Today is the start of the new fiscal year and state lawmakers are ready to leave the 2016 budget behind them.
The state will still end the year with a $315.8 million budget deficit, according to state Comptroller Kevin Lembo. The legislature’s Office of Fiscal Analysis has projected a slightly higher $322.9 million deficit earlier this week, estimating a steeper drop in income tax revenue.
The legislature’s budget analysts also predicted that the 2017 budget run a $22.7 million surplus, but history shows that could quickly change.
In 2014, less than a week after the election, the budget was out of balance, forcing Gov. Dannel P. Malloy to issue rescissions. That budget ended the year with a deficit as well and by September 2015, after the second largest tax increase in the state’s history, Connecticut was faced with yet another budget deficit. Lawmakers returned in December hoping to erase enough spending to keep the budget in balance. Two months later they were back faced with yet another deficit as revenues continued to drop.
State officials have attributed the continual deficits to significant drops in revenue, especially from the personal income tax.
“Connecticut’s income tax collections have been revised downward throughout this fiscal year as capital-gains-related income tax receipts were constrained by market volatility — prompted by global factors, including the Chinese markets and now ‘Brexit’ — and payroll-related tax gains were hampered by lower than anticipated labor market activity,” Lembo said.
Revenue projections fell during the year, but Lembo noted that cost-cutting measures were implemented by both the governor and legislature — the aggregate result of these actions reducing anticipating spending by $156.6 million. But the Malloy administration isn’t taking any chances in 2017 and announced Thursday that it is withholding $130 million from state agencies.
The state still has until September to officially close the book on 2016, so it’s possible revenues could come in that offset the amount of the deficit.
However, Republican lawmakers were not optimistic.
“When income tax receipts are down this significantly, at a time when sales tax receipts are also dropping, it’s not a good sign of things to come,” Senate Minority Leader Len Fasano, R-North Haven, said earlier this week. “It has nothing to do with the stock market, and everything to do with our state’s financial policies. When Democrats continue to ignore the real reasons why we are facing these problems, it only moves our state further away from solutions.”
According to U.S. Census Bureau estimates, in 2014 more than 96,000 Connecticut residents moved out of the state. The leading destination was New York, followed by Massachusetts, Florida, California, and North Carolina.
Department of Revenue Services Commissioner Kevin Sullivan has said there is evidence that, on average, the state is losing about $21,000 per household on outmigration. Essentially, he said people with higher incomes have been leaving, and those who are arriving have adjusted gross incomes of about $21,000 less per household.
Income replacement in general has not caught up yet, Sullivan has said, adding that it’s people who have reached retirement age who are moving, and Connecticut is a demographically older state. A lot of people are retiring, and they’re retiring at a relatively high income, compared to those coming into the state at lower income levels.
The number of state employees announcing their retirements has also increased over the past four months.
In order to achieve the labor savings, Malloy said he would need to separate about 2,000 state employees from their jobs by June 10.
“There is no specific target number,” Gian-Carl Casa, undersecretary for legislative affairs with the Office of Policy and Management, said Thursday. “We will continue to work with state agencies to achieve necessary savings while providing core services.”
According to the Office of Policy and Management, the state has laid off 749 executive branch employees and the Judicial Branch has laid off 300. That brings the total number of laid off employees up to around 1,049.
The state is also seeing higher-than-anticipated retirement filings, with approximately 947 requests filed since April 1 on a total of 1,453 retirements so far this year. That means almost 1,996 state employees have left state service or about to leave state service and their positions are not being refilled. Overall, the pace of retirement filings by state employees is 29 percent more than it was in 2015 for the first six months of the year.