Lembo Predicts $224M Deficit In 2018
HARTFORD, CT — State Comptroller Kevin Lembo said Tuesday that the state is on track to end the year with a $224 million deficit, which is slightly higher than the $222.5 million Gov. Dannel P. Malloy’s budget office estimated last month.
Lembo is predicting a $21.5 million deficiency in the non-appropriated adjudicated claims account. That account is responsible for paying legal claims from the SEBAC v. Rowland decision and related attorney fees, along with other negotiated settlements. It is also responsible for paying a $1.5 million to the town of Cheshire for unpaid sewage claims for the $1.5 million settlement the Department of Correction made with the town of Cheshire for unpaid sewage discharge.
Since legal settlements are unpredictable, Lembo said he would monitor the activity in the account closely and revise the estimates as needed.
Another difference between the governor’s budget office and Lembo is a $16.7 million reduction in federal grant revenue due to the delay in implementing the Medicare Savings Program at its 2017 levels. Lawmakers are expected to return to the state capitol this week to restore funding for the program.
As far as revenue is concerned, Lembo said his office is continuing to monitor personal income tax collections closely.
“Income tax receipts have underperformed budget targets through November, especially the estimated payments portion of the tax,” Lembo said in his monthly letter to Malloy. “There is also a significant amount of uncertainty regarding the impact that recently enacted Federal tax changes will have on Connecticut. Tax professionals are anticipating a short-term increase in estimated payments at the end of calendar 2017 as residents seek to pre-pay taxes before the limits on the State and Local Tax (SALT) deductions go into effect for the 2018 tax year.”
At the moment the final and estimated portion of the personal income tax have outpaced last year’s receipts, but Lembo warned “state policy makers should be aware of the likely one-time nature of this revenue.”
Lembo, a Democrat who is seeking re-election in 2018, pointed out in his monthly letter that Connecticut pays more in federal taxes per capita than it gets back.
While places like Mississippi, Alabama, West Virginia, New Mexico and the District of Columbia receive far more federal dollars than they pay, Connecticut receives only 87 cents back for every tax dollar sent to Washington, D.C. (ranking Connecticut 46th in what it receives in per-capita federal spending), according to a recent report by Federal Funds Information for States.
“New federal tax changes will now worsen this disparity and likely have long-term consequences for states like Connecticut, impairing the ability of Connecticut state and local governments to afford essential investments in infrastructure, education and workforce training that are necessary to drive economic growth,” Lembo said. “These federal tax changes raise basic questions of fairness for high-income states like Connecticut and fly in the face of the tax bill’s stated goals.”
Meanwhile, Connecticut is still struggling to recover all the jobs it lost in the 2008 recession.
Preliminary data for November show that the state lost 3,500 net jobs during the month, falling to a level of 1,677,500, seasonally adjusted. October’s originally-released job loss of 6,600 was revised upward by the Bureau of Labor Statistics to a loss of 6,200 for the month. In total, Connecticut has lost a total of 13,600 jobs since June and has experienced no job growth on a year-over-year basis for the period ending in November 2017.
The Bureau of Economic Analysis showed Connecticut personal income increasing at a quarterly rate of 0.6 percent between the second and third quarters of 2017. Based on these results, Connecticut ranked 36th nationally in personal income growth, just below the national average of 0.7 percent for the quarter. On an annualized basis, Connecticut’s income growth would be 2.2 percent, which is just keeping up with the general rate of inflation.
Connecticut continues to struggle through job loss and only modest earnings growth – however, Lembo said that some of the latest positive economic indicators deserve watch.
Lembo noted modest growth in financial sector jobs, some relief after persistent population loss (Connecticut’s population remained essentially the same between 2016 and 2017), and a new report that found Connecticut ranked 10th in the nation in a 2017 State New Economy Index by the Information Technology and Innovation Foundation (ITIF) that measures how closely the 50 state economies match the ideal structure of the innovation-driven new economy.