Gov. Dannel P. Malloy said “it’s too early to tell” whether the state will need to hold a special session to address a projected budget deficit.
The governor’s remarks come four days after his budget office reported that before the April 17 income tax receipts are counted, they are predicting a $141.9 million deficit under Generally Accepted Accounting Principles.
It was the first time his budget office reported that the state would end the year in deficit even though state Comptroller Kevin Lembo and the Office of Fiscal Analysis have been reporting deficits since January.
“We’ve got well over 60 days to figure out how to resolve it,” Malloy said Monday. “Obviously I’ve told people not to spend money.
“We will counsel people to be circumspect in the expenditure of those monies which simply don’t need to be spent,” Malloy said, referring to the executive agencies he controls. “In my government background I’m certainly aware that toward the end of the year, and we are at the end of the year, in many types of government there’s usually a rush to spend money — we want to dampen that down as much as possible.”
While he downplayed the budget deficit in a nearly 20-minute press conference with Capitol reporters Monday, Malloy said he didn’t believe increasing taxes or borrowing would be necessary.
But a deficit of any size does put in jeopardy at least one of Malloy’s initiatives, which was to use a $75 million surplus to start paying down the Generally Accepted Accounting Principles differential. The state has already begun to transition its accounting practices, but it would need $1.7 billion in order to cover all the obligations created by changing its accounting practices from a cash basis to a GAAP basis.
Malloy said he’s not worried about accomplishing it and plans to keep an eye on state spending as June 30 approaches.
“I’m still hopeful we’ll be able to do that,” Malloy said.
The bulk of the deficit identified by Malloy’s administration Friday is its Medicaid account.
He said the Medicaid issue is a “tough” one.
The Medicaid account has a $93.2 million shortfall because of growth in the Low-Income Adults (LIA) program and payment of claims. Payments are going out faster than was anticipated following the transition back to an administrative service organization model, according to Office of Policy and Management’s April 20 letter to the comptroller.
“More people signed up for LIA than we had thought that’s why in our package of legislation we asked that we have a means test for LIA,” Malloy said.
The idea was immediately rejected by the legislature and it’s unclear if the federal government would have allowed it. The state would have needed a waiver from the Centers for Medicaid and Medicare Services in order to implement an asset test.
The Democratic majority removed it from their budget proposal.
Malloy reminded reporters that when he took office the state had a $3.6 billion deficit he had to solve in his first year in office. He said now the state is talking about a deficit below $200 million.
“I’m disappointed that that might be a possibility,” Malloy admitted. “Certainly we’ll do everything in our power to have that not be a possibility.”
Last year’s budget included labor concessions and the largest tax increase in the state’s history in an attempt to guarantee the state would end the year in the black. Ending the year in the red leaves Malloy open to criticism from the Republicans who voted against his budget and the tax increases.
“I think it would be better if we were running a surplus, but let me point out to you that if we were running a surplus and projecting a surplus, Republicans would be arguing we raised taxes more than they originally said,” Malloy told reporters.
