State Comptroller Kevin Lembo certified a nearly $27 million deficit Monday and warned that a slow national and state economic recovery could continue to impact the 2013 budget.
In this letter to Gov. Dannel P. Malloy, Lembo reported that his office generally agrees with the Office of Policy and Management’s current budgetary deficit projection, which reflects a deterioration of $30 million from last month.
The biggest budget-busting number could be the increasing enrollment in Medicaid.
“Despite weak sales tax revenues, the state could still reach its revenue targets due to a positive income tax trend and other factors. Our deficit projection is driven by the spending side, where the rising Medicaid caseload continues to grow and will likely run $100 million over budget,” Lembo said.
Medicaid added more than 1,700 additional clients in the month of August alone — a one-month increase of 0.7 percent, and well above budget expectations, Lembo said.
Lembo estimated that Medicaid will run $100 million over budget, but about half of that will be offset by a federal matching grant. The other offset to the $50 million in net higher Medicaid spending is a $20 million reduction in debt service cost from lower-than-anticipated rates of borrowing.
“I am especially concerned with the sales tax trend in light of slower personal income growth in the state,” Lembo wrote. “Based on second quarter 2012 results released by the Bureau of Economic Analysis, Connecticut’s personal income growth slowed from 1.4 percent in the first quarter of 2012 to 0.9 percent in the second quarter. The state’s income growth ranking fell from 13th highest in the nation to 34th.”
It’s troublesome because sales tax receipts have historically tracked closely to personal income.
Data from the state and federal Departments of Labor and other sources show continued slow growth this year, while employment numbers were particularly troubling, Lembo said.
According to the state Department of Labor, Connecticut lost 6,800 payroll jobs and the unemployment rate rose to 9 percent. This is the second largest monthly job loss since the jobs recovery began in 2010, and it has pushed the state’s unemployment rate above the national level of 8.1 percent.
Over the 12-month period ending in August, the state has added a net 1,100 jobs to payrolls. Based on this data, Connecticut has recovered just one quarter of the jobs lost during the recession.
Despite the poor employment statistics for the state, initial claims for unemployment insurance continued a downward trend in Connecticut, falling 2.9 percent over the 12-month period ending in August.
The data is confusing.
The state has not seen a rise in the number of people seeking unemployment benefits for the first time, Labor Department Research Director Andy Condon said last month. The number actually dropped slightly from July to August. At the same time, Malloy said tax withholdings rose 3.6 percent after adjustment.
“Those two trends are the opposite of what you would expect to see if the state was losing jobs at the rate suggested in this report,” Malloy has said.
Still, the governor said he was well aware the state faces strong headwinds both nationally and internationally.
Connecticut’s average hourly earnings were down 1.1 percent from August of last year, and weekly private sector pay fell 1.4 percent from August of the previous year.