Earlier this week budget analysts told two legislative committees the state would end the year with anywhere between a $67 million and $100 million surplus, but Thursday state Comptroller Kevin Lembo pegged the surplus at $79.1 million.
However, Lembo warned that the estimate was made with “a great deal of uncertainties due to a volatile stock market and lack of a federal budget.”
“Revenues are on target so far – but the volatile stock market remains a great concern with its influence on the state income tax and possible budget swings,” Lembo said. “And while labor savings promise great long-term benefits, we must continue to monitor the immediate impact on health and pension savings.”
“With so many economic unknowns, any projections over the Office of Policy and Management target are unrealistic at this point,” Lembo noted.
And any money left over at the end of the fiscal year really doesn’t create a surplus for the state since $75 million is dedicated to helping the state transition to Generally Accepted Accounting Principles and anything left over after that will be reserved to pay down debt associated with 2009 Economic Recovery Notes.
Lembo also noted in his monthly letter to the governor that the General Fund budget is within $1 million of its allowable appropriation limit under the constitutional cap.
“To the extent that allocated lapse savings cannot be achieved through the budget plan mechanisms, other means of achieving savings must be found,” he wrote.
On Wednesday, Office of Policy and Management Secretary promised the legislature’s two budget-writing committees to stay within the spending cap and expressed confidence that the administration would achieve the necessary savings within state agencies.
But controlling state spending is the only thing Barnes can control. The revenues the state is able to bring in will rely largely on the economy.
“The economy continues to show slow and erratic growth – further clouding the state’s financial outlook,” Lembo said.
According to the Department of Labor, Connecticut is adding an average of 1,600 jobs per month, slowly reducing the unemployment rate, which now stands at 8.7 percent. But housing permits, which give an indication of economic activity in the construction sector, financial lending, and durable goods, were down almost 6 percent from July of last year and permits are down 75 percent from the peak reached in 2004.
Lembo said inflation is also a concern. After remaining below 2 percent for the second half of 2010, inflation is now running at a rate of over 3 percent.
“It should be noted that a significant percentage of the state’s income tax revenue is tied to capital gains,“ Lembo said. “Volatility in the stock market results in volatility in this revenue category. The current unsettled market conditions raise significant concerns, and will be addressed in future projections.”