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Balanced Budget Forecast Begins To Unravel

by | Jan 18, 2012 6:30am () Comments | Commenting has expired | Share
Posted to: State Budget

Gov. Dannel P. Malloy has been touting for months that Connecticut faired better than neighboring states because it took a comprehensive approach to balancing the budget, but despite the largest tax increase in the state’s history consensus revenue estimates show it teetering on the precipice of a deficit.

The numbers agreed to by Malloy’s Office of Policy and Management and the legislature’s Office of Fiscal Analysis Tuesday show revenues dropping $94.9 million in fiscal year 2012 and $139 million in fiscal year 2013.

Those drops come despite the $1.5 billion in tax increases and the $369 million surplus built into this year’s budget and the $635 million built into next year’s budget.

This year’s $20.14 billion budget was projected to finish with a surplus of $83 million earlier this month, but lower than expected income tax and capital gain receipts is pushing it into the red.

The Office of Policy and Management speculated that the most likely explanation is that “this is a result of taxpayers shifting capital gains and income as a result uncertainty at the federal level, specifically the uncertainty surrounding the extension of the Bush-Era tax cuts.”

It opined declines in financial service industry bonus levels could also be a contributing factor.

Regardless of where the deficit is coming from, Malloy promised he’s going to make sure the budget ends the year in the black.

“All today’s announcement means is that, as is the case in other states with high wage earners, fourth quarter revenue is coming up short of expectations,“ Malloy said in a press release. “That’s why today, I’ve instructed Secretary Barnes to pare back on current year expenses. But let there be no confusion – we will end the current fiscal year in the black, and in a more stable fashion than this state has seen in many years.”

But Republican lawmakers, who grumbled when Malloy proposed his budget with a built-in surplus, were saying today’s report is just more evidence that relying on tax increases to balance the budget doesn’t work.

“This is more proof that Governor Malloy’s over reliance on tax increases was a failed approach to balancing the state budget in a responsible way,“ Sen. Minority Leader John McKinney, R-Fairfield, said. “When the largest tax increase in state history isn’t enough to pay the bills, I hope everyone can agree that a significant reduction in the size and cost of government is in order.”

House Minority Leader Lawrence Cafero, R-Norwalk, said the recent report is troubling.

“We just had the largest tax increase in history, primarily on the middle class, and Connecticut is still struggling,” Cafero said. “The deal the governor stuck with the unions really ties our hands and we still have not seen any savings on the spending side.”

He said the legislature will have to make budget adjustments for the second year of the two-year budget in order to bring spending into line with revenues.

Office of Policy and Management Secretary Ben Barnes is expected to give Malloy a plan next week that uses the governor’s recessionary authority to make sure the budget stays in balance through the rest of the year. Malloy also asked Barnes in this letter Tuesday to make sure the plan complies with his desire to implement generally accepted accounting principles.

As the budget, which Malloy says was free of gimmicks, begins to fall apart, so does his ability to use surplus funds to implement his number campaign promise: GAAP.

In order to cover the deficit which will emerge when the state converts its accounting practices from a general cash basis to GAAP, Malloy and the legislature agreed to dedicate $75 million in surplus funds this year to begin paying off the differential.

Barnes argues the budget doesn’t delay conversion to GAAP. It just creates a 15-year plan to eliminate the accumulated GAAP deficit of $1.5 billion and starts amortizing the cumulative unfunded GAAP liability before 2014.

In order to get started on the conversion Malloy and the legislature agreed to use $75 million in surplus funds this year and $50 million next year to cover the growth in the differential.

Republican lawmakers have long argued that Malloy used GAAP as his “cause celeb” on the campaign trail and once he took office postponed the transition until the next biennium after being handed a $3.5 billion deficit his first year in office.

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(11) Archived Comments

posted by: Noteworthy | January 18, 2012  10:22am

The smoke is clearing and the fog is lifting from the cooked books, bad projections and sorry, half-reasoned rationale that Dan the Tax Man Malloy used to faux balance the state’s budget. He promised no smoke and mirrors and yet, huge swaths of his spending plan remain unconfirmed to this day in terms of their value in any cuts to spending. Moreover, the new entitlement so that the working poor live here for free - not contributing even a modicum of sales tax to the cost of government is a new expenditure worth an estimated quarter billion dollars. 

That said, when you cut a little spending, raise taxes by nearly $3 billion and increase your overall spending, what have you done except to put us once again on an unsustainable footing? Nothing.

What is more laughable than this is the opinion that the wealthy have shifted their strategies due to uncertainty at the federal level. HELLLLLLO! Wrong. They’ve shifted their money to the states they now call home because they have converted full time status to part time - from their cars to their income - are all locked into low cost states, not confiscatory states like Connecticut where public officials look at taxpayers as human ATMs. I’m not surprised at all.

posted by: Disgruntled | January 18, 2012  10:27am

Chris Cristie announced today that he was calling for 10% tax cuts across the board.
Cuomo yesterday announced no new taxes in his budget with 2% cuts in spending.
Dan is doing poorly,learning on the job,and is as out of control today as he was when he was running for office.
Maybe he actually believes his own tripe but “Pants on Fire” is more likely.
How about a another retroactive tax hike?
How about more secret police type revenue collectors?
How about we have a recount of Dan’s votes?

posted by: SocialButterfly | January 18, 2012  12:01pm

Gov. Malloy “played games with the unions” but was soft on the bottom line—as ne needed them to be electted—and will ned them to be reelected.  Malloy was more worried about his political survival—that producing a balanced state budget.
His layoff of state troopers, was also “a bummer” as the state must now remburse them for lost wages during their layoff. 

“Voters are now forcing tapayers to pay the price for electing a career politician, instead of of a lifetime businessman.”

The urban center vote that won the past, close election for Malloy, didn’t care, as Malloy did not cut any their “social benefits” from our balooned state budget.

posted by: mariner | January 18, 2012  1:31pm

Anyone in the State of CT with a half of brain could have written this script.  What’s done is done.

The big concern is when is Malloy going to stop spending?  After the bus to no where, the rat lab, the fab 5, etc..etc..what more can he spend?  He doesn’t get “IT” - hardworking middle class americans have NO MORE MONEY to donate to the coffers of the state….

posted by: NOW What? | January 18, 2012  2:19pm

Sorry to have to burst anyone’s bubble, but this simply is NOT of any major importance. It is impossible - I repeat IMPOSSIBLE - to end a government fiscal year with *exactly* an even (zero) balance WITHOUT making last-minute spending cuts… which is why this is done by virtually EVERY State *every* year. If the projection was for a surplus, McKinney and Cafero would be complaining we’re all “over-taxed.” And if there were to be a $1 deficit they’d complain about that TOO. My point being that NONE of this is actually newsworthy - a lot of b.s. hot air over nothing but routine government financing and operations - that is NOT the result of any faulty “predictions” or other underpinnings. Expenses will be cut between now and the end of the fiscal year to ensure no deficit, just as they are virtually EVERY year. BIG DEAL.

posted by: ... | January 18, 2012  2:36pm

...

Not sure where you got your stats on NY Disgruntled, but Fox News stated here (http://www.foxnews.com/us/2012/01/18/now-nys-legislature-gets-cuomos-budget/) that his budget increases by 2%, but overall his budget is a fraction ‘under’ 1% decrease in the previous budget. Also, “Cuomo’s plan calls for using $1.9 billion in revenue from a ‘millionaire tax’ approved in December.” Cuomo utilized tax increases to balance his budget because his original ‘no new taxes’ plan fell through.

Meanwhile, Christie has not publicly state how he is going to cover that 10% tax cut across the board, while reinstating an EITC (oh hey, Malloy did that last year). http://www.bloomberg.com/news/2012-01-18/christie-quiet-on-how-he-ll-cover-proposed-10-new-jersey-income-tax-cut.html

Its not good to manipulate facts like that Disgruntled. It makes your argument against Malloy’s budgeting process look great at face value against other states. But dig a little deeper and you’ll see the core is not as fresh as you’d like to believe.

posted by: SocialButterfly | January 18, 2012  9:35pm

Either Malloy is making poor decisions, or he has very inept advisrs?

The bottom line is that Gov. Dannel Malloy needs toi start making the state budgets cuts he now claims MUST BE MADE.

Why has Malloy been strictly only “taz and spend”—in his first year in office—“but hasn’t had the guts to do some serious budget cuts?”

posted by: ALD | January 18, 2012  11:17pm

Reasonable, I agree with you. This guy laid a huge tax increase on us all while promising the state workers no lay offs in return for an empty suggestion box. Now he needs to make huge cuts to the services these state workers provide us to fill the GAAP in his budget. Since he has restricted his ability to reduce the work force to match the services they will now be suppling he has simply increased the waste.

posted by: Upset.Citizen | January 19, 2012  7:14am

Upset.Citizen

“governor’s recessionary authority” - Finally!  Layoff 50% of the useless do-nothing managers!  Everyone blames the employees/workers who actually get their hands dirty for a living!  Take a look at the policy writers/red tape creators who never come out of their offices other than to use the bathrooms, go out for a long lunch, and sit around with others like them (in a meeting?) talking about their golf scores or last vacation to some island…

posted by: SocialButterfly | January 20, 2012  10:54am

When he going gets tough, Gov. Malloy escapes to Switzerland.

posted by: ... | January 20, 2012  11:44am

...

It looks as though cutting will have to be done. I just sincerely hope if and when it has to be done, neither party (especially the Republican party) will be crying ‘nimby’. But we must also seek out new sources of job growth beyond what is in our borders. But lets hope reasonable opinions take a careful approach to what they say, lest they appear hawkish.

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