabled and apply for federal disability benefits or other assistance programs. The authors note recent research concluding that raising the FRA would increase the number of federal disability income recipients.

The authors suggest that raising the EEA would have a larger effect than a comparable rise in the FRA. They offer various policy options for addressing any corollary increases in disability claims and helping those individuals who cannot work longer.

US Supreme Court Hears CT ERISA Case

On November 30, the US Supreme Court heard oral arguments in CIGNA Corp. v. Amara. The case stems from the summary plan description (SPD) CIGNA issued to explain the conversion of its traditionally defined benefit pension plan to a cash balance plan. In 2008 the U. S. District Court, District Connecticut, ruled that CIGNA’s SPD violated the Employee Retirement Income Security Act (ERISA) by failing to provide notice of a significant reduction in the rate of future benefit accrual, and failing to adequately disclose modifications that could result in reductions, losses, or forfeitures of benefits that a participant might otherwise reasonably expect to receive (534 F. Supp. 2d 288 (D. Conn. 2008)). The U.S. Court of Appeals for the Second Circuit affirmed the decision in 2009. The issue presently before the Supreme Court hinges on whether proof of “likely harm” caused by the misleading SPD is enough to entitle a plaintiff to recover damages. The Court should issue its decision sometime in the spring.

School to Prison Pipeline

“School to Prison Pipeline” refers to the cycle of suspending, expelling, and arresting students, essentially criminalizing what many consider to be normal adolescent behavior. In Indiana, the legislature recently passed HB 1193, which establishes a statewide, 24-member study group composed of police, judges, principals, and others who work with children who get into trouble at school.

The group will evaluate and make recommendations on specific local practices, such as when law enforcement and schools should collaborate, when school administrators should be notified before a student is arrested, what types of arrests should not occur on school property, and what pilot programs and best practices should be considered.

College Graduation Rates Can Be Misleading

College and university graduation rates typically only count students who enter and graduate from the same institution. For instance, students who transfer from one school and graduate from another are often not counted in the second school’s graduation rate. But a new report from the U.S. Department of Education looks at college completion from the student’s perspective, measuring the percentage of students who earned a degree or credential from any institution within six years of starting college. The study reports data from the group of students who began college in 2003-04. Here is an excerpt from its findings about students who began college that year:

About 9% had received a certificate, 9% had received an associate’s degree, and 31% had received a bachelor’s degree within 6 years from any institution…Another 15% had not yet received a degree but were…enrolled at some institution (7% at a four-year institution and 8% at a less-than-four-year college), while an another 35% had not received a degree and were not enrolled at any institution.

Lead Found in Reusable Shopping Bags

Newspapers across the country, including the New York Times, recently reported that some reusable shopping bags contain lead. Although there is no evidence of an immediate threat to public health, studies found potentially unsafe lead levels in tested bags, most of which were manufactured in China. The presence of lead raises concerns about long-term risks posed by lead from discarded bags seeping into groundwater and food being contaminated by lead paint flaking off bags. U.S. Senator Charles Schumer (D-NY) has contacted the U.S. Food and Drug Administration, U.S. Environmental Protection Agency, and the Consumer Products Safety Commission, asking them to investigate and ban bags containing higher than acceptable lead levels.

New Federal Law Protects Gift Card Users

Under the 2009 federal Credit Card Accountability Responsibility and Disclosure Act, gift card issuers cannot charge dormancy, inactivity, or service fees unless the fee terms were clearly disclosed to consumers before they bought the card and the card has been inactive for more than 12 months. Even then, only one fee may be charged each month. The cards also cannot expire for at least five years after they are issued. The law took effect August 22, 2010.

In addition to the federal law, some states, including Connecticut, provide additional consumer protections for gift card users. The National Council of State Legislatures has produced a chart with state gift card statutes and recent legislation.

Federal Mortgage Modification Efforts Showing Mixed Results

The Home Affordable Modification Program (HAMP), a federal government initiative launched in March 2009, resulted in about 467,000 permanent mortgage modifications by September 30, 2010. Almost 700,000 trial modifications were cancelled after failing to become converted to permanent status, 28,000 permanent modifications were canceled due to missed payments, and 173,000 trial modifications were still being processed.

These figures are from the most recent quarterly report to Congress by the Office of the Special Inspector General for the Troubled Asset Relief Program (SIGTARP). The SIGTARP report includes an analysis of how HAMP has affected loan servicing. It also criticizes aspects of the program, including its lack of benchmarks for permanent modifications.

State-Level Election Results

Republican candidates made sizeable gains in the November 2 election not only at the federal level, but also at the state level. According to the National Conference of State Legislatures, control switched from Democrats to Republicans in 11 state legislatures, including Maine, Pennsylvania, and Wisconsin. Beginning in 2011, more Republicans will serve in state legislative seats than at any other time since 1928.

NCSL has more information on the composition of state legislatures and a post-election map.

Feds Call for Mandatory Motorcycle Helmet Laws

The National Transportation Safety Board (NTSB) wants states to require all motorcycle riders to wear helmets.

Currently 20 states require helmets for all riders, 27 states require them only for some riders, and three states do not require them at all. Connecticut requires helmets for all riders under age 18 and for people seeking a motorcycle-endorsed driver’s license when they are operating a motorcycle on a training permit.

An NTSB statement said that motorcycle fatalities increased 150% between 1997 and 2008, an increase exceeding that of any other form of transportation. Although the number of motorcycle fatalities decreased from 5,312 in 2008 to 4,462 in 2009, motorcycle deaths still accounted for 13% of all motor vehicle fatalities. According to the National Highway Traffic Safety Administration, head injury is a leading cause of death in motorcycle accidents, and the use of a helmet that meets federal safety standards is the “single critical factor in the prevention and reduction of head injury.”

For a history of the state motorcycle helmet law, please see OLR Report 2010-R-0465.

New Wind Technology Tested in Connecticut

As reported in an October HartfordBusiness.com article, Connecticut renewable energy start-up Optiwind finished installing its first 150-kilowatt turbine designed to maximize the power harnessed from the wind at its Torrington location on Krug Farm. The turbine has six fans placed on either side of a steel cylinder — similar to a silo — mounted on a steel tower 200 feet tall in lieu of the usual design of blades on a mast. The company calls it a compact wind acceleration turbine, offering a more powerful alternative to other on-site turbines. The company will install a more powerful 300-kilowatt turbine of a similar design on the University of Connecticut Torrington campus, which it hopes will provide enough power to cover all the campus’ electricity needs. The Optiwind turbine is more expensive than a traditional onsite turbine, but it produces more power. The 300-kilowatt Optiwind turbine costs $750,000 to buy and install, compared to the $500,000 cost of the 100-kilowatt turbine at the Phoenix Press near I-95 in New Haven. Because the Optiwind turbine costs $2.50 per kilowatt compared to $5 per kilowatt for a traditional turbine, the company estimates that the point where a customer earns all the upfront costs back through energy savings will come at nine years, rather than 18.

Employer-Provided Health Coverage is Not Taxable

Starting in tax year 2011, the federal Patient Protection and Affordable Care Act requires employers to report the value of the health insurance coverage they provide employees on each employee's annual Form W-2. However, to provide employers the time they need to make changes to their payroll systems or procedures in preparation for compliance with this requirement, the Internal Revenue Service (IRS) is deferring the reporting requirement until 2012, making that reporting by employers optional in 2011.

This reporting is for informational purposes only, to show employees the value of their health care benefits so they can be more informed consumers. The amount reported does not affect tax liability, as the value of the employer contribution to health coverage continues to be excludible from an employee's income, and it is not taxable.

For more information, see the IRS guidance.

Federal Deficit Cutting Commission—Changes In Medicaid

The just-released report of the National Commission on Fiscal Responsibility and Reform includes several recommendations for saving federal health care dollars. Some of these are in the Medicaid program which, as a joint federal-state program, could have an impact on the state’s Medicaid budget.

One proposal would be to eliminate so-called “provider taxes” that states use to leverage more federal Medicaid matching funds. Connecticut has such a tax on nursing homes and its elimination here could reduce the amount of funding available to these homes.

Another recommendation is to have state Medicaid programs take full responsibility for (1) managing the health care of individuals eligible for both Medicaid and Medicare (dually eligible) and (2) enrolling them in managed care programs to ensure better care coordination. Connecticut has taken small steps to manage the health care of this population.

A third proposal would allow expedited applications for Medicaid waivers, which would “presumptively” qualify states for the waivers. Normally, the waiver process can take many months.

The Art of Sprawl

Photographer Christopher Gielen offers an aerial perspective of suburban sprawl in this CNN feature. The images, taken from a helicopter, reveal the patterns and geometry of the suburbs. Gielen, who plans to publish the photos in a book next year, hopes that the aerial study of American sprawl makes people reconsider “how they live through art.”

Connecticut Ranks 45th in Protecting Kids from Tobacco

Connecticut ranks 45th among the states in funding programs to prevent children from smoking and in helping smokers quit, according to a national report recently released by a coalition of public health organizations. Connecticut currently spends $400,000 a year on tobacco prevention and cessation programs, substantially less than that recommended by the U.S. Centers for Disease Control and Prevention.

Challenging States on the Fairness of Education Funding

A new study finds that many states fall short in the “fairness” of their school funding models, measured not just by the amount of money they provide to education, but also by whether they direct sufficient resources to the poorest schools.

The Education Law Center, a N.J.-based organization that advocates for equal opportunities and funding for public school students through research, policy development, and legal action published the report in October. The center examined pre-recession data and found about four-fifths of the states evaluated received a “C” grade or lower on the extent to which they “progressively” fund education—or channel greater resources to poorer, rather than wealthier, districts.

The authors evaluated the states’ performance on four separate categories of funding fairness. Six states scored relatively well on all of them: Connecticut, Iowa, Massachusetts, New Jersey, Vermont, and Wyoming. Even though Connecticut was only graded a “C,” we were 10th on the list of all states in the fairness rating.

Four states generally rated poorly across all or most of the four indicators: Illinois, Louisiana, Missouri, and North Carolina, the authors said. In all 19 states were given a “D” or a “F.”

After adjusting revenues to make states comparable to each other and controlling for factors such as wages and population density, the authors identified broad disparities in the combined amount of state and local funding that students in different states receive.

Can Connecticut be in Several Places at the Same Time?

Yes, according to several recent studies ranking states according to different economic factors. For example, one study ranks Connecticut fifth with respect to innovation while another ranks it 47th with respect to business tax climate. A third study gives Connecticut mixed grades—it ranked us fifth with respect to workforce, but below the top 10 with respect to entrepreneurship, infrastructure, taxes and regulations, and other factors.

So, what gives? Obviously each study looks at different factors, and these factors reflect the authors’ theories about what makes an economy tick.

• The Kaufman Foundation focuses on jobs in information technology, exporting, business start-ups, use of digital technology, and capacity for research and development (The 2010 New Economy Index: Benchmarking Economic Transformation in the States).
• The Tax Foundation focuses on business taxes because “companies will locate where they have the greatest competitive advantage” (Background Paper: 2011 State Business Tax Climate Index).
• Like the Kaufman Foundation, the U.S. Chamber of Commerce and the National Chamber Foundation see innovation and entrepreneurship as key to creating jobs, but measure the capacity to do so differently. They also rank states according to separate measures, which explains why Connecticut scores high on some and low on others (Enterprising States: Creating Jobs, Economic Development, and Prosperity in Challenging Times).

State Prison Populations Declined Nationwide in 2009; Connecticut Decline the 4th Largest

Connecticut’s prison population declined by 4.6% in 2009, tying us with Maryland for the fourth largest decline among the states. With a decline in 24 states and an increase in 25 states (Iowa did not report data), overall state prison populations dropped for the first time in 38 years. Rhode Island experienced the largest decline, dropping 9.2%, while Alaska had the largest increase at 5.9%.

A National Conference of State Legislatures report discusses this data and trends in criminal justice policy. It focuses on states’ increasing investment in community-based policies and programs as a way to reduce prison populations and costs. The report also has useful links to other resources on this topic.

Bicyclist’s Death May Lead to Change in Police Training Standards

The Hartford Courant reports that the arrest of an off-duty police officer in connection with an accident that killed a 15-year old bicyclist is prompting legislative leaders to consider changing training and evaluation standards for police applicants. The officer had been rejected by five police departments before he was hired by the Windsor Locks Police Department, where his father is a police sergeant, according to the Courant. The State Police investigation concluded that the officer had been drinking for nearly six hours before the accident occurred.

Bond Rating Agencies Affirm Stable Outlook for Connecticut

The three credit rating agencies, Standard & Poor’s (S&P), Moody’s, and Fitch reaffirmed their AA (S&P and Fitch) and Aa2 (Moody’s) ratings on $570 million of taxable and tax-exempt Connecticut general obligation (GO) bonds this fall. The agencies see a stable outlook for Connecticut based on its:

• “Substantial and diverse economic base” with strong anchors (S&P)
• High income and wealth levels 
• Stabilizing revenues 
• Conservative revenue estimating
• Active revenue monitoring and quick identification of budget shortfalls
• Absence of legal limitations on state revenue

 The main credit risks are Connecticut’s:

• History of “highly cyclical” budget performance
• Above average debt levels and unfunded pension liabilities
• Large structural budget gaps produced by “steep revenue losses combined with persistent spending pressure” (Fitch) 

Ratings of Connecticut GO bonds dated September 30, 2010 (Fitch), October 4, 2010 (S&P), and October 6, 2010 (Moody’s) are available from the Legislative Library.