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Legislative Analysts Say Deficit Is Bigger Than Initially Thought

by Christine Stuart | Jan 26, 2012 6:22am
(7) Comments | Commenting has expired
Posted to: State Budget

CTNJ file photo

State Capitol

(Updated 8:29 a.m.) If you believe the non-partisan staff at the legislature’s Office of Fiscal Analysis, Connecticut’s budget picture is worse than anyone could have imagined.

Late Wednesday night the office pegged the current general fund deficit at nearly $145 million. It said the amount reflects an estimated net increase in spending of $130.7 million, and a net reduction in revenue of $94.7 million.

However, the numbers don’t include the nearly $79 million in rescissions Gov. Dannel P. Malloy released earlier this week in an effort to try and keep the budget his first budget in the black and in compliance with Generally Accepted Accounting Principles.

The Office of Fiscal Analysis is conducting an analysis of the rescissions and is expected to let lawmakers know if any of them overlap with existing lapses.

Office of Policy and Management Secretary Ben Barnes admitted Tuesday that some of the $79 million in rescissions may have already been counted as lapses. Early Thursday morning he released this list which shows about $44 million of the $79 million have already been counted as lapses and about $34 million are new spending cuts.

As it stands currently, OFA believes “The budget is heavily reliant on budgeted lapses to achieve balance.”

A lapse is an unallocated sum of money, which has been held back so it can’t be spent and it’s a normal occurrence in any budget. But this year’s lapses were larger than in previous budgets because many included targeted savings which were part of the union concessions deal.

“Of the $777.9 million budgeted, we have been able to identify $651.4 million in lapses,” OFA wrote in its report Wednesday. “About five months remain in the fiscal year and the remaining $126.5 million may still be achieved through various savings or budgeting mechanisms.”

The remarks about the lapses support the argument Republican lawmakers made earlier this week.

Sen. Minority Leader John McKinney, R-Fairfield, said Tuesday that he believes as much as $41.7 million of the governor’s proposed rescissions have already been identified as lapses. That leaves about only $37 million in new reductions, which means the budget will still be out of balance after Malloy makes the cuts.

Malloy has the power to cut up to 5 percent of any one line item in the budget without legislative approval. Before leaving for Switzerland Tuesday Malloy released the list of nearly $79 million in rescissions.

“Now Governor Malloy has a $145 million budget hole - $220 million if he intends to keep his promise to comply with GAAP - and only $32 million worth of ideas to fill it,” McKinney said Wednesday in a statement. “His math simply doesn’t add up.“

The Office of Policy and Management admitted the state’s revenues are declining and under GAAP the state is experiencing a deficit of $73.6 million, but has yet to put a number on any estimated increases in spending.

In his Jan. 20 letter  to state Comptroller Kevin Lembo, Barnes wrote that OPM is now projecting two significant net deficiencies in the account that funds health care for retired state employees, and a shortfall is also expected in the account that funds pension payments to state employees. Some of those shortfalls are related to changes in the State Employees Bargaining Agent Coalition agreement and the 2,700 retirements that followed.

But no numbers were attached to those potential deficiencies.

“Secretary Barnes is confident in OPM’s numbers,” Andrew Doba, Malloy’s communications director, said Wednesday. “He hasn’t had a chance to review OFA’s analysis, but he respects their work.”

Meanwhile, Democratic lawmakers expressed confidence in Malloy.

“Connecticut’s budget will be balanced through the rescissions Governor Malloy has already proposed and other savings that the legislature will enact if necessary,“ Sen. President Donald Williams, D-Brooklyn, said in a statement Wednesday.

“Republicans who are pointing fingers of blame should remember that if the legislature had enacted their alternative budget the state would be facing nearly $1 billion in red ink through their smoke and mirrors budget tricks and borrowing,“ Williams said.

House Minority Leader Lawrence Cafero, R-Norwalk, stressed Tuesday that it’s not so much about the budget the Democrats passed without the support of Republicans, but it’s about the legislature’s role in the budgeting process.

“We as a legislature have an obligation,” Cafero said. “We have to balance a budget.”

But it’s hard to do when the Office of Fiscal Analysis can’t get a straight answer from the governor’s Office of Policy and Management, he said.

He said he understands the governor may prefer it that way, but the legislature is one of the three branches of government.

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 pushed it into the red. Republicans have also expressed concern that other tax revenue is coming in under projections.

However, Rep. Vincent Candelora, R-North Branford, said “it’s hard to tell when there’s a lack of checks and balances between the legislative and executive branches.”

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(7) Comments

posted by: Disgruntled | January 26, 2012  9:54am

Is a “lapse” considered smoke or mirrors?
Is a “lapse” simlilar to flying FirstClass to Davos because BusinessClass was full?
Perhaps a lapse is failing to lead by example.
And this just in!!  Bonus numbers are not just down…they are waaaay down! And HR departments are making their lists,checking them twice all over CT just to keep up with Perkin-Elmer and Norden and RR Donelly to name but a few who just can’t find or keep qualified help.
No recovery is in sight. One does not need to go to Switzerland to experience cold winters.
The rats are probably safe at JacksonLabs and in Hartford and Davos.For now.

posted by: Tessa Marquis | January 26, 2012  10:20am

More Tax revenue from Linda McMayhem. Or at least force her to use CT companies for her campaign. Chris Shays hasn’t paid taxes in CT for 4 years, right?

Not that I am picking on anyone in particular…/snark

posted by: ... | January 26, 2012  12:07pm

...

What will be critical in regards to the budgets outlook in 2012 will largely depend on a decreased unemployment rate, a reduced burden on those unemployment services, and an increase in the various taxes that can be collected from new hires or rehired workers in CT.

I doubt it is in jeopardy, but the status of municipal aid will be something to note in the coming weeks as a vital portion of our budgetary spending.

posted by: Matt W. | January 26, 2012  12:08pm

Matt W.

Smoke and mirrors on the budget???  It can’t be!

posted by: Noteworthy | January 26, 2012  12:17pm

I take personal exception to Don Williams ill-informed and designed to deceive comment. He has personally engineered the cooked books and funky financing, including billions in borrowed money for operating expenditures precisely so he didn’t have to make the kind of spending cuts declining revenues require. This has been going on for years.

Williams also backed the plan to give the working poor another permanent welfare boost by exempting them for paying for anything via the tax credit. Part of the problem is that you have declining paychecks and income and a larger swath of residents than ever, not paying anything to live here. Not one dime.

Bottom line is when you have a history making tax hike this year, and history making tax hikes several years ago, and you still can’t balance the budget, the problem is clearly spending.

This year, despite the economic outlook, Malloy and Williams escalated spending, borrowed billions while cutting nearly nothing. The labor deal still can’t be quantified and the unbalanced books are all the evidence one needs to understand the faux budgets of the past are still alive and well.

Meanwhile, Malloy is the bon vivant of CT taking in the sights and sounds of Davos. Let him eat chocolate. We can’t afford it.

posted by: NOW What? | January 26, 2012  7:53pm

When I consider the numbers and combine the with the facts of how our state agencies (including OFA and OPM) actually work, I keep concluding that the Malloy administration is correct and will end the fiscal year (and the one after that and the one after that) with balanced books. Our Republican legislators are so few in number that they KNOW they have *absolutely* nothing to lose by “calling ‘FIRE!’ ” when in fact there is no fire. And - sadly - the Democrats would do EXACTLY the same if the situation were reversed. That’s politics, folks. Thankfully, the state’s laws now pretty much guarantee balanced books, whether it has to be accomplished through “lapses” or other categories or types of spending reductions (including the Governor’s statutory rescission authority).

Unemployment in CT is going down both steadily AND significantly. Local AND interstate business transactions are increasing very noticeably, giving us every reason to believe that next year’s revenue streams will be much better (there’s ALWAYS a 6-2 month “lag”).

posted by: perturbed | January 26, 2012  9:30pm

perturbed

The wording on this part is confusing:

“In his Jan. 20 letter to state Comptroller Kevin Lembo, Barnes wrote that OPM is now projecting two significant net deficiencies in the account that funds health care for retired state employees, and a shortfall is also expected in the account that funds pension payments to state employees. Some of those shortfalls are related to changes in the State Employees Bargaining Agent Coalition agreement and the 2,700 retirements that followed.

Yes, the shortfalls in health care and pension funding are related to state employees’ unprecedented concessions, but how?

The SEBAC 2011 agreement broke the state’s promises to state workers on their pension benefits—promises that were up to 27 years old. There is an estimated $8 billion in savings over the next 20 years due to that promise-breaking. So it would be safe to assume the pension shortfall would be greater without the recent retroactive pension revisions.

On the other hand, the SEBAC 2011 agreement primarily affected the pensions of Tier II and Tier IIa employees (and future Tier III employees), leaving Tier I employees largely unscathed. So the shortfall could have been reduced further if the pension give-backs were implemented more fairly across all SERS tiers. That couldn’t be done for two probable reasons: 1) any of the SEBAC negotiators that are actually state employees are in Tier I; and 2) the agreement would not have had enough votes to pass.

On the health care funding shortfall, the SEBAC 2011 agreement has so far only magnified the cost of the state’s health care responsibilities. The implementation of the new Health Enhancement Program (HEP), with mandated doctor visits, certainly increases health care costs in the short term. The dishonest SEBAC/Malloy team planned on counting “savings” produced only by—get this—50% of state employees refusing to join the HEP, and paying premium surcharges. (The HEP only saves money if enough people don’t use it!) With penalty premiums ranging from $1550 to several thousand dollars each year, predictably, state employees chose overwhelmingly (96%) to join the HEP, much to the dismay of its architects. (SEBAC’s “win-win” was really a “lose-lose” proposition.)

Additionally, the 3% of gross salary “contribution” that every single state employee will have to pay into the Retiree Health Care Trust Fund was delayed and phased in over fiscal years 2013 through 2015. Here again, the SEBAC/Malloy team sacrificed the true savings they could have obtained in the 2011/2012 budget in order to induce short-sighted state employees to trade future wage reductions for the immediate gratification of a temporary delay in the proposed wage cuts. SEBAC/Malloy were simply engineering votes.

Nice work, SEBAC/Malloy! You screwed us in the long term, and didn’t even produce much real savings in the short term. By the time the pension slashes are having a real effect on the budget (and our lives), we’ll probably be in the midst of a secular bull market, the state’s budget will be in the black, and the private sector will be able to lure good employees away from state service with higher wages once again. Very nice work.

Oh, but SEBAC did get their prized health care pooling bill out of the deal. They seem proud of their political prowess. It’s a feather in their cap to have given back benefits hard-won by their predecessors. The days when union bosses felt some sense of fiduciary duty to those paying their salaries are nothing but a quaint memory. Isn’t that right, SteveHC or “NOW What?” or Whatever you’re calling yourself NOW?

—perturbed