Stubborn Budget Deficit Tied To Declining Revenue
Despite the legislature’s attempt to erase the state budget deficit at the end of December, Office of Policy and Management Secretary Ben Barnes issued a report Tuesday that says the state budget is still in the red by $64.4 million.
The red ink, largely tied to the decline in revenue, is not surprising since last week a report showed revenue down about $160 million from the budget lawmakers adopted in June.
Since last month, revenue has dropped by about $33.9 million, according to Tuesday’s report. The most significant of which is the sales tax, which dropped $116 million as “projections year to date have been growing at a slower than anticipated rate,” Barnes wrote in his monthly budget forecast.
But he said less than half of the year’s income tax revenue has been collected and April still remains the most significant month for income tax collections.
“In addition, changes in taxpayer behavior due to the federal fiscal cliff may result in potential one-time gains in those April collections,” Barnes wrote.
Rep. Vincent Candelora, R-North Branford, said the decline in sales tax revenue is a disturbing trend.
To quote former Gov. M. Jodi Rell’s budget director, Robert Genuario, “Once a trend starts it doesn’t just stop,” Candelora said.
Historically, the decline in revenue has been tied to the income tax during the economic recessions of 1990, 2003, and 2009, Candelora said. The decline in sales and corporation tax in this year’s budget represent a different type of recession and “it may speak to the tax policies implemented a year ago.”
Republican lawmakers who didn’t vote for Gov. Dannel P. Malloy’s budget two years argue the $2.6 billion in tax increases over two years stifled economic growth.
“Some of it could be consumer confidence or tax avoidance,” Candelora said, referring specifically to the increase in the sales tax implemented in 2011.
On the spending side, Candelora expressed confidence that the administration was doing everything it could to spend less than it budgeted.
The bigger problem is “it feels like the state is chasing the dollars trying to achieve savings anywhere we can possibly find them and we’re not paying enough attention to policy issues,” Candelora said. “I think every effort is being made to curb spending.”
According to the monthly budget report, spending is expected to fall $96.2 million below projections after the deficit mitigation measures are taken into account. However, several state agencies and programs are still running deficiencies.
There are $337.9 million in deficiencies across six agencies. The Medicaid program is still running the largest deficiency of about $284 million, which is up about $14 million from last month. The increase in the deficiency is attributed to the increase in caseload and high use of medical services.
The Department of Mental Health and Addiction Services is running a deficiency of about $11.3 million. The Department of Correction is running a $22 million deficiency because of personal services and overly optimistic assumptions. The Department of Emergency Management and Public Protection also was overly optimistic in its budget assumptions and is running a $13 million deficit. The Department of Consumer Protection is experiencing a $900,000 shortfall because of the restructuring of its casino staffing reimbursements, and the Comptroller’s office is expected to incur a $1.7 million deficiency in both its personal services and “other expenses” accounts.
But Barnes said those deficiencies will be offset by measures the legislative and executive branches took in December to erase most of the deficit.
He said the Department of Children and Families was able to save the state $22.9 million by reducing caseloads. The state Comptroller also was able to save about $43.7 million through favorable health care cost trends for active and retired state employees.
State Comptroller Kevin Lembo will certify the budget numbers on Friday, Feb. 1, and Gov. Dannel P. Malloy will present his two-year budget on Feb. 6. That budget will seek to close a more than $2.2 billion deficit over the next two years.