Poof. Just like that Connecticut’s more than $83 million budget surplus has all but disappeared in a matter of weeks.
The budget surplus is now a measly $1.4 million, according to the Office of Policy and Management’s monthly letter to state Comptroller Kevin Lembo. The letter was released Friday.
The OPM budget estimate posted the 20th of every month was not unexpected after the consensus revenue estimates last week showed revenues from income and capital gains taxes were below projections.
Revenues are nearly $102 million below projections and the only bright spot seems to be the sales tax, which has been revised upwards to $25.5 million.
On the spending side of the budget, OPM is now projecting two significant net deficiencies in the account that funds health care for retired state employees, and a shortfall is also expected in the account that funds pension payments to state employees. Some of those shortfalls are related to changes in the State Employees Bargaining Agent Coalition agreement and the 2,700 retirements that followed.
“In light of the unexpected decline in revenues noted above, I have been charged by the governor with developing and implementing a plan to reduce spending in order to maintain balance in the General Fund on a GAAP basis,” Office of Policy and Management Secretary Ben Barnes wrote in the report.
“By early next week, I fully anticipate that the governor will exercise his rescissionary authority. Additionally, other efforts to achieve balance may be implemented to include delayed or cancelled hiring, reductions in discretionary spending, closure of some programs, and, if necessary, action will be requested of the legislature,” Barnes added.
Gov. Dannel P. Malloy promised last week to end the year in the black and under Generally Accepted Accounting Principles by cutting spending and avoiding more tax increases. Last year, the state passed the largest tax increase in history to close a more than $3.5 billion budget deficit.
“We’re going to balance the budget,” Malloy said last Wednesday. “We’re going to make spending cuts that’s what we’ll do.”
The governor has the power to rescind spending in many line items by up to 5 percent without legislative consent, but those rescissions don’t include municipal aid.
Republican lawmakers charged last week that the tax increases hindered the state’s economic recovery and threatened the Democratic governor’s campaign pledge to transition the state to GAAP accounting.
In his letter to Lembo, Barnes said under GAAP the state already has a $73.6 million operating deficit.
In order to get to GAAP the state planned to set aside $75 million in anticipated surplus at the end of the fiscal year to begin paying down the GAAP differential which is about $1.7 billion.
Under the modified cash basis of accounting that the state currently uses it’s able to avoid counting expenses it already made while counting revenue it did not yet have. It can’t do that under GAAP.
In an editorial Barnes wrote in the New London Day Sunday he said the state has no plans to delay implementation of GAAP accounting.
“Specifically, our implementation of GAAP is on track with the plan laid out in the executive order and in the Conversion Plan submitted by Office of Policy and Management to the General Assembly,“ Barnes wrote. “The myth has developed that somehow Gov. Malloy “backed off” implementing GAAP right away. Not true. With Exec Order No. 1, Gov. Malloy immediately moved the state to GAAP.”
“I have every expectation that the state will end the year in balance,” Barnes wrote in his Jan. 20 letter to Lembo.
Last week, Malloy anticipated Barnes to give him a plan to resolve what’s anticipated to be a nearly $95 million deficit by today.