State Comptroller Kevin Lembo certified that Connecticut will end the 2016 budget year with a $279.4 million deficit. That’s an improvement of $36.4 million over last month.
In September, Lembo will begin reporting on projections for 2017. There’s still some time for the 2016 deficit to improve because the final audit isn’t completed until the end of September.
Gov. Dannel P. Malloy’s budget office reported in July that “several significant revenue sources totaling approximately $900 million are still projected to be received through Aug. 5.”
The slight improvement in the deficit this month came from one-time federal grant revenue. However, Lembo said he continues to be concerned with the continued volatility of income tax receipts.
Personal income tax was revised downward again this month by $25 million.
Overall, according to Lembo, income tax revenues fell $659.4 million short of the original budget projections. Capital gains-related income tax receipts were constrained by market volatility and payroll-related tax gains were hampered by lower-than-anticipated wage increases throughout most of the fiscal year.
Aside from the income tax, general fund revenue was $206.1 million higher than the original budget plan. This is after accounting for revenue enhancing policies implemented during the course of the fiscal year, Lembo wrote in his letter to Malloy.
“As the income tax projections dropped during the months of Fiscal Year 2016, cost-cutting measures were implemented including allotment reductions made under your authority and additional legislative actions contained in PA 15-1 of the December Special Session. The aggregate result of these actions reduced spending by $173.1 million from the original budget plan,” Lembo wrote.
But Connecticut’s recovery from the Great Recession is far from over.
“Connecticut continues to recover at a slow pace,” Lembo said. “Market volatility, and lower-than-anticipated wage growth, have led to significant shortfalls in income tax receipts and negated progress made in other areas of the economy.”
Connecticut still has $406 million in its Rainy Day Fund to help cover any shortfall.
“But there is little room for error,” he said. “I will be watching revenue accruals closely over the coming months, and Medicaid expenditures through August.”
Erratic reports on job and wage growth — both locally and nationally — have complicated the forecasting process, Lembo said.
“Having dependable data leads to more reliable projections and, in turn, better policy decisions,” Lembo said. “I am concerned about the veracity of the job numbers in particular, as they have been significantly and continuously adjusted in recent months.”
Last year, Connecticut’s job gains were cut in half when the numbers were audited.
In May, the state lost 4,000 jobs, but in June it gained 7,900 jobs.
“The large employment swings in May and June mirror the pattern observed in the national data,” Lembo wrote in his letter to Malloy. “It appears that the variance may be due to seasonal adjustment factors rather than real employment changes of those magnitudes.”
Lembo pointed out that that state’s personal income was growing at an annualized 3.1 percent rate in the first quarter of 2016, which is the same growth level recorded in calendar year 2015. During the last economic expansion, between 2004 and 2007, Connecticut personal income grew at an average annual rate of 6.8 percent.