Lawmakers Hear About Future Budget Deficits
If state budget analysts had used the same method of accounting, the difference in the projected deficit for the next biennium would have been about $66 million. Instead, it’s about $488 million.
Alan Calandro, the head of the legislature’s Office of Fiscal Analysis, told the two budget writing committees Monday that his office chose to use the current services method of accounting when it released its fiscal accountability report last week. The method takes into account inflation and statutory funding requirements for things like municipal aid.
However, for the first time since 2005, the Office of Policy and Management used a “current practices” form of accounting, which didn’t account for inflation and tried to predict spending levels based on past practice.
Office of Policy and Management Secretary Ben Barnes told the two committees that the last time inflation was funded in the state budget was 1988. He dismissed the differences between the two reports during a two-hour public hearing Monday.
Republican lawmakers, who have been critical of the administration for switching to the new accounting method before an election year, wanted to know what factors went into making the spending assumptions and why, after the second largest tax increase in the state’s history, is the state still on a path toward deficits in the future.
“How can we say this is a sound structure of budgeting?” Sen. Rob Kane, R-Watertown, asked.
The packed hearing room chuckled at the politically charged question. Barnes, who is the governor’s budget director, decided to let Calandro answer the question.
“At the end of the day when a budget is put before us by the governor, the margins become kind of meaningless,” Calandro said. “That is what drives the actual budget process and the differences between what we’re projecting and OPM is projecting become a side-story and minor.”
He said the executive branch will put real numbers behind the budget proposals in the future and at the end of the day the legislature and the governor will have to find a way to balance it. The current year’s budget is running a surplus.
Barnes continued: “The reality is that the budget is in balance today, with a strong surplus projected for the end of the year. It will be balanced next year, with no new taxes,” he said.”
The deficits projected by both OFA and OPM are in fiscal years 2016, 2017, and 2018. OFA predicted deficits between $1.1 billion and $1.4 billion over the next three fiscal years. OPM predicted smaller deficits of $612.4 million in fiscal year 2016, followed by deficits of $432.5 million in 2017 and $376.3 million in 2018.
The revenue estimates used by both OFA and OPM to make the predictions were the same and one lawmaker wondered if the legislature shouldn’t force the two offices to reach a consensus on spending three times a year like it does on revenue. Others speculated the change in accounting was due to the fact that 2014 is an election year and it’s the next governor and legislature that will be left to deal with the deficits.
Democratic state Sen. Andrew Maynard defended Barnes and the Democratic administration by asking how much of the spending the state has to do to pay off the obligations postponed by past Republican administrations.
Barnes said that if the state didn’t have to pay the amortized unfunded pension obligations, then the state would have approximately $1.9 billion in lower expenditures. The administration has sped up payments to the State Employee Retirement System in order to make up for lost time and to avoid a balloon payment in the future.
Former Gov. M. Jodi Rell and the Democrat-controlled legislature agreed to delay pension contributions of $50 million in 2009, $164.5 million in 2010 and $100 million in 2011.
“Cleaning up these previous messes are causing us to have these deficits,” Maynard said.
Barnes concurred, adding that the weakness of the economic recovery has not helped the budget get back on track.
According to Barnes, if this recovery had been similar to the 2003 recovery, income tax revenue would be $1.3 billion higher, while sales tax revenue would be $600 million higher.
By 2018, according to Barnes’ presentation Monday, the state will be getting 58.2 percent of its revenue from the income tax and 23.9 percent from sales and use taxes. The rest will be made up of federal grants, cigarette taxes, and other special revenue.
“Income tax revenue has fluctuated dramatically due to the performance of the stock market and two recessions,” the presentation reads. “Unfortunately, a record high year for capital gains realizations can be immediately followed by a record low year, creating extreme volatility in state finances.”