HARTFORD, CT – State Comptroller Kevin Lembo is predicting the state will end the year with a $31.6 million deficit.
The total is $1.9 million higher than the $29.7 million the legislature’s Office of Fiscal Analysis predicted last month, and it’s $12 million more than the $19.6 million Gov. Ned Lamont’s Office of Policy and Management predicted.
In his monthly letter to Lamont, Lembo said the difference between the $19.6 million deficit OPM is predicting and his office’s estimate is a $24 million shortfall in the fringe benefits account.
“The State Employees’ Health Services account has the largest deficiency, primarily due to fewer than anticipated retirements,” Lembo wrote. “This shortfall is partly offset by a projected surplus in other fringe benefit appropriations, particularly the Alternative Retirement Program (ARP) account. In FY 2019, approximately 1,600 employees transferred out of ARP into the State Employee Retirement System (SERS) as part of a grievance award. The decreased enrollment in ARP has resulted in lower spending.”
On the revenue side, Lembo’s office agrees with the consensus revenue forecast that reduced net revenues by $84.5 million when compared to the initial budget plan. The largest change was a $100 million increase in tax refunds, “mostly due to larger than expected refunds for the income tax and Pass-Through Entity Tax.”
The sales and use tax revenue projections were increased by $39.8 million.
The volatility cap, which Lembo championed, will require the state to deposit $318.3 million into the Rainy Day Fund. The current balance in the fund is $2.5 billion. Adding $318.3 million will bring the year-end balance to $2.79 billion, or 14% of the net general fund appropriations for 2021.
Lembo is still recommending a target of 15% in the Rainy Day Fund to help the state weather any economic downturn.
That said, Lembo also acknowledged that “Connecticut’s budget results are ultimately dependent upon the performance of the national and state economies.”
The state Department of Labor reported that Connecticut lost 1,500 jobs in October. It was the first net job loss reported since June.
Connecticut’s private sector has fully recovered from job losses associated with the Great Recession, and now sits at 105.5% of the pre-recession jobs total.
However, when including the government sector in the state’s total employment figures, Connecticut has only recovered 84.4% of the seasonally adjusted jobs lost in the Great Recession. In order to reach employment expansion, the state would need to add 18,300 new jobs.
The government sector includes all federal, state, and local government employment, including public education and Native American tribal government.
In November, the Bureau of Economic Analysis (BEA) released Real Gross Domestic Product (GDP) results by state for the second quarter of 2019 and Connecticut’s annual growth rate was 1%. That’s below the national average of 2% and also below the 1.3% average for New England.
The legislature’s Appropriations and Finance, Revenue and Bonding Committees will be briefed on the budget predictions from OFA and OPM on Thursday.