HARTFORD, CT — State Comptroller Kevin Lembo said slow income tax withholding has forced him to predict the state will end the year with a $44.6 million budget deficit.
“I would be happy to be wrong,” Lembo added.
However, Lembo cautioned that income tax receipts have been weakening since January.
“The withholding portion of the income tax, which accounts for over 60 percent of total income tax receipts, has been weakening in recent months,” Lembo said in his monthly letter to Gov. Dannel P. Malloy.
He agreed with the nonpartisan Office of Fiscal Analysis that revenues would fall about $60 million short of projections.
The Office of Policy and Management predicted on March 20 that the state will end the 2017 fiscal year in June with a $22 million surplus. But that estimate was based on the revenue estimates from January.
Chris McClure, a spokesman for the governor and OPM, said they stand by their projections.
“The March projections are usually more noise than signal, as they lack information on April revenue collections and may over or understate the impact of expenditure trends,” McClure said. “With that said, it’s worth noting that our respective projections differ by one-tenth of one percent.”
Lembo pointed out that “estimated income tax payments through February were below last fiscal year’s receipts. Typically, final April payments trend in the same direction as estimated payments. However because of stock market corrections and subdued bonus payments in the 2015 tax year, a large number of taxpayers may be eligible to utilize safe harbor provisions of the tax code.”
He said that essentially means some taxpayers were able to delay the full payment of their tax liability until this April. But he’s concerned that those payments won’t help Malloy’s budget office reach its revenue estimates.
House Minority Leader Themis Klarides, R-Derby, said, “It is always dangerous to bank on a really strong April for income tax receipts to bail out the state.”
No matter what happens, later this month the state will be able to know with certainty what its revenues will look like after the tax filing deadline.
“As in past fiscal years, it is likely that the final April payments will alter the current General Fund projections,” Lembo said.
This year April 15 falls on a Saturday, so the tax filing deadline falls on Tuesday, April 18. That means state officials won’t have a more complete picture of revenues until the following week.
The two-budget writing committees have until April 27 and April 28 to release their own budget proposals for the next two years.
Lembo pointed out that Connecticut’s overall budget performance is ultimately dependent upon the performance of the national and state economies.
According to a recent Bureau of Economic Analysis report, Connecticut’s personal income grew by 3 percent between 2015 and 2016. This ranked Connecticut 33rd nationally in 2016 income growth. Connecticut had the slowest rate of growth in New England. However, Connecticut ranked number one nationally with a per-capita personal income of $71,033 in 2016.
At the same time, Connecticut lost 200 jobs in 2016.
“After strong 1st quarter employment growth, the employment situation in the state became more erratic,” Lembo said in a press release.
Lembo also pointed out that Connecticut has now posted three consecutive years of population decline.
“According to U.S. Census data, Connecticut saw a decline in population of 8,278 residents between July 1, 2015, and July 1, 2016. Connecticut was one of only eight states to experience a decline in population during this period.”
The loss in population is also expected to have an impact on revenue.