HARTFORD, CT — (Updated 4 p.m.) State Comptroller Kevin Lembo said Tuesday that he believes the state will exceed its spending targets and end the year with a $42 million budget deficit.
That’s $36.3 million more than the $5.7 million Gov. Dannel P. Malloy’s budget director, Ben Barnes, projected more than a week ago. But it’s less than the $77.9 million deficit projected by legislative budget analysts.
On Oct. 20, Barnes projected that spending would exceed budgeted levels by $9.3 million, but Lembo believes it’s $46 million.
The reason? Adjudicated claims and debt service.
Barnes estimated a $5 million shortfall in the adjudicated claims account and Lembo is estimating $22.3 million, due in large part to the ongoing settlement payments related to the SEBAC vs. Rowland case.
The state paid out $7.3 million last year and $2.5 million so far this year related to the SEBAC v. Rowland settlement, according to Lembo’s office.
Attorney General George Jepsen has said the settlement could result in the state paying out more than $100 million over time.
As far as debt service is concerned, Lembo’s analysis relies on the state treasurer’s larger estimated debt service shortfall of $19.4 million. The Office of Fiscal Analysis projected a $51 million deficiency in debt service, but Barnes maintained in his Oct. 20 letter that “debt service costs will be consistent with the appropriation.”
Lembo also noted that the cost of personal services is continuing to decline, but it won’t meet budgeted targets.
“We appear to be largely in agreement on the condition of the state budget — namely that we are very close to balance and should continue to be diligent in managing expenditures,” Chris McClure, a spokesman for Malloy, said Tuesday. “We will continue to do just that, and also to report any changes that we see in our revenue or expenditure trends.”
On the revenue side, Lembo said he largely agrees with Malloy’s budget office.
“However, it should be noted that estimated income tax payments are volatile and must be closely monitored for additional deterioration in the state’s revenue outlook,” Lembo said.
In the third quarter of 2016, estimated income tax payments dropped by over 10 percent from the prior year. Last year and in 2014, the third-quarter estimated payment pattern reversed sharply for the remainder of the fiscal year as taxpayers adjusted their January payments to recognize their prior year tax liability.
It won’t be clear until January whether the same pattern will repeat itself this year.
Legislative budget analysts and Malloy’s budget office will get together on Nov. 10 to agree on its revenue projections.
House Minority Leader Themis Klarides, R-Derby, pointed out that Lembo’s deficit projection splits the difference between the governor’s $5.7 million and the $77.9 million projected by the Office of Fiscal Analysis.
“The problem is the State of Connecticut continues heading in the wrong direction when it comes to our finances,” Klarides said. “The real news comes Nov. 10 when the consensus projections for the next two years arrive and we are likely looking at billions in red ink.”
Republicans have accused the governor of hiding the real deficit figures and red ink from the public until after the election. All 187 General Assembly seats are up for re-election.
Last week they held a public hearing to see if they couldn’t resolve the difference between the various projections, but only the nonpartisan Office of Fiscal Analysis, a dozen Republican lawmakers, and one Democratic lawmaker showed up for the hearing.
Republican legislative leaders were critical Tuesday of the deficit, which they say they’ve been trying to nail down for months.
“Recent history has shown that whatever the deficit is at this point in the year, it will only grow considerably as the fiscal year progresses if we don’t take action,” Senate Minority Leader Len Fasano, R-North Haven, said. “We have a fiduciary obligation to our constituents to recognize these realities. Ignoring the truth gets us nowhere.”
House Speaker Brendan Sharkey, D-Hamden, pointed out that Lembo’s deficit estimate is within a quarter of one percent, “which by all measures is essentially on target.”
Sharkey said the public is tired of Fasano’s “doom and gloom mantra.”
Lembo’s estimated budget deficit represents 0.2 percent of net budgeted expenditures.
The governor isn’t required to call the General Assembly back into session to correct the budget until the deficit is 1 percent of expenditures.