State Comptroller Kevin Lembo confirmed Thursday that the state would end the 2013 fiscal year with a $359.6 million budget surplus.
The state plans to divide up the surplus by transferring $220.8 million of it to the 2014 budget, while the remainder, about $138.8 million, will be deposited in the Rainy Day fund.
“This surplus restores money to the Budget Reserve Fund — which should be a first step towards fully funding this ‘Rainy Day Fund,’” Lembo said. “Our goal — to better protect taxpayers against volatilities on Wall Street and the economy — should be a fully funded Rainy Day Fund at 10 percent or $1.9 billion.”
Lembo attributed the state’s financial improvement to one-time revenue windfalls — but also significant efforts by Gov. Dannel P. Malloy’s administration to control spending.
“General Fund spending adjustments to the original budget plan, inclusive of mitigation efforts, transfers and carry forward funding, lowered anticipated expenditures by approximately $138 million,” Lembo said. “One of the largest components of the budget, wages and salaries of employees, showed no growth over last fiscal year after adjusting for the 27th payroll, and is $105.6 million below the Fiscal Year 2011 expenditure level.”
Lembo estimated that general fund revenues are expected to end the year $222.8 million above initial budget estimates, but most of the revenue came from the inheritance and estate taxes, which saw an unexpected gain of about $273.3 million over budget.
The income tax trended $164.7 million above budget estimates “primarily based on the strength of the non-payroll driven components of the tax,” Lembo wrote in his monthly letter to Malloy. “The payroll component of the income tax is currently 1.4 percent below last fiscal year. The sales tax and the corporation tax are expected to underperform budget estimates by about $189.4 million and $51 million respectively. However, overall revenue is projected to be about 4.3 percent above last fiscal year.”
On the spending side, debt service was down $49.9 million or 3.1 percent from last fiscal year “due to favorable borrowing rates.” And Medicaid posted the largest spending increase of $183.6 million or 3.9 percent over last fiscal year.
“Overall, General Fund spending was held to growth of 1.3 percent against the prior fiscal year,” Lembo wrote. “This compares to annual average growth of 7.3 percent over the four years leading up to the 2008 recession.”
While the state ended the year with a surplus, Lembo expressed caution about the economic recovery.
“Despite the state’s improved financial outlook, the economic recovery proceeded at a slower-than-expected pace during Fiscal Year 2013,” Lembo said.
However, the state has added 10,000 payroll positions since last June. And it is now 40 months into the economic recovery and has regained about half the jobs lost in the recession, which puts this recovery on pace with the 1990s recession, Lembo added.
The 2013 fiscal year technically ended on June 30, but the state will continue to tally revenue through August 7 and Lembo will certify the 2013 budget numbers on Sept. 1.