HARTFORD, CT — Connecticut’s two budget-writing committees got some sobering news Wednesday about the state’s budget situation over the next three years.
“Fixed costs are projected to grow much faster than our revenue,” Office of Fiscal Analysis Director Neil Ayers told the Appropriations and Finance, Revenue and Bonding committees. “And these differences are worsening going forward.”
The state either has a $1.3 billion or $1.5 billion budget deficit, according to reports from the governor’s Office of Policy and Management and the legislature’s nonpartisan Office of Fiscal Analysis.
The differences are minor, but the choices for how to close the budget deficit will be tough.
Rep. Toni Walker, D-New Haven, who co-chairs the Appropriations Committee, tried to sum up the situation.
She said if 53 percent of the $17.9 billion general fund budget is fixed costs, then lawmakers will have to reduce $8 billion by about $1.2 billion in order to erase the deficit.
“That would be a 20-percent reduction to services that are out there,” Walker said.
Office of Policy and Management Secretary Ben Barnes said if they can make recurring cuts in 2018, then they should easily be able to balance 2019 and 2020 as revenue and fixed costs growth become better aligned.
He said there is small growth in general fund revenue sources, but this will be the first year a large amount will be transferred out of the general fund to municipalities and the special transportation fund. Under legislation passed in 2015, about $484.7 million in sales tax revenue will be going to municipalities and transportation.
Another $278.3 million will need to go to the Teachers’ Retirement System to cover the cost of more conservative actuarial assumptions. In 2018, the state will also make its final $178.7 million payment on the 2009 economic recovery notes. It will also make its first $120 million payment into the unfunded portion of the health benefits account for state employees.
Barnes said the good news is that beyond 2018 the fixed cost growth and revenues are much more closely aligned.
It’s possible Gov. Dannel P. Malloy or the General Assembly could decide not to use the $484.7 million to fund municipalities and transportation.
But if they did that they would create a hole in the amount of municipal aid they are providing or in the revenue necessary to fund transportation improvements.
“I don’t know what the governor’s going to propose,” Barnes said. “And I certainly don’t know what the legislature is going to do thereafter.”
But those are things that could be changed.
Rep. Melissa Ziobron, R-East Haddam, objected to the change in how the Office of Fiscal Analysis and Office of Policy and Management reported its projections. She said if they were able to report like they have in the past then the deficits in 2018, 2019, and 2020 would be $1.4 billion, $1.6 billion, and $1.9 billion, respectively.
“It troubles me that we have natural growth in revenue, but not in spending,” Ziobron said. “This is the session for us to grasp the reality of Connecticut’s full crisis.”
She said she believes the new methodology doesn’t allow them to do that.
Legislation passed last year changed how the reports were created.
“I would argue that we’re never going to get to 2019 without passing through 2018 first,” Barnes said. “During the course of 2018 we are going to follow the constitution and we are going to pass a balanced budget.”
The only reason the state would have a $1.5 billion problem in 2019 is if it solved the budget in 2018 with gimmicks and one-time fixes, Barnes said.
Ziobron also pointed out that they don’t have the most recent valuation of the State Employees Retirement System and the unfunded pension liability.
Barnes said they are currently in negotiations over how the state’s unfunded liability is calculated by the actuaries. Barnes said the State Retirement Commission decided that it didn’t want to pay for two reports if it was on the cusp of changing how the actuarial assumptions are calculated.
He said they didn’t believe deferring it for three or four weeks would hinder his ability in developing a budget.