HARTFORD, CT — A week before the state of a new legislative session, state Comptroller Kevin Lembo estimated the state budget adopted just three months ago is $244.6 million in the red.
In his monthly letter to Gov. Dannel P. Malloy, Lembo said he still believes the deficit is larger than the governor’s administration estimates because of the amount of money the state will have to pay to settle legal claims.
The deficit has also grown over the last month in large part due to reduced revenue available to the General Fund, according to Lembo.
The state experienced an increase in estimate income tax revenue due to changes in federal tax law and the one-time repatriation of hedge fund profits, but those windfalls are required to be transferred to the Rainy Day Fund. After accounting for that, overall General Fund revenue is down by approximately $16 million – and savings targets on the spending side may be challenging, Lembo said.
Under the new volatility cap adopted as part of the state budget $664.9 million will be deposited in the Rainy Day Fund bringing the balance to $877.8 million, which is approximately 4.6 percent of general fund spending for the year.
On the spending side, with six months left in the fiscal year, “aggressive savings targets included in the adopted General Fund budget will pose serious challenges,” Lembo wrote. “Fixed cost items, such as debt service, teachers’ retirement contributions and retirement health insurance, continue to drive growth in spending. Significant savings have been achieved through reductions in employee salary costs and agency outlays for other expense items. However, continued active budget management and legislative action will be needed to close the deficit prior to fiscal year-end.”
Legislative leaders from both parties met Wednesday and have agreed to meet again next week to discuss ways to close the current deficit.
At the end of year, Malloy presented lawmakers with a menu of revenue increases and spending cuts he was willing to entertain as ways to close the budget deficit, but lawmakers have been slow to involve him in their discussions.
Malloy, who is in his last year, was pushed out of budget negotiations by legislative leaders who sought to figure out how to find a bipartisan solution without his input.
Since that time legislative leaders have taken ownership of the budget and have largely left the governor out of their discussions for better or worse, depending on whom you ask.
Connecticut’s inability to recover from the Great Recession has put further pressure on the state budget.
Connecticut, according to the Department of Labor, has only recovered 76.4 percent of the jobs lost during the Great Recession. The state still needs an additional 28,100 jobs to reach an overall non-farm employment expansion since the recession.
“Connecticut’s economic recovery continues to lag the nation’s recovery – however, there are some positive economic indicators, including stock market performance, as well as state GDP growth and job growth related to manufacturing and finance,” Lembo said. “These are promising signs – but should be taken with cautious optimism as one month does not make a trend. It’s also important to recognize that, while a strong stock market is important, nearly half of Americans do not participate in the stock market – and economic research indicates that nearly half of U.S. households report being unprepared for an emergency expense and nearly a quarter of adults report being unable to pay current monthly bills.”