(Updated 1:16 p.m.) State Comptroller Kevin Lembo certified a $219.9 million budget deficit Tuesday. That number is closer to the $266 million shortfall projected by the Office of Fiscal Analysis last week.
Lembo said he agrees with nonpartisan budget analysts that income tax estimates for 2016 have dropped by $200 million.
“I cautioned last month that I was concerned with the potential for further erosion in the consensus revenue forecast,” Lembo said. “Economic data now supports a downward adjustment in that forecast. This projected deficit — now exceeding 1 percent of the state budget (1 percent is $181.6 million) — should prompt renewed collaborative mitigation efforts.”
Lembo said it would be prudent for the governor to convene meetings with legislative leaders now and develop a budget mitigation plan because the longer they wait, the harder it is to find anything meaningful to cut.
However, Gov. Dannel P. Malloy’s budget office said it doesn’t have to submit a deficit mitigation plan to the legislature yet. That’s because of language adopted last year during a special session only allows Lembo’s office to review the numbers it receives from the Office of Policy and Management. Those numbers reflect the $19.9 million deficit Malloy’s budget office projected on Feb. 20, not the $219.9 million deficit reported by Lembo on Tuesday.
House Minority Leader Themis Klarides, R-Derby, said she finds it hard to believe there’s such a large discrepancy between Lembo’s numbers and the governor’s numbers.
“If I were them I would take their shoes off next time they count cause clearly their hands are not enough,” Klarides said. “Somebody has a counting problem.”
She said if the governor’s office truly believes the state still has a $19.9 million deficit then nothing has changed and everything the governor said on opening day “is all a charade to try and make people think he’s now being realistic and tough.”
Senate Minority Leader Len Fasano, R-North Haven, said the state is in a “fiscal mess” and it needs to address its fiscal problems. He said the drop in estimated income tax payments has nothing to do with the stock market. He said he believes residents are leaving the state.
“We have to seriously look at what our state and our families can and cannot afford,” Fasano said. “We can’t just look at the problem before us today either. We have to build a better future for generations to come. We have to budget for generations, not elections.”
House Majority Leader Joe Aresimowicz, D-Berlin, said they are reviewing the numbers from the comptroller, but said he was unable to comment on whether the governor should submit a deficit mitigation plan to the legislature.
Meanwhile, the General Assembly also is grappling with news that next year’s deficit also grew to nearly $900 million, according to nonpartisan legislative analysts. Malloy proposed $570 million in budget cuts, but that now won’t cover the entire deficit. It’s unclear where lawmakers will find the money to plug the hole.
According to Lembo, general fund revenue in 2016 is projected to fall $308.5 million short of initial budget projection, the income tax is estimated to be $464.4 million under budget, and the sales tax is projected to be $109.2 million over original budget projections.
A drop in income tax collections is largely driving the state’s revenue problem in both fiscal years.
The payroll withholding portion of the income tax, which contributes more than 60 percent of total collections, continues to show moderate growth. However, the estimated payment portion of the income tax is 4 percent below last fiscal year.
“In nine of the past 11 fiscal years, final payments have moved in the same direction as estimated payments,” Lembo said. “This historical pattern raises serious concerns regarding April final payment receipts.”
Lembo said the stock “market-driven decline in wealth has had a dampening effect on all states that rely on capital-gains driven tax receipts.”
Lembo noted that “the Federal Reserve reported that the stock market decline in the third quarter of 2015 contributed to a $1.2-trillion drop in American household wealth, which was one of the largest losses since the recession. Corporate equities lost $2.3 trillion during the quarter. At this writing, the stock market continues to post negative growth for 2016.”
The governor’s Office of Policy and Management is taking Lembo’s numbers under consideration, but it doesn’t not plan to submit a deficit mitigation plan at this time to the General Assembly.
“The new economic reality requires the state to not spend more than it has — households don’t budget based on what they want to have, but plan based on what they actually have,” Gian-Carl Casa, undersecretary of legislative affairs, said. “State government will need to do the same and OPM is considering options on how to best accomplish that goal.”