As Congress prepared to vote on an agreement to raise the federal debt ceiling Monday, the governor and state comptroller offered different views on how that deal might impact the state’s economy.
Speaking to reporters before a tour of New England Assistive Technology Center in Hartford, Gov. Dannel P. Malloy seemed encouraged as the deal contained no short-term cuts to Medicaid. He, along with other governors, was apprised of the current agreement on the deal Sunday by administration officials.
Malloy said he preferred the plan President Barack Obama had originally offered but “given the circumstances, this is about as good as it could get.”
In a statement Monday, State Comptroller Kevin Lembo was less positive. He said the state’s financial outlook could be compromised if federal funding to states is cut as a result of the federal debt-ceiling bill.
In his monthly report to Malloy, Lembo noted the state’s projected General Fund surplus reached $158.9 million for the Fiscal Year 2011, but that surplus was heavily reliant on federal funds.
Last year’s surplus relied on one-time financial fixes, including federal stimulus funds of $739.6 million, according to Lembo, which the state will not receive this year.
“We reached this surplus using a federal lifeline that has now disappeared,” said Lembo. “A looming vote on the federal debt puts a dark cloud over Connecticut’s financial outlook. Dollars that we depend on year after year could suddenly disappear if federal spending cutbacks result in drastic funding cuts to Connecticut. One year’s federal stimulus money could become another year’s devastating federal cutbacks.”
The state was forced to make deep cuts and increase taxes to fill a $3.3 billion deficit instead of relying on federal stimulus funds.
“Clearly we built this budget not anticipating any continuation on that aid, and again as much as we know about the current agreement that presumably is going to be voted on today, it doesn’t have any large short-term cuts,” said Malloy.
While the plan would have no short-term cuts, Malloy said it could be “devastating” following 2013 because of cuts to Medicaid for low-income residents, which he said is the state’s largest single expense.
Under the current plan the government would save about $917 billion through a cap on discretionary spending, and a bipartisan committee would find roughly $1.5 trillion in additional savings over the next decade.
“Whether that committee ultimately sees that ending some of these loopholes are a part of the way of getting to the savings we need, I certainly would advocate that,” Malloy said. “If they go down that road I think we will be in better shape than if they simply do it on spending.”
The current uncertainty over the debt-ceiling bill was not Lembo’s only concern. He added in his statement that the state faces other uncertainties including further decline in the jobs and housing markets.
The state Department of Labor reported a lose of 4,100 jobs in the month of June and by Lembo’s predictions at the current rate of job growth it would take the state more than a decade to regain the roughly 100,000 jobs lost during the recession.
Along with the declining job market, Lembo noted housing prices fell 9.9 percent in the first quarter of 2011 as compared to the first quarter of 2010.