Normally the fact that the state is running a $150.1 million surplus would be good news, but state Comptroller Kevin Lembo’s monthly budget report was dampened by consensus revenue figures that show a nearly $500 million shortfall over the next two years.
Lembo cautioned that the revenue surge at the end of this fiscal year is attributed to unreliable sources that the state won’t be able to count on in the future.
“This growing surplus is good news for this fiscal year — but should lead only to cautious optimism for future years,” Lembo said. “The surplus is largely attributable to unanticipated windfalls from the inheritance and estate tax and capital gains, both unpredictable revenue sources that may not continue into the next fiscal year.”
According to the Bureau of Economic Analysis data, net dividend distributions in the fourth quarter of 2012 were 23.2 percent higher than in the same period last year. Therefore, taxable gains have been realized in fiscal year 2013 that otherwise would have been paid in future fiscal years. In addition, the stock market has experienced double-digit growth that may not continue into the next biennium, Lembo said.
These factors have resulted in the income tax exceeding budget projections by $109.6 million, estimated income tax payments are up more than 20 percent from last year, and final payments are up almost 16 percent. In addition, the inheritance and estate tax, which had been expected to exceed original budget estimates by $150 million, is now projected to generate $262.4 million over the original budget.
Consensus revenue estimates released Tuesday show the state losing nearly half a billion in revenue over the next two years.
House Minority Leader Lawrence Cafero, R-Norwalk, said the only way the state can dig itself out of the fiscal hole it finds itself in is to “spend less money.”
But Gov. Dannel P. Malloy has proposed a 9.7 percent increase in spending over the next two years and two weeks ago the legislature’s Democrat-controlled Appropriations Committee proposed a budget that increases spending by about 10 percent.
House Speaker Brendan Sharkey said the Republicans aren’t be honest when they talk about cutting spending.
He said Republican lawmakers aren’t explaining to the public that a significant portion of that 10 percent increase in spending is attributed to the Affordable Care Act. He said that will be 100 percent reimbursed by the federal government, but as any business owner knows you have to book it as an expense so it’s an “increase in spending technically, but the net effect on the budget is completely different. It’s much lower.”
According to the budget, $513 million of the two-year spending increase would be reimbursed by the federal government under the ACA.
Senate Minority Leader John McKinney said that if the legislature hadn’t worked in a bipartisan manner in December to cut close to $365 million from this year’s budget, the 2013 budget would still be in deficit today.
“This is not good news,” McKinney said. “It shows us our economy is headed in the wrong direction.”
He said the budget deficit over the next two years grows to about $3 billion with the $500 million drop in revenue over the next two years.
In 2011, the year Malloy took office he was faced with a $3.7 billion deficit. He solved it with $1.5 billion in tax increases and about $1.6 billion in concessions from state employee unions. McKinney and Cafero, who are considering a run for governor next year, said where the state is today isn’t much different from where it was in 2011.
Despite the bleak outlook from his Republican colleagues, Sharkey said he’s going to do everything he can to not raise taxes.
“We have to sharpen our pencils and make sure we’re doing everything we can possibly do,” Sharkey said Wednesday during a break from the action on the House floor.
The Malloy administration has asked lawmakers to put the surplus from this year’s budget into the Rainy Day Fund.
“I’m certainly not an advocate of spending it this year,” Sharkey said. “I think we can look to it as a potential cushion if you will toward the impact of next year.”
Budget negotiations will begin in earnest next week and will include the governor’s staff and members of Democratic leadership. Republican lawmakers are expected to release their own alternative budget, but have not been invited to negotiations.