A new report from the governor’s budget office and the legislature’s nonpartisan Office of Fiscal Analysis shows revenue dropping faster than the lawmakers can cut spending.
The consensus revenue report released Tuesday evening shows revenue down about $160 million this year from the estimates adopted when lawmakers passed the budget in June. Estimates show revenue continuing to decline in future years, which means Gov. Dannel P. Malloy and the legislature will still have to grapple with an estimated $1 billion budget deficit when they negotiate next year’s budget.
“The decline in revenue projections is not surprising,” Office of Policy and Management Secretary Ben Barnes said in a statement. “The economy and state government finances are extremely difficult to project in these unusual times, particularly given the significant shifts in income tax revenue that occur surrounding the dates of major tax changes. We will continue to closely monitor state revenues in order to maintain balance in the state budget this year and through the coming biennium.”
This past November, budget analysts projected the state would be facing a $1.2 billion budget deficit and there’s nothing in the revenue report to shed any doubt on those estimates.
The revenue trend is disturbing, House Minority Leader Lawrence Cafero said Tuesday.
But what’s even more disturbing is that the decline in revenue would be even bigger if the state wasn’t receiving reimbursement for the Medicaid program from the federal government, he said.
“If you take away the additional money from the federal government, then revenues would be lagging by about $400 million,” Cafero said. “The most revenue we’re getting is coming from the unanticipated Medicaid spending.”
The state receives a 50 percent matching grant from the federal government for the money it spends on the Medicaid program, which provides low-income families and individuals with health insurance coverage. The poor economic conditions have caused enrollment in the program to increase over the past few years.
Aside from federal revenue, income tax revenue has remained relatively flat compared to projections, which means the state’s economy is not recovering as quickly as anticipated when the budget was adopted, Cafero said.
The sales and corporation tax revenue continue to decline.
“Unless and until we decide to fully address the amount of money the state of Connecticut spends, we will not fix the structural holes in our budget,” Cafero said.
The General Assembly did take steps at the end of December to erase $365 million from this year’s budget, but it’s too soon to tell how much those measures to reduce spending will impact the state’s persistent budget deficit.
On Jan. 2, state Comptroller Kevin Lembo estimated the state would still end this year with a $40 million deficit mostly because of continued overspending. Taking the new revenue estimates into consideration, it’s likely the deficit will grow to about $70 million. Lembo will issue his next report on Feb. 1.
Meanwhile, Cafero said the state never pivoted in 2012 to revise its overly optimistic revenue projections, which date back to Malloy’s first budget in 2011. That’s the year Malloy increased taxes $1.5 billion, and changed the state’s relationship with its employee unions in order to close a $3.7 billion deficit.
At that time, Malloy’s administration never anticipated it would be fending off future deficits as big as $1 billion. Making things even more challenging, Malloy said he doesn’t intend to raise taxes when he presents his budget to the General Assembly in February.
“Governor Malloy is committed to ensuring the state lives within its means. Extraordinarily difficult decisions to reduce spending will be necessary,” Barnes wrote in a November budget report. “The Governor will NOT propose tax increases as a solution to these challenges.”
Republicans like Cafero said they are ready, willing, and able to help the governor find places to cut spending.