The legislature’s nonpartisan Office of Fiscal Analysis reported Thursday that the state budget is experiencing a $77.9 million deficit, just three months into the fiscal year.
The estimate would be worse, but it is offset by the $120 million legal settlement the state received from RBS Securities Inc., a subsidiary of the Royal Bank of Scotland. The 2017 budget estimated it would receive $40 million in legal settlements, which means it’s about to apply $80 million toward the deficit.
Income tax receipts came in lower than anticipated at the end of last year, which lowered expectations for the current fiscal year. Same is true of the sales tax. Budget analysts estimated that income taxes are about $80 million short of projections and sales taxes are about $39 million short of projections.
Also of the $209 million in targeted savings the administration is expected to find, budget analysts estimated that $60.6 million remain unidentified.
The state also failed to include money in the budget for settlements related to a lawsuit filed by the State Employees Bargaining Agent Coalition against former Gov. John G. Rowland. The state settled the lawsuit in 2015 for between $100 million to $125 million. Budget analysts said approximately $18 million of the projected $21 million deficiency in the account used to pay legal settlements is for estimated payments for the SEBAC v. Rowland settlement. So far $426,000 has been paid as part of that agreement.
“It is concerning that the lawsuit stemming from John Rowland’s illegal layoff of state workers has continued to harm Connecticut far into the future,” House Speaker Brendan Sharkey, D-Hamden, said. “In the next legislative session it is imperative that the legislature remains focused on continuing to invest in job creation and economic growth, while keeping a close eye on spending.”
Nonpartisan analysts also had questions about how the Care for Kids Program, which subsidizes child care for low-income families will be handled. If the Office of Early Childhood fails to manage the program properly there could be a $33 million impact on the state budget.
“OFA is currently awaiting first quarter cost and caseload information to assess if the policy changes will align expenditures with available appropriation,” budget analysts said in their report.
Republican legislative leaders were quick to criticize Gov. Dannel P. Malloy’s administration, which insisted in both August and September that the budget was balanced even though it told agency commissioners on Sept. 6 that there was a $130 million deficit.
“Voters and taxpayers have a right to know what is going on with their government prior to making decisions on who should be in charge,” House Minority Leader Themis Klarides, R-Derby, said. “We need to acknowledge what is at the core of these conflicting reports.”
State Comptroller Kevin Lembo wrote Office of Policy and Management Secretary Ben Barnes Wednesday expressing his concern about the discrepancy between the Sept. 6 and Sept. 20 numbers and requesting an answer.
“The contradicting forecasts deserve an explanation in order to preserve confidence in the state’s official financial statements,” Lembo wrote to Barnes.
In response, Barnes said they use their best judgment regarding the status of the budget when they submit their reports on a monthly basis to Lembo’s office and last month was no exception.
“We monitor revenues on a daily basis and regularly consider the impacts of economic and financial events and trends on our near and long term revenues,” Barnes said. “This analysis typically leads us to identify likely ranges of outcomes and the information in our letter to agencies asking for budget options was based on a scenario extremely conservative revenues. It is essential that the governor have a variety of significant budget reduction options to consider as he develops a budget recommendation for the coming biennium. The forecast we used was appropriate to that goal.”
Senate Minority Leader Len Fasano said, R-North Haven, said clearly the numbers submitted to the comptroller were not in Barnes’ best judgment.
“His best judgment was the real numbers he gave to his agency heads two weeks before,” Fasano said Thursday. “And the only logical reason for withholding the true numbers would be to prevent the public from finding out just how bad our state finances are until after November.”
But the administration isn’t budging from its position.
“We stand by our projections and will update them as the law requires in a week,” Chris McClure, a spokesman for Malloy, said.” While we might disagree with OFA on their assumptions, the simple reality is that we agree with them on more than 99 percent of an $18 billion budget.”
He said no one this soon into the fiscal year has ever made accurate predictions to within 1 percent.
“In other words, everyone will keep projecting, and we’ll do what’s necessary to keep our budget in balance and end the year in the black,” McClure said.
