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Lawmakers, Malloy Grapple With Nearly $300M Deficit

by Christine Stuart and Hugh McQuaid | Apr 30, 2014 4:18pm
(36) Comments | Commenting has expired
Posted to: State Budget, Taxes, State Capitol

Christine Stuart photo

Ben Barnes and Mark Ojakian

After budget analysts counted up all the revenue Wednesday, they discovered next year’s budget falls nearly $300 million short of where analysts anticipated it would be at the beginning of the year.

Budget analysts concluded that the state will end this fiscal year with a $43.3 million surplus, which is about $462 million short of the $505 million surplus it predicted in January. The fiscal year 2015 budget was based January revenue estimates which ended up being poor predictors of Connecticut’s fiscal future. That means lawmakers will be left to plug a nearly $300 million hole.

The dive in revenue numbers was related mostly to the fact that income tax revenue wasn’t as robust as predicted. Corporation taxes were revised downward by $44.2 million and sales tax projections were revised downward by $22.6 million. The Malloy administration is attributing the decline in sales taxes to “the impact of this winter’s weather and certain federal policy efforts.”

“We believe this is due to several tax law changes at the federal level at the beginning of calendar year 2013. These tax law chances made it advantageous for investors to realize capital gains in 2012, likely resulting in a significant decline in such realization in 2013,” Office of Policy and Management Secretary Ben Barnes said in a memo.

In a visit to the Capitol press room, Barnes said the January numbers showed a 5 percent increase in estimated income taxes over the previous year. Estimated income taxes are filed on a quarterly basis by residents who are self-employed or have unearned income.

“Every year since the income tax was put in place in the early ‘90s, if estimated tax payments were rising, the final payment would rise,” Barnes said. “This is the first time in the history of the state of Connecticut in the era in which we’ve had this tax structure that the estimates went up and the final payments went down.”

Barnes said they were “taken off guard by that,” but at the time felt it was “conservative” based on historical trends.

As a result of declining revenues, Democratic Gov. Dannel P. Malloy canceled plans for a $55 tax refund to 2.7 million taxpayers. Also, the $100 million in additional funds from that anticipated $500 million surplus won’t be deposited in the state employees’ pension fund.

Democratic lawmakers remained optimistic that they could handle the drop in revenue.

“I think things have brightened up a little bit at the end here,” Senate President Donald Williams said Wednesday. “We’re still going to have a surplus it’s just not going to be as large as we thought it was.”

But there’s also a handful of things that have happened since Malloy and legislative Democrats presented their budgets. There was $18 million in magnet school funding tied to a court settlement agreement got left out of the governor’s budget, and the federal court told the state it needs to hire 35 more eligibility workers in the Social Services Department.

“It appears that we’re pretty close to finding a way to manage any potential shortfall next year within existing programmatic resources,” House Speaker Brendan Sharkey said Wednesday.

Hugh McQuaid photo

House Minority Leader Lawrence Cafero

Republican legislative leaders viewed the situation as more dire. They said the numbers should motivate Democrats to include the minority party in its budget negotiations. House Minority Leader Lawrence Cafero said Republicans intend to offer their own ideas when the budget is raised for a floor debate within the next week.

Cafero said they were still working on what those policies might look like. He said they would start by looking at new spending proposed in this year’s budget.

“As far as I’m concerned, everything that’s in the budget is fair game. We have a problem, we have to face it head on and it’s not going to be pretty, but that’s what we have to do,” he said.

Senate Minority Leader John McKinney said he was not sure why the administration did not anticipate the drop in revenues and insisted for months the budget would have a $500 million surplus.

“My assumption is they either weren’t asking the right people the right questions or they just didn’t want to,” he said.

Republicans also said the declining tax revenues will have political consequences because they illustrate a dismal fiscal picture for voters, who will go to the polls in November to decide whether Malloy should be re-elected for a second term.

McKinney, who is one of several Republicans seeking the nomination to run against Malloy, said the numbers confirm the position of many voters who believe the state’s economy has not improved despite talk of a budget surplus.

“This just now really eliminates any ability for the governor to go out and beat his chest about budget surpluses, solving the problems, because he hasn’t solved the problems,” he said.

Legislative leaders from the two budget writing committees have been behind closed-doors all week seeking to cut spending or defer tax breaks they planned to give to various individuals. 

It’s unclear at the moment what lawmakers will target for cuts or which taxes will remain on the books.

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(36) Comments

posted by: Chien DeBerger | April 30, 2014  4:32pm

Well now the funny math comes home to roost. Figures lie, liars figure..

posted by: Janster57 | April 30, 2014  5:48pm

So long as we have a middle class to share the sacrifice with themselves, we’re good.

posted by: art vandelay | April 30, 2014  8:28pm

art vandelay

I love how Malloy indirectly blamed his mess on BUSH!

posted by: StillRevolting | April 30, 2014  8:32pm

This is just more proof that a completely unchecked Progressive agenda is simply unsustainable and that government can’t be looked to for every answer if we really want all of us to at least have the opportunity to succeed at higher levels. The income and achievement gaps are continuing to grow while middle-class ability to spend decreases through declining real wages and increasing taxes. The real 1% are largely unaffected. So, under one-party rule in CT, the poor are getting poorer and less able to change that. The middle-class who really drive the economy are less able to do so. The rich are outliers that everyone else complains about. The only entity that is actually better off is government. That’s insane and a direct result of one-party rule that allows the actual implementation of the mindset that government is always the answer to become law in our state. We need to ask for better results in November. We must at least ask for a different governor.

posted by: shinningstars122 | May 1, 2014  5:46am

shinningstars122

@still revolting you are sort of on track but honestly you think it would be any different with Tom Foley at the helm? Considering what has occurred on the national level?

Wake up.

This is the result of GOP lead austerity, sequestration, and not shifting one ounce on tax policy.

Corporations and WS have raked it in since 2008 to the tune of trillions and they see no motivation to invest in the economy.

Not at all.
How many of you have received a decent raise lately?

I mean more than four percent.

This is clearly what the Koch brothers want to see. Starve the pig and guess who pays? First the states, then the cities and towns.

This is unsustainable. This country has a GDP of over 16 trillion and in CT it is over 2 trillion.

Cutting spending will never get us out of this mess.

It will only lead cities and towns to bankruptcy,which is clearly what the plutocracy want.

They would love to buy up tax payers assets for pennies on the dollar and privatize everything.

They we really will get screwed.

So please stop with this short sighted, and irresponsible, teaparty manipulated take on reality and crying about our children’s children paying taxes.

We need to change now and bgein raising taxes on the wealthy and corporate America, to force them to invest, is where it needs to start first

posted by: Not that Michael Brown | May 1, 2014  7:33am

When is a ‘deficit’ a deficit?  And when is it a ‘budget gap’ or ‘budget shortfall?’

The headline makes it look like fiscal year 2014 will end with a $300 million deficit.  This is not the case.  It appears that fiscal year 2014 will end with a $43 million *surplus.*  Fiscal 2015 has a *projected* $300 million shortfall . . . but that hasn’t happen yet; mostly because ‘fiscal 2015’ hasn’t happen yet! 

No doubt about it, the projected 2015 budget gap needs to be plugged.  But it’s not a “deficit” yet.

posted by: robn | May 1, 2014  8:45am

Does this mean I don’t get my $50?

posted by: Nutmeg87 | May 1, 2014  8:58am

Malloy still blaming Bush ???  Even Obama got off that bandwagon…  Maybe Malloy ought to get his head out of his @ss and see some daylight…  Its 2014 Connecticut - DO YOU KNOW WHERE YOUR MONEY IS ???

Time to vote all these Little Rascals OUT !!!

posted by: jim black | May 1, 2014  9:14am

Let’s see. Using Malloy math, $500 million surplus is .43 cents. That means a $300 million deficit is really $1 trillion. Better beef up the highways leaving the state. They are in for some heavy usage.

posted by: Christine Stuart | May 1, 2014  9:45am

Christine Stuart

Notthatmikebrown,
The $300 million deficit they need to plug is the budget they are working on currently. The one already in place (fiscal 2014 which ends this June) is ending with a small surplus, correct. There is a deficit in 2016 that the next governor and General Assembly will need to tackle based on the spending and revenue projections.
Christine

posted by: JAM | May 1, 2014  10:08am

Christine,
Please stop referring to a “surplus” for F/Y 2014.
There’s $650 million of borrowed money in those numbers. At a minimum this should be highlighted in any discussion of a so called surplus.
The reality is that real revenues fell about $600 Million of expenses, but a constant drum beat about a “surplus” suggests otherwise.
It’s no different than if they borrowed the money at the end of the F/y to cover a shortfall.
Borrowed money cannot create a true Surplus.

posted by: Greg | May 1, 2014  10:13am

@shining star:  How does the GOP in DC have anything to do with our problems here in CT? If they were the problem, other states would be having our growth issues, do you agree?  Then how come we are the only outlier state in economic growth if DC is to blame?

Malloy and the legislature need to own their decisions, which they clearly have no intention of doing.  Bush tax cuts.

George Soros, Bill Ayers, communist utopia.  There, matched your Koch Brothers reference. See how silly that sounds?

posted by: art vandelay | May 1, 2014  10:42am

art vandelay

@shinningstars122,
You’re correct in that our nations tax policies should be changed to encourage more domestic investments.  Having profits deposited in foreign bank accounts to avoid paying income tax is not helping anyone.  You’re wrong however in thinking that by taxing the rich our fiscal problems will be solved.  Redistribution of wealth has never worked and never will.  Leveling the playing field is something the Democrats have been trying to accomplish for decades.  It’s a dumb idea because everyone is NOT equal.

posted by: Not that Michael Brown | May 1, 2014  11:02am

@Christine Stuart - Understood.  My point was the word ‘deficit’ is out of place here.  Check out his article, “When is a Shortfall a Budget Gap and Not a Budget Deficit? ” http://bit.ly/R739xC.

posted by: Stan Muzyk | May 1, 2014  11:18am

@Art Vandelay: The only reason that Pres. Obama is still not blaming Bush is because he is not running for reelection.  Malloy is, and “is grasping on to straws.”

posted by: GBear423 | May 1, 2014  11:41am

GBear423

“Democratic lawmakers remained optimistic that they could handle the drop in revenue.”
Fiddles handy?

LOL’d when I read the lemming blame austerity and tea party for this… mmmm kool-aid! BUSH did it!!  Halliburton!! Cheney!

2015 so far has a $300M deficit.
2016 has over $1B. and future University President Williams says things “have brightened up at the end here.”  For him yes, Connecticut not so much.

posted by: Commuter | May 1, 2014  11:46am

“‘My assumption is they either weren’t asking the right people the right questions or they just didn’t want to,’ [McKinney] said.”

Sen. McKinney neither knows what happened nor knows what to do about it. This is typical. Meanwhile, Barnes has provided, as reported above, an account of exactly how they arrived at those projections. Perfectly reasonable. Consensus projections, too, weren’t they?

And it’s notable that several commenters here complain about Malloy “blaming” Bush, despite the fact that there is nothing about anyone mentioning Bush in the piece above.

posted by: Not that Michael Brown | May 1, 2014  12:03pm

The “blaming Bush” charge was made by Cafero and was parroted in a “CAPITAL REPORT” headline.  Read the article and you will see the reference had to do the ‘expiration of the Bush tax cuts on January 1, 2013.’  I fail to see how that is “blaming Bush.”

I don’t know why anyone would blame Bush for anything.  Bush was president for only eight years.  Yes it is true that he got us into two devastating wars, one of which we are just now getting out of.  And yes, at the end of his eight years the economy went into the sh*tter. Otherwise I would say Bush is blameless for anything that happens in this country today.

posted by: robn | May 1, 2014  12:11pm

I agree entirely with JAM that a budget which is balanced with an extraordinary and unusual amount of borrowing can’t truly considered to be in surplus. I use the terms “extraordinary and unusual” because for at least a year, bond rating agencies have been frowning upon CT’s record levels of borrowing.

posted by: JAM | May 1, 2014  12:36pm

SS 122:
After you read and digest Art V’s comment, you may want to check out something called “reversion” whereby US Corporations are changing their domicile to foreign countries due high US Corp tax rates,
Pfizer is the latest-contemplating domiciling itself in the UK.
Raising taxes on all those rich folks and corporations may make you feel good, but there are consequences-and not necessarily positive ones.

posted by: justsayin | May 1, 2014  1:20pm

This only means that now I can not give my $55 bucks to the Republicans campaign to run against, Danny boy.

posted by: Not that Michael Brown | May 1, 2014  1:58pm

@robn and @JAM - Please look up the definitions of ‘debt’ and ‘deficit.’

posted by: GBear423 | May 1, 2014  2:31pm

GBear423

@ Commuter McKinney knows. They all played off the same budgeting source, Cafero admitted that in another article. Ben Barnes cited the Bush Era tax cuts, thus Bush’s policy gets the blame for the lion’s share of the shortfall.
@NTMB: Blame Bush for National problems is a debate.  Blaming him for Dannel’s Tax and Spend approach, his misuse of the word surplus, and his inability to predict State Income is not. 

I blame CT Politicians’ culture of fiscal recklessness.

posted by: JAM | May 1, 2014  3:02pm

NTMB:
And what??

posted by: GBear423 | May 1, 2014  4:25pm

GBear423

@ NTMB-  Good point, deficit is being applied incorrectly, shortfalls is proper term. Debt, well we do have some debt…

Ballotpedia reports- According to a January 2014 report by the nonprofit organization State Budget Solutions, Connecticut had a state debt of over $112 billion. Its state debt per capita was $31,298. A bulk of the state debt—79 percent—was linked to unfunded public pensions.

Connecticut is ranked 3rd in Debt per capita among the 50 States.

posted by: dano860 | May 1, 2014  4:32pm

Watch this clip and see how taxing the wealthy is going.

posted by: Not that Michael Brown | May 1, 2014  6:10pm

@GBear423 - Show me where they blamed Bush.

posted by: Stan Muzyk | May 1, 2014  7:36pm

NTMB: You should ask Pres. Obama and the Democratic National Committee why they kept blaming Bush.  Like you don’t know why. Gov. Malloy got on the Obsma/DNC “blame Bush bandwagon a long time ago” as he follows the leader.

posted by: GBear423 | May 2, 2014  7:19am

GBear423

@ NTMB-
“In his letter, Barnes said that “based on the income tax collections received so far, it is clear that taxes on capital gains in 2013 will be hundreds of millions below expectations.” He said the January, 2013 expiration of the Bush tax cuts hurt revenues more than state budget analysts predicted.”

I read that as a simple statement, though in the politically charged atmosphere here, partisans think either Barnes is blaming Bush, or others see it as Bush’s fault since this fellow mentioned the former President’s name.

I would like these State Budget Analysts to be fired. I think all can agree this significant of a mistake deserves some repercussions.

posted by: Matt W. | May 2, 2014  9:26am

Matt W.

There’s probably $200M sitting in the suggestion box.  Barns forgot to check it!

posted by: Not that Michael Brown | May 2, 2014  1:40pm

@GBear423 - All the State Budget Analysts were certified by the Comptroller’s office.  Apparently, this is the first time in ten years that quarterly payments did not closely predict the actual tax bills.  The Comptroller also cited this anomaly in a press release yesterday.

Hindsight would suggest that the Governor should not have talked about sending out checks to everyone.  Predictions, more often than not, are flawed.  But hindsight, on the other hand, is flawless.

posted by: Not that Michael Brown | May 2, 2014  1:44pm

@Stan Muzyk - You have provided nothing to back up what you say.

posted by: Stan Muzyk | May 2, 2014  2:44pm

@NTMB:  Doesn’t Gov. Malloy’s phony budget tell you something you do not want to hear?  You conveniently “see no evil” or “hear no evil”—when the situation warrants it.
Gov. Malloy “likes hip-pocket followers like you.”

posted by: Not that Michael Brown | May 2, 2014  5:49pm

@Stan Muzyk - Nothing you’ve written here makes any sense.

posted by: Stan Muzyk | May 2, 2014  8:34pm

@NTMB: The feeling is mutual - so we can’t be “pen pals.”
Unfortunately,we are very politically divided, which is the nature of this blog.

posted by: Christopher55 | May 2, 2014  9:33pm

Perhaps we could start by doing away with the earned income tax credit? Nothing more than a redistribution of wealth.  Why should someone who pays no taxes, get up to $200.00?