Rosy projections over how much revenue Connecticut would receive from the federal government has thrown budget projections $63.4 million into the red less then two months into the new fiscal year.

Gov. M. Jodi Rell announced the bad news Friday when her budget office released its monthly letter to state Comptroller Nancy Wyman.

Connecticut’s share of federal Medicaid and education funding was $193.4 million less than state budget anticipated. However, the deficit comes despite an improvement in projected state income and sales tax collections. Income tax collections are up $127.5 million and sales tax collections are up $153.8 million.

“I will be working with my budget officials to erase the shortfall through administrative actions,” Rell said. “The fiscal year has barely begun and we have an opportunity – one we cannot afford to miss – to control this deficit before it grows unmanageable. I will be announcing the details of my budget-cutting plans soon.”

But despite the desire to cut, the expenditure side of the budget remains a challenge as the demand for services continues.

Expenses are currently projected to exceed the budget by $171.7 million, in part because of continued high demand for social services and in part because planned savings, such as $50 million in cost-cutting that is supposed to be achieved by the legislature’s Commission on Enhancing Agency Outcomes, has not materialized, Rell said.

Leaders in the Democratically-controlled legislature had a different take on the budget situation.

While acknowledging the decrease in federal revenues was disappointing Sen. President Donald Williams said the Rell administration has not done its part to find savings.

“Making matters worse the Rell administration has apparently given up on making $170 million in spending cuts,” Williams said Friday. “All of the savings from these cuts, much of them proposed by the governor herself, are included in the budget. Given the size of the state’s fiscal challenges, it is imperative that the Rell administration makes the difficult decisions necessary to reduce spending.”

As for the $50 million in savings expected from the legislature’s Commission on Enhancing Agency Outcomes, those numbers aren’t due until the end of the year, Williams said.

“We’re also disappointed that Gov. Rell is writing off $50 million in savings included in a legislative report that isn’t due until the end of the year,“ Williams said. “The bipartisan Commission on Enhancing Agency Outcomes submitted an initial report that identified opportunities for significant savings and we encourage the executive branch to aggressively pursue them.”