The General Assembly and Gov. Dannel P. Malloy’s administration knew that when they passed a budget that was perilously close to the constitutional spending cap keeping it balanced and under the cap would be difficult, but not impossible.

Office of Policy and Management Secretary Ben Barnes told state Comptroller Kevin Lembo this week that the budget is currently $2 million over the spending cap.

“If not addressed, this overexpenditure could result in exceeding the cap and impact the state’s ability to remain in balance on a GAAP basis,“ Barnes wrote in his monthly letter. “Significantly, the adopted budget is within $1 million of the expenditure cap, so spending will ultimately need to be brought in line with appropriations in order to remain within the limits of the cap.“

But the bad news doesn’t end there.

There’s a $15 million shortfall forecast in the Department of Social Services’ Medicaid account due to continued growth and the Public Defender Services Commission is experiencing a $2 million deficiency in the contracted attorney’s account to resolve payments for cases handled by child protection attorneys.

Despite the concerns, including state agency deficiencies and gridlock in Washington D.C., “I am confident we will stay under the spending cap even if that means we may need to make some very difficult choices,” Barnes said.

Fearful the nation may be in the second half of a double dip recession and doesn’t even know it yet, Barnes also worries about tax revenues meeting the projections set forth in the budget. He said the budget is based on the second half of the two-year budget beginning to improve.

“I’m very nervous about revenues,” Barnes said Thursday.

But he’s not even close to throwing in the towel.

Rep. Arthur O’Neill, R-Southbury, who warned back in June that this was bound to happen, said Thursday the fact that the state is already $2 million over the cap is “evidence of the failure of the administration to properly manage the budget.“

O’Neill said the governor could ask for an emergency declaration to exceed the spending cap. He even suggested the October special session on jobs could be a convenient time to present such a proposal.

“They could do this if they wanted to, but first they have to admit they’re not going to be able to balance the budget,“ O’Neill said.

“That’s preposterous,” Barnes said. “I’m concerned about our future too, but why would we do that before we do rescissions?”

Barnes said exceeding the spending cap is one of the last things the administration will do in order to meet its obligations.

The $20 billion budget the legislature approved was just $1 million under the spending cap in the first year, and the previous biennium budget exceeded its original spending estimates by close to $330 million.

O’Neill pointed out that no governor in recent memory has been able to keep spending within $1 million dollars of its estimate. Just the state comptroller’s office, then run by current Lt. Gov. Nancy Wyman, overran its own budget by more than $600,000, he said. That is approaching the $1 million cushion factored in for a $20 billion budget, he pointed out.

“That’s like saying you’re going to balance your family budget for the year within a penny,” O’Neill said back in June. On Thursday, O’Neill pointed out that spending over the cap exposes the state up to a potential court challenge, even though he said it’s highly unlikely to happen.

On the Democratic side, House Speaker Chris Donovan said he was concerned, but promised the legislature would remain vigilant.

“It is cause for concern, but it’s early in the budget year and only a projection,“ Donovan said. “The administration will be monitoring expenditures as the fiscal year moves forward, as will the legislature.”

Back in June during the budget debate, Rep. Toni Walker, co-chairwoman of the Appropriations Committee, said if the spending were to run up against the cap, there are options. The governor could issue a declaration of fiscal exigency, she said, which would allow the state to spend over the cap. However, that would need to be approved by both legislative chambers with a least a three-fifths majority.

During both former Gov. M. Jodi Rell and Gov. John G. Rowland’s administrations the spending cap was exceeded with the help of the Democrat-controlled legislature.

O’Neill said the more honest thing to do would be to acknowledge the budget will exceed the spending cap.

Barnes said the governor will exercise his rescission authority and look for lapses in state agencies before that ever happens.

“I don’t intend to put the state in that situation unless the alternative is worse,” Barnes said.