Outgoing Sen. William Nickerson, R-Greenwich, said the way in which the state originally structured the income tax made it highly volatile, especially in light of the current crisis on Wall Street. He said nearly 50 percent of the state’s income tax revenue comes from 70,000 people in Fairfield County, many of whom work on Wall Street. These individuals were hit hardest by the national economic crisis.

Seventeen percent of the states workforce is employed in the financial services industry. That’s three percent higher than the national average of 14 percent.

Genuario said the state will continue to see shrinking revenue if the stock market continues to perform poorly. A third of the revenue the state collects in income taxes comes from investment-related income, such as the capital gains tax.

The quickly eroding state income tax revenue, particularly involving income tied to capital gains, dividends, and year-end bonuses, means the state’s 2009 budget will still be about $280 million in the red, even if lawmakers endorse Gov. M. Jodi Rell’s plan to eliminate the existing deficit during next week’s special session.

Genuario agreed with Nickerson that income tax is a volatile revenue source. He said the way in which the income tax is structured creates large surpluses when things are good and large deficits when things are bad.

Genuario assured lawmakers Tuesday that the governor has been clear she does not believe this is the time to raise taxes.

Rep. Edward Moukawsher, D-Groton, said the state has billions of dollars in tax expenditures in the form of tax credits to businesses.

“Would you be prepared to review those tax expenditures?” Moukawsher asked.

“I think it’s an appropriate question,” Genuario said. He encouraged Moukawsher not to exaggerate the amount of tax credits and said his office would be reviewing the benefit the state receives from each of those credits outlined on pages 42 and 43 of the Nov. 12th Office of Policy and Management budget report.

Rep. Tom Reynolds, D-Gales Ferry, said he’s surprised how many of his constituents understand the problem the state is facing and “how our decisions contributed to the degree of the crisis we’re in and our handicap to address it.”

Will the governor’s state-of-the-state address show the state has turned the corner and is ready to start talking about reform? Reynolds asked.

“Yes,” Genuario said. He said there may be arguments over what is reform and what is a gimmick, but there will be reform in the way the state provides services.