Gov. Dannel P. Malloy’s administration is predicting the state will end the 2017 budget year about 10 months from now with a minuscule $200,000 surplus.
That’s smaller than the $800,000 surplus the state projected last August for the 2016 budget that will officially close on Sept. 30, which, even after extreme budget cutting measures were taken, ended with a $279.4 million deficit. The state will use money in the Rainy Day Fund to cover that shortfall.
In his monthly letter to state Comptroller Kevin Lembo, Office of Policy and Management Secretary Ben Barnes said that the 2017 budget includes substantial lapse assumptions, which is money state agencies have been asked not to spend.
The achievement of those lapses “will present significant management challenges for all branches of government,” Barnes wrote.
As far as revenues are concerned, 2016 ended below expectations “and bear watching,” Barnes wrote, referring to the performance of the personal income tax.
But the cushion for error in 2017 is much smaller.
According to Lembo’s office, the Rainy Day Fund is currently at $195.3 million.
The size of the Rainy Day Fund has been cited by Wall Street as a concern. Three of the four Wall Street bond rating agencies downgraded Connecticut’s general obligations bonds between May and July.
In its decision to lower Connecticut’s rating, the Kroll Bond Rating Agency’s analyst wrote that “the state currently has no specific plans to increase funding” to the Rainy Day Fund.
Kroll analysts pointed out that Connecticut lawmakers have taken action to correct deficits. However, it still downgrade the bonds because without a bigger Rainy Day Fund there’s less margin for error.
Currently, the Rainy Day Fund holds enough money to cover less than 1 percent of the general fund.
There are still 10 months left in the 2017 fiscal year and anything can happen. However, even if the state manages to keep the budget in the black in 2017, budget experts in the nonpartisan Office of Fiscal Analysis are predicting that revenue will fall short of projections by $759 million in 2018 and and $650 million in 2019.
Lembo will certify the new budget numbers for the first month of the 2017 fiscal year on Sept. 1.