(Updated 3:50 p.m.) It was no secret last week that Gov. Dannel P. Malloy’s budget proposal uses almost all of the nearly $500 million budget surplus in order to balance the 2013 budget, including about $329 million in new spending. What wasn’t as clear was the large deficits it creates fiscal years 2014, 2015, and 2016.
In order to balance the budget in 2014, Malloy’s budget office will have to cut about $650 million from current services in order to stay in balance and under the constitutional spending cap. That’s twice the amount of additional spending it plans on doing in fiscal year 2013. .
Where will the cuts come from?
“That’s the budget we’ll submit a year from now,” Malloy’s Budget Director Ben Barnes, said Friday. “And we’ll balance it then.”
According to a spread sheet compiled by one of Barnes’ interns, out year deficit projections are fairly common place during past administrations too.
Under former Gov. M. Jodi Rell’s administration the deficit was headed for $395.1 million in 2008 and in 2010 it was projected at $3.3 billion. Malloy’s deficit in 2014 is about $423 million.
“Every single budget since 2003 has been shown to be over the cap and out of balance in the out years,” Barnes said. “The way we define current services is hyper inflated.”
But not everyone is as confident about the projections as Barnes.
The Office of Fiscal Analysis has said his current 2012 budget is about $145 million in deficit. Its analysis of the 2013 budget is expected out later this week.
Republicans lawmakers expressed doubt about the administration’s ability to balance not only this year’s budget, but next year’s budget.
“Gov. Malloy has staked his political reputation on the fact that this economy will turn around,” House Minority Leader Lawrence Cafero, R-Norwalk, said Friday. “Obviously we disagree.”
He recalled the budget battle three years ago when Rell, after months of fighting with the Democratic legislature, agreed to let a budget go into effect without her signature that closed a more than $8 billion deficit, but created a structural hole. It was that structural hole which lead to the $3.5 billion problem Malloy and the legislature solved last year with the largest tax hike in the state’s history and $1.6 billion in union concessions.
Cafero said Malloy’s picture of where the state’s revenues stand at the moment is entirely optimistic and believes if Malloy’s budget passes as proposed he will be back asking for a tax hike next year.
“We as a state are in for a rude awakening,” Cafero said.
But Sen. Majority Leader Martin Looney, D-New Haven, said he has confidence in Malloy’s revenue projections and the budget proposal.
He said it’s unlike a few years ago when Rell’s budget failed to close an $8 billion deficit. In Feb. 2009, Rell’s initial budget closed a $6 billion deficit and the two sides spent weeks fighting over the size of the deficit.
“These are projections,” Looney said of the out year deficits. “And the administration has expressed confidence it will balance the budget.”
So while Republican lawmakers are likely going to want to rein in state spending, the legislature’s Democratic majority is more likely to agree with the governor, as it did during his first term.
Cafero warned that if the legislature abdicates its authority to balance the budget again, it would be a mistake.
Meanwhile, some economists believe the state will continue to have problems on the revenue side of the budget.
Peter Gioia, an economist with the Connecticut Business and Industry Association, is not one of them.
Gioia said he doesn’t have as pessimistic a view of the state’s economy. He said he’s actually seeing some improvements in manufacturing and exports.
A CBIA survey released Monday showed that 46 percent of respondents saw their own company improving over the next three months, with only 14 percent expecting a worsening. In the third quarter survey, only 29 percent of respondents saw the potential of improvement and 28 percent saw the potential that their company would worsen.
Gioia said he’s not trying to be ‘Pollyannaish” about the projections, but he doesn’t agree with other state economists, like Fred Carstensen, who projected revenue growth would be about half of what Malloy projecting in order to balance his budget.
On The Spending Side
The additional spending the state plans on doing this year should be considered investments in Connecticut’s future and should not be pared back in order to deal with a projected deficit, Barnes said.
“Frankly, if we end up having to cut something in the future, it’s not going to be our commitment to education or eliminating the achievement gap,” Barnes said. “I frankly think that’s more important than some of the current services the state provides.”
Barnes acknowledged it’s hard to cut spending on anything. Asked where he would cut if he has to cut, Barnes was noncommittal.
“I wouldn’t guarantee that we won’t ever propose cuts to municipal funding,” Barnes said. “Of course we may. It may mean there are higher priorities.”
But right now education and contributing more money to the state employees pension fund are at the top of the administration’s list. Municipalities will be able to breath a sigh of relief for the moment since they will receive the same amount of money next year that they received this year. Beyond that the administration was making no commitments.