HB 5039 — AN ACT REQUIRING TRANSPARENCY AND ADDITIONAL OVERSIGHT OF THE DISTRIBUTION OF CERTAIN LEGISLATIVELY DIRECTED FUNDS AND APPROPRIATIONS FOR OTHER EXPENSES.

5039 (3) On and after July 1, 2027, no state agency shall enter into any new agreement or obligation that would qualify as a transitional noncompliant Other Expenses obligation or continue any such obligation unless such obligation has been reclassified or expressly reauthorized by a public or special act of the General Assembly.

(d) On and after July 1, 2026, each state agency that makes an expenditure from Other Expenses to a recipient that is a municipality or a nonprofit shall submit to the Secretary of the Office of Policy and Management a statement that includes (1) the purpose of such HB5039expenditure, /(2) Filethe No.statutory or program guidelines authorizing such expenditure, and (3) whether such expenditure constitutes financial assistance or a grant award.

605Any HB5039budget Filedocument No.or report on the status of the budget submitted by the Governor pursuant to section 4- of the general statutes shall identify any such expenditure and include the information specified in subdivisions (1) to (3), inclusive, of thissubsection,andifanysuchbudgetdocumentorreportrecommends that such an expenditure be made annually, such expenditure shall be included as an individual appropriation and not an expenditure from Other Expenses.

605(e) expenditure,Not (2)later than thirty days after the statutoryAuditors orof programPublic guidelinesAccounts authorizingreport suchthe expenditure,results of any state agency audit in accordance with the provisions of section 2-90 of the general statutes, the Secretary of the Office of Policy and (3)Management whethershall suchreport, expenditurein constitutesaccordance financialwith assistancethe orprovisions of section 11-4a of the general statutes, to the joint standing committees of the General Assembly having cognizance of matters relating to finance, revenue and bonding, appropriations and the budgets of state agencies and government oversight a grantdetailed award.list of Public Act No.

Any26-27 budget10 document or report on the status of the11 budgetHouse submittedBill byNo. the Governor pursuant to section 4- 71 of the general statutes shall identify any such expenditure and include the information specified in subdivisions (1) to (3), inclusive, of thissubsection,andifanysuchbudgetdocumentorreportrecommends that such an expenditure be made annually, such expenditure shall be included as an individual appropriation and not an expenditure from Other Expenses.

(e)5039 Not later than thirty days after the Auditors of Public Accounts report the results of any state agency audit in accordance with the provisions of section 2-90 of the general statutes, the Secretary of the Office of Policy and Management shall report, in accordance with the provisions of section 11-4a of the general statutes, to the joint standing committees of the General Assembly having cognizance of matters relating to finance, revenue and bonding, appropriations and the budgets of state agencies and government oversight a detailed list of eachexpendituremadebysuchagencyovertheamountoftenthousand dollars from Other Expenses, including (1) the name of the recipient, (2) the amount of the expenditure, (3) the purpose of the expenditure, and (4) the date approval was received from the secretary, in accordance with subsection (d) of this section, if applicable.

(g) After any expenditure is identified by the Auditors of Public HB5039Accounts /as Fileinconsistent No.with the provisions of this section in accordance with subsection (f) of this section, the Secretary of the Office of Policy and Management shall issue a letter to the department head of the state agency that made such expenditure stating corrective action that the state agency shall take to prevent reoccurrence of an expenditure being made from Other Expenses that is inconsistent with the provisions of this section.

605 HB5039 File No.

605 Accounts as inconsistent with the provisions of this section in accordance with subsection (f) of this section, the Secretary of the Office of Policy and Management shall issue a letter to the department head of the state agency that made such expenditure stating corrective action that the state agency shall take to prevent reoccurrence of an expenditure being made from Other Expenses that is inconsistent with the provisions of this section.

ThisGovernor's actAction: shall take effect as follows and shall amend the following sections:

SectionApproved 1May July19, 1, 2026 NewPublic sectionAct Sec.No.

226-27 July11 1,of 202611 New section Sec.

3 July 1, 2026 4-186(d) Sec.

4 July 1, 2026 New section Sec.

5 July 1, 2026 New section HB5039 / File No.

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605 The following Fiscal Impact Statement and Bill Analysis are prepared for the benefit of the members of the General Assembly, solely for purposes of information, summarization and explanation and do not represent the intent of the General Assembly or either chamber thereof for any purpose.

In general, fiscal impacts are based upon a variety of informational sources, including the analyst’s professional knowledge.

Whenever applicable, agency data is consulted as part of the analysis, however final products do not necessarily reflect an assessment from any specific department.

OFA Fiscal Note State Impact:

Agency Affected Fund-Effect FY 27 $ FY 28 $ Policy & Mgmt., Off.

GF - Potential See Below See Below Cost Note:

GF=General Fund Municipal Impact:

None Explanation The bill establishes policies and procedures to administer legislatively directed funds (LDFs).

The associated impacts are noted below.

OPM Potential Cost.

The bill results in a potential cost to the Office of Policy and Management (OPM) to hold a pre-award conference.

Any cost is dependent on the number of recipients that must attend the conference.

Reporting Requirements.

The bill also establishes various reporting requirements which have no fiscal impact.

The bill requires the OPM to (1) adopt policies for state agencies that oversee the administration of LDFs, and (2) publish a database annually beginning January 1, 2027.

This does not result in a fiscal impact to OPM as they have the resources necessary to meet these requirements.

The bill also requires OPM and the Auditors of Public Accounts (APA) to review and report on expenditures made by state agencies under the Other Expenses line item.

It is anticipated that OPM and APA HB5039 / File No.

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605 can accommodate these requirements within existing resources.

The bill also establishes policies and procedures to administer LDFs.

There is no direct fiscal impact as the bill is similar to the recently announced, statewide executive branch policy on legislatively-directed or "earmarked" funds (LDFs).

But there are potential fiscal impacts associated with that policy which are noted in the background below.

Background on OPM January 20 Policyh State Agencies Administration.

The implementation of the policy may increase an agency's administration workload based on (1) the volume of LDFs, (2) the complexity of any particular LDF, and (3) agency resourcesalready dedicatedto managing LDFs.Some additional staffing (e.g., temporary, part-time or full-time) may be required by certain agencies to accommodate this workload.

For context, PA 25-168, the FY 26 and FY 27 budget, includes 321 LDFs across sixteen executive branch agencies totaling approximately $89 million in FY 27.

The number of LDFs each such agency administers in FY 27 ranges from one to 200 administered by the Department of Economic and Community Development (DECD).

1 Potential Lapses in Appropriations.

To the extent that some designated recipients are unwilling or unable to comply with the new requirements under the policy, some LDF appropriations in FY 27 and beyond may go unspent and lapse.

House "A" requires OPM to hold a pre-award conference which results in a potential cost to that agency.

The amendment also makes modifications to the administration of LDFs and establishes additional reporting requirements which have no fiscal impact.

The Out Years The Appropriations Committee revised FY 27 budget includes three additional positions within the DECD to enhance oversight of LDF grants and contracts.

HB5039 / File No.

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605 The annualized ongoing fiscal impact identified above would continue into the future subject to inflation.

HB5039 / File No.

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605 OLR Bill Analysis HB 5039 (as amended by House "A")* AN ACT REQUIRING TRANSPARENCY AND ADDITIONAL OVERSIGHT OF THE DISTRIBUTION OF CERTAIN LEGISLATIVELY DIRECTED FUNDS.

SUMMARY This bill addresses the management and oversight of legislatively directed funds (LDFs) and agencies’ “Other Expenses” appropriations by creating requirements for LDF recipients and subrecipients, administering state agencies (defined as executive branch entities other than public higher education institutions), and the Office of Policy and Management (OPM).

The bill defines an LDF as a specific amount appropriated by the General Assembly by public or special act for a contract or other expenditure with a grant, loan, or other form of economic assistance to a specific entity.

It does not include funds authorized by the State Bond Commission or appropriations (1) in response to a natural disaster or emergency;

(2) to a state agency, a political subdivision, the Judicial Department, the Legislative Department, or a constituent unit of public higher education as the recipient or subrecipient;

or (3) made through a formula or competitive award process (including statutorily defined grant programs).

Specifically, the bill:

1.

generally limits state agencies from entering written agreements to provide funds to an entity at the direction of the General Assembly, unless the General Assembly has included specific recipient information in legislation or in the Office of Fiscal Analysis’ (OFA) budget sheets;

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605 2.

requires OPM to adopt policies and procedures for state agencies thatadministerLDFs,inordertohaveuniformproceduresacross agencies and ensure LDFs are distributed in a way that achieves their intended purpose;

3.

requires reports and publications by LDF recipients, state agencies, OPM, and the Auditors of Public Accounts (APA);

and 4.

prohibitscertainusesofagencies’OtherExpensesappropriations and creates a transition process for certain non-compliant uses.

*House Amendment “A” modifies the LDF definition and reporting and publishing requirements, including adding a written notice on allotment reductions related to LDFs;

adds a pre-award conference for training on LDFs;

changes requirements for OPM’s LDF policies and procedures;

modifies legislative requirements for identifying entities;

adds the provisions on agencies’ Other Expenses appropriations;

and makes other minor and technical changes.

EFFECTIVE DATE:

July 1, 2026 LEGISLATIVE REQUIREMENTS TO IDENTIFY RECIPIENTS AND USE OF FUNDS The bill prohibits state agencies from entering into a written agreement to provide funds (such as grants, loans, or incentives) to a specific entity at the direction of the General Assembly unless a public or special act appropriates the funds and the special act, public act, or OFA’s Connecticut State Budget Agency Sheets include:

(1) the awardee’s identity, including their legal name, the actual name the entity is doing business under, or its principal office address;

(2) a description of the intended purpose of the funds;

and (3) the same information described above about any intended subrecipient.

These requirements do not apply to appropriations or funds that are excluded from the definition of LDF.

OPM LDF POLICIES AND PROCEDURES The bill requires OPM to establish policies and procedures for state HB5039 / File No.

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605 agencies that administer LDFs.

The policies must include the manner in which LDFs are distributed to recipients to ensure they are used for the intended purpose.

If the policies are adopted or revised on or after July 1, 2026, the bill requires the OPM secretary to email the policies and proceduresto a committee ofthesix legislative leaders;thechairpersons and ranking members of the Appropriations, Finance, Revenue and Bonding, and Government Oversight committees;

and the chairperson and vice-chairperson of the Black and Puerto Rican Caucus.

The adopted or revised policies and procedures are not effective until 60 days after submission, unless waived by a majority of the committee members.

The bill allows OPM to adopt policies and procedures without going through the regulatory process.

LDF Distribution Requirements The bill requires LDFs to be distributed in a uniform procedure as follows:

1.

for LDFs up to $150,000, the funds must be distributed as an initial or advance payment or scheduled disbursement of funds according to a written agreement between the administering state agency and the recipient that states the funds’ intended use;

and 2.

for LDFs greater than $150,000, the administering state agency may distribute the funds in an initial or advance payment, if the state agencyconsultswiththeLDFrecipient anddetermines after considering the appropriations purpose that it (1) is necessary to ensure the payments are responsive to the recipient’s needs for the LDF’s purpose and (2) facilitates startup or procurement costs, with the remaining balance distributed in subsequent payments or as reimbursements based on eligible expenses (distribution must be made according to a written agreement between the administering state agency and the recipient that states the funds’ intended use).

Reimbursement Requirements HB5039 / File No.

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605 If an LDF is distributed on a reimbursement basis, the administering state agency’s reimbursement procedures must:

1.

not impose administrative barriers or documentation requirements that (a) are inconsistent or more burdensome than required by the bill, (b) prevent nonprofits or community-based entities from receiving or using the funds, or (c) jeopardize the funds’ intended use and purpose;

2.

provide reimbursement determinations within 45 days after a recipient’s eligible expense claim is submitted to the administering state agency;

and 3.

allow initial or advance payments to recipients when necessary to ensure the funds are used as intended.

Subrecipient Requirements for Payment Before making any type of payment to a subrecipient (defined as an entity that receives LDFs from a state agency or other pass-through entity for the same authorized purpose, excluding subcontractors), the LDF recipient must obtain the written approval of the administering state agency and the OPM secretary, if required under the OPM policies and procedures.

State Agency Remittance Requirements Within 15 days of receipt of an LDF request for reimbursement, the administering state agency must either approve the request or provide written acknowledgement ofreceipt.

The bill requires the administering state agency to remit payment within 45 days of receiving a properly submitted, undisputed request.

OPM PRE-AWARD CONFERENCE FOR LDF RECIPIENTS The OPM secretary must annually, by August 1, hold a pre-award conference for LDF recipients.

Administering state agencies must designate at leastoneemployee to attendtheconference.

The conference must be recorded, and the recording and any written conference materials must be posted on OPM’s website.

The conference must HB5039 / File No.

605 HB5039 File No.

605 include:

1.

instruction on policies and procedures for administering LDFs, including invoicing, reimbursement policies, documentation requirements, and reporting requirements and deadlines;

2.

designationandcontact information ofat least one administering state agency employee whom LDF recipients may contact for fiscal and programmatic questions;

3.

a description of any monitoring, audit, or compliance review processes;

and 4.

any relevant written conference materials.

LDF REPORTING AND NOTICE REQUIREMENTS The bill creates the following reporting and publishing requirements:

1.

OPM must quarterly, beginning by October 1, 2027, report to the Appropriations, Finance, Revenue and Bonding, and Government Oversight committees providing an overview of LDF statuses for the current fiscal year, accounting of the funds disbursed since the last report (or since the start of the fiscal year for the first report), and a disbursement plan for any remaining LDFs;

2.

each LDF recipient must annually, beginning by January 1, 2028, report to theadministering stateagency describing howtheLDFs were used in the preceding fiscal year and how any subrecipient used funds, in a manner set by the OPM secretary;

3.

each state agency must annually, beginning by March 1, 2028, report to OPM summarizing LDFs administered by the agency in the prior fiscal year and any LDF recipient reports or a statement that the agency does not administer any LDFs, in a manner set by the OPM secretary;

4.

OPM must annually, beginning by June 30, 2028, publish a HB5039 / File No.

605 HB5039 File No.

605 database on OPM’s or another state website of all LDFs administered by each state agency in the previous fiscal year, including summaries from the annual reports described above;

and 5.

OPM must submit a preliminary report by June 30, 2028, and annually beginning by January 1, 2029, to the Appropriations, Finance, Revenue and Bonding, and Government Oversight committees summarizing the reports submitted by the administering state agencies and LDF recipients.

LDF Allotment Reductions Notice If the governor reduces an allotment requisition or allotment in force related to an LDF, the bill requires the OPM secretary to give written notice, including an explanation for the reduction, within seven days to the six legislative leaders.

“OTHER EXPENSES” IN STATE BUDGET The bill prohibits state agencies (executive branch entities other than public higher education institutions) from using any funds appropriated for Other Expenses (a category of their budget accounts that generally includes contractual services, commodities, and sundry charges) as grants or pass-through payments unless the (1) General Assembly passes a public or special act that appropriates funds for Other Expenses for this purpose or (2) funds are used according to a written agreement in effect on July 1, 2026, to fulfill a transitional non- compliant Other Expenses obligation (see below).

Transitional Non-compliant Other Expenses Obligations Transitional non-compliant Other Expenses obligations are any expenditure or obligation of funds from Other Expenses that provide financial assistance, a grant, or other payment to a recipient (in this context, recipients do not include a state agency, a political subdivision of the state, the Judicial Department, the Legislative Department, or a constituent unit ofpublichigher education)anddo not qualify for either above exception.

The bill prohibits expanding, renewing, or increasing HB5039 / File No.

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605 funding for transitional non-compliant Other Expenses obligations past the amount and duration authorized as of July 1, 2026.

By January 1, 2027, state agencies must review any expenditures of funds from Other Expenses and designate any transitional non- compliant Other Expenses obligations.

By the same date, the OPM secretary, in consultation with OFA, must create a plan to reclassify or reallocate each transitional non-compliant Other Expenses obligation in an appropriate way and submit the plan to the Appropriations, Finance, Revenue and Bonding, and Government Oversight committees.

Beginning July 1, 2027, the bill prohibits state agencies from continuing or enteringinto any new agreement or obligation that would qualify as a transitional non-compliant Other Expenses obligation, unless the obligation has been reclassified or reauthorized by the General Assembly.

Reporting and Review for Other Expenses If a state agency, on or after July 1, 2026, makes an expenditure from Other Expenses to a municipality or nonprofit, the bill requires the state agency to submit a statement to OPM that includes (1) the expenditure’s purpose, (2) the statutory or program guidelines authorizing the expenditure, and (3) whether the expenditure is financial assistance or a grant award.

Any budget document or report submitted by the governor to the General Assembly must include these expenditures and the information in the statement to OPM.

If any budget document or report recommends that an expenditure be made annually, the bill requires the expenditure to be included as an individual appropriation, not in Other Expenses.

Within 30 days of the results of any state agency APA report, the bill requires OPM to submit a report to the Appropriations, Finance, Revenue and Bonding, and Government Oversight committees listing expenditures over $10,000 from Other Expenses made by each agency, including the recipient’s name, expenditure amount and purpose, and date of approval from the secretary, if required.

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605 Additionally, the APA must annually review each state agency’s Other Expenses expenditures and report to the OPM secretary and the Appropriations, Finance, Revenue and Bonding, and Government Oversight committees.

The report must identify any expenditures inconsistent with these provisions, including any expenditures that are a grant award.

If the APA identifies inconsistent expenditures, the bill requires the OPM secretary to write a letter to the appropriate state agency department head providing corrective action to prevent reoccurrence.

The expenditure must be subject to recoupment or lapse and may result in a reduction in following Other Expenses appropriations.

BACKGROUND OPM Policy on LDFs OPM published a General Letter on January 20, 2026, titled “Legislatively Directed Funds Administration Policy.” It addresses LDF administration, state and federal compliance requirements, best practices, communication, and risk mitigation.

The policy requires, among other things, agencies to:

1.

request information, if not already included in a public act, from legislative leadership about the legislative intent of the LDF, whether a subaward is permitted, and the name and address of the recipient and any subawardee;

2.

document information on an intake form about the recipient or subawardee for state agency review, including general recipient information, intended use of the LDF, budget related to the LDF, organization documents, risk assessment, and any other necessary information;

3.

conduct an internal review and approval process, including management and fiscal office validation, issuing final grant approval letters, and withholding the LDF if the recipient or subawardee fails to comply with various policies;

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use a standard process for making payments on an invoice basis;

and 5.

follow other OPM best practices for LDFs.

Related Bill HB 5255 (File 321), favorably reported by the Government Oversight Committee, contains similar provisions addressing the management of legislatively earmarked grants.

COMMITTEE ACTION Government Oversight Committee Joint Favorable Yea 12 Nay 0 (03/17/2026) HB5039 / File No.

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