State Comptroller Kevin Lembo is projecting that the state budget will end the year with a $101.2 million deficit, which is $40 million more than Gov. Dannel P. Malloy’s budget office projected last month.
Malloy’s budget office projected that the state would end the year with a $61.2 million deficit.
The difference? Lembo told Malloy he disagrees with his budget office’s estimates of personal income growth.
“We are currently forecasting 25 percent growth in personal income tax receipts over the prior year,” Office of Policy and Management Secretary Benjamin Barnes wrote to Lembo on Feb. 20.
But Lembo said estimated income tax payments through January have grown 4.9 percent over last year and in the past these payments have provided an indication of the growth that can be expected in April.
“The OPM projection relies on a 20 percent variance between January and April,” Lembo wrote. “An increase of this scope has not occurred in the last decade.”
Lembo continued: “I am also concerned that since the stock market recovery began in 2009, trading volume that generates taxable receipts has been declining. It appears that one cause is an aging demographic that has shifted to lower-risk portfolios with less trading volume. Complicating matters further, volume has been heaviest at lower points in the market cycle, thus reducing the amount of taxable capital gains. For these reasons, I have reduced my income tax estimate by $40 million this month. I remain hopeful that April receipts will outpace my current projection, but I believe it is reasonable to lower expectations at this time.”
However, Lembo agrees with the spending estimates.
Lembo said he believes the $276.8 million in savings Malloy has estimated is attainable.
“Over the past five fiscal years, annual realized lapses have averaged $511.2 million,” Lembo wrote. “Although the current lapse target is a significant challenge, it is not inconsistent with past performance in difficult budget circumstances.”
In addition to the savings, Malloy has issued two rounds of budget rescissions.
Republican lawmakers, like Senate Republican leader Len Fasano, used Lembo’s letter to reiterate their desire to work with Malloy on a deficit mitigation plan.
Malloy doesn’t have to submit a deficit mitigation plan unless the deficit exceeds 1 percent of the general fund, but Republican lawmakers believe it would be easier to do with their help.
“This is precisely why the governor needs to work together with legislators from both sides of the aisle to collectively identify a way to address these significant financial problems,” Fasano said. “The 1% trigger for deficit mitigation is a number of last resorts and we should not be waiting around to take action until that threshold is met. We cannot ignore that our deficit is widening yet again. This is another reality check for our state, and I hope that the governor is paying attention.”