Budget Deficit Grows To $140M
Five days before Gov. Dannel P. Malloy will unveil a budget for the next two fiscal years to close a $2.2 billion deficit, state Comptroller Kevin Lembo warned that this year’s deficit is still $140 million in the red.
In his monthly report to Malloy, Lembo said revenues have eroded since December and state spending is about $75.6 million above what the Office of Policy and Management reported two weeks ago.
That’s in spite of the $365 million deficit mitigation plan lawmakers passed last month in an attempt to stop the hemorrhaging. The $140 million deficit doesn’t automatically trigger another deficit mitigation plan because it’s about $51 million shy of the $191 trigger, which is equal to one percent of the total state budget.
“The slow growth in the national economy has created increasing demand for state services while at the same time producing lower revenue collections,” Lembo said. “Traditionally, even after the national economy improves, there is a lag before the state budget realizes the full benefit of the general economic improvement.”
However, Lembo said there is still an opportunity for the current budget year to recover, and he agrees with the Office of Policy and Management’s note that less than half of projected general fund revenue for 2013 was collected as of December.
“April is a significant month for income tax collections,” Lembo said. “Recent federal tax changes combined with favorable market performance could result in a shift of capital gains revenue from future years to the current budget year. This would improve the budget forecast, so we will continue to modify our projections based on actual experience.”
The letter doesn’t mention the hiring freeze Office of Policy and Management Secretary Ben Barnes instituted on Jan. 22. After predicting a decline in revenue, including a $116 million decline in sales tax revenue, Barnes told state agency commissioners to halt all hiring.
“Agencies should make every effort to organize work in a manner that obviates the need for hiring during the remainder of the fiscal year,” Barnes wrote. “Effective immediately, only requests to fill critical vacancies will be considered. In no case will hiring be approved which would result in an increase in the number of filled positions beyond the currently filled level; requests to fill positions will only be considered as new vacancies occur.”
Pointing to economic indicators, Lembo said the economy continues to recover at a slower pace than the original budget had forecast. The state lost 1,800 jobs in December. With the December data included, overall job growth turned negative with 100 payroll positions lost in 2012. Just under one quarter of the jobs lost to the recession have been recovered to date.
Connecticut’s unemployment rate remains historically high at 8.6 percent; the national rate also is disappointing at 7.8 percent. According to the Bureau of Economic Analysis, personal income growth in Connecticut decelerated in the second half of 2012. Connecticut’s personal income in the third quarter of 2012 advanced at a rate of 0.3 percent ranking the state 44th nationally.
Regardless of the challenges, Malloy’s Undersecretary at the Office of Policy and Management Gian-Carl Casa said the budget will be balanced.
“We will not end the year with a deficit,” Gian-Carl Casa said.
On the bright side, housing sales in Connecticut have continued to post strong gains, but prices have been depressed.