Just one year after the second largest tax increase in the state’s history, state Comptroller Kevin Lembo certified that the state will end the year with a $192.3 million deficit.
The deficit will be closed with the use of $222 million in funds the state planned to use to pay down borrowing it did back in 2009 to close that year’s deficit. Republican lawmakers have called the use of the funds to balance the budget a gimmick, which could harm the state’s credit rating in the future.
But projecting how much revenue the state will receive has been difficult.
In his letter to Gov. Dannel P. Malloy, Lembo said revenue forecasts fell $250.7 million short of original budget projections.
However, the income tax performed well in two of its three components.
The withholding portion of the state income tax – related to job and wage growth – is performing as expected, up 18.3 percent from last year. However, the estimated payment portion of the tax – related to capital gains and bonus payments – was up only 5.9 percent, which is lower than historical post-recession patterns.
“The economy is the largest single influence on the state budget – dwarfing any other budget drivers,” Lembo said in a press release. “Wall Street’s erratic equity markets and challenges in the financial sector – which had the largest private-sector job loss in the state – is the driving force behind this deficit.”
Lembo speculated that if the income tax had followed “a more historically consistent post-recession pattern, the current deficit would have been significantly reduced or eliminated.”
Spending for the year, exceeded projections by $22.5 million, but Lembo said that’s to be expected when economic growth remains depressed.
“Slower than anticipated economic growth results in depressed revenue collections and accelerating demand for state services. Unfortunately, economic growth is not yet at normal recovery levels,” Lembo wrote in his monthly letter to Malloy.