State Budget Still In Deficit
(Updated 5:30 p.m.) Gov. Dannel P. Malloy’s budget office predicted last week that the state will still end this year with a more than $55.7 million deficit, but the legislature’s nonpartisan Office of Fiscal Analysis says this year’s deficit is more like $128 million.
The latest numbers from Office of Policy and Management Secretary Ben Barnes show that revenue figures remain unchanged and the deficit is about $8.7 million less than it was last month.
It’s the second month in a row that Barnes’ budget projections have conflicted with those of the legislature’s Office of Fiscal Analysis.
Last month the legislature’s nonpartisan Office of Fiscal Analysis came out with a deficit number that was about twice the size of the projections from Barnes last month.
“It should be noted that only about one-half of this year’s projected income tax receipts have been collected to date, and April remains the most significant month for income tax collections,” Barnes wrote in his Feb. 20 letter to state Comptroller Kevin Lembo. “In addition, changes in taxpayer behavior due to the federal fiscal cliff may result in potential one-time gains in those April collections, the consensus revenue forecast on which this letter is based did not include any changes associated with this issue.”
OFA Analysts concur that there are still a lot of unknowns about this year’s budget projections. It’s unclear what the state will receive from income tax revenues following the April deadline and the savings from the hiring freeze have yet to be realized.
“The positive effects, if any, of these two factors has not yet been determined,” OFA says in its monthly report. It does say that the sales and use tax continue to show minimal growth.
State spending has fallen below projections by about $104.9 million, which includes the impact of the December mitigation package and implementation of the Jan. 22 hiring freeze.
But there are still deficiencies in many of the state agencies due to an increase in the number of residents seeking social services.
Barnes said the Department of Social Services is still expected to end the year with a $284 million deficiency largely because of a caseload increase in the Medicaid program for low-income adults. An additional $5 million also was spent on increasing the number of staff to cut down on the time it takes to process the applications for Medicaid.
Last year, a federal judge warned the state to improve its response time for approving or denying food stamp applications. A similar class action lawsuit challenging the state’s ability to process Medicaid applications in a timely manner also is pending.
The caseload growth associated with the low-income adult program is driving the an $11.3 million deficiency in the Department of Mental Health and Addiction Services, according to Barnes.
What’s not taken into account in Barnes’ budget projections is federal sequestration, scheduled for March 1.
“While sequestration is anticipated to result in little immediate state budgetary impact, the economic impact of these cuts, especially in the defense sector of Connecticut’s economy, could have a significant effect on revenues going forward,” Barnes said. “However, there is still some uncertainty as to what actions — if any — Congress will take regarding the sequestration process.”
Lembo will issue his deficit projections on Friday, March 1.