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Budget Analysts Predict $488M Drop In Revenue

by | Apr 30, 2013 10:35pm () Comments | Commenting has expired | Share
Posted to: State Budget, Taxes

Christine Stuart file photo Budget analysts predicted that over the next two years revenue will drop more than $488 million, creating new challenges in negotiations over a state budget that doesn’t increase taxes.

The governor’s budget office and the legislature’s nonpartisan Office of Fiscal Analysis released their consensus revenue estimates Tuesday concluding that revenue will drop $259 million in 2014 and $229.4 million in 2015.

“This presents Connecticut with some real challenges in finalizing a budget, but I am confident that we will work with the legislature to come to a responsible and balanced budget plan,” Office of Policy and Management Secretary Ben Barnes said in a statement.

The report also concluded that the state will end this fiscal year with a $150.1 million surplus. Barnes asked last week that any surplus from this fiscal year go into the Rainy Day Fund. The Connecticut Conference of Municipalities and the Connecticut Hospital Association are just two groups hoping any surplus would be used to reduce the cuts that will impact their members.

But Barnes warned lawmakers Friday not to get too giddy about a possible surplus this year.

“Until an updated revenue estimate for FY 2014 and FY 2015 is completed, we should remind those that have an eye on any surplus that we are in a very different time from the years before the recession when prosperity drove surpluses every year,” Barnes said Friday. “Today, we are not yet in a position to predict with sufficient confidence that economic recovery will produce lasting increases in revenue collections.”

The additional personal income revenue the state is seeing this year as a result of changes at the federal level won’t recur in 2014 and 2015. It’s income from capital gains and dividends individuals are cashing in as a result of changes to federal tax law, according to Barnes.

When he proposed his two-year, $43.8 billion budget in February, Gov. Dannel P. Malloy didn’t raise any major new taxes and increased spending 9.7 percent. The legislature’s Democrat-controlled Appropriations Committee released its budget earlier this month with a spending increase of about 10 percent over the next two years and shifted some of the funding priorities. The Finance, Revenue, and Bonding Committee adhered to Malloy’s call not to raise taxes and even restructured its borrowing to allow a tax implemented two years ago to expire.

But things are changing rapidly and the economy isn’t following historic trends.

Since Malloy prepared his budget based on the consensus revenue estimates in January, analysts have predicted personal income tax revenue will drop $143.6 million in 2014 and $69.3 million in 2015. Sales and use tax predictions also are down about $75.1 million in 2014 and $104.9 million in 2015, according to the latest report.

House Minority Leader Lawrence Cafero, R-Norwalk, has said the state never pivoted in 2012 to revise its overly optimistic revenue projections, which date back to Malloy’s first budget in 2011. That’s the year Malloy increased taxes $1.5 billion, and changed the state’s relationship with its employee unions in order to close a $3.7 billion deficit.

At that time, Malloy’s administration never anticipated it would be fending off future deficits as big as $1 billion, but that’s where it finds itself after a January hiring freeze and a December deficit mitigation plan.

On Wednesday, Malloy maintained his pledge not to raise any new taxes.

“I’ve been very clear. I’ve been telling you for months we’re not going to raise taxes and we are not going to raise taxes,” Malloy said.

He maintained that his budget which increases spending 9.7 percent actually cut spending and those spending cuts in 2014 will carry over to 2015.

“Let’s focus on what the yearly shortfall is,” Malloy urged reporters.

Cafero said the new revenue report shows that the budget will be in deficit about $1.4 billion in 2014 and $1.7 billion in the second.

“It shows the economy is not turning around,” he said.

Cafero said what the state needs to do is spend less money.

Even though he didn’t raise any major new taxes, Malloy continued several taxes expected to sunset June 30, in order to close a two-year, $2.2 billion budget deficit.

Malloy’s budget extended a 20 percent surcharge on the corporation tax, a tax on electric generating facilities, and maintained a cap on an insurance premium tax credit. Collectively, the three tax extensions raise about $153 million in new taxes in 2014.

The Finance, Revenue, and Bonding Committee eliminated the tax on electric generators, which was expected to bring in about $76 million a year.

The decision upset Republican lawmakers who are generally against taxes.

“I refuse to believe that the state’s only options are an unfair tax today, or borrowing and paying higher interest tomorrow,” Sen. Minority Leader John McKinney has said. “The state needs to cut spending.”

It’s unclear if the current revenue projections will prompt the Democrat-controlled legislature and Democratic governor to sit down and start over, but Barnes described the new revenue projections as “conservative.”

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(11) Archived Comments

posted by: Chien DeBerger | May 1, 2013  7:13am

REALLY???? Tell me it is not true Danel! I’ll believe you…really?

posted by: JAM | May 1, 2013  8:17am

Has anybody told the Two Toni’s about this?

posted by: Noteworthy | May 1, 2013  10:03am

Nobody should be giddy or proud of having any surplus knowing that it is rooted in almost exclusively raiding the family budgets of middle income taxpayers across this state.

posted by: 17beachboy | May 1, 2013  10:27am

So essentially - what the Republicans warned would happen is happening - you cannot tax and spend your way out of a recession.

What we should do is freeze all spending for two full years - everything - right across the board.  If we are going to have “shared sacrifice” then all must sacrifice.  Then, hold the line on tax increases - let the economy adjust to all the recent tax increases (federal and state)but do not add any more.  Folks - it is not a revenue problem - it is a spending problem.

posted by: johnnyb | May 1, 2013  11:47am

When Reil was Gov they(the Dems) thought that the economy would expand and solve their problems. The same thing when Malloy took over. By not giving $ to hospitals or Universities they are avoiding doing the main thing they should do. That is cutting spending in State Agencies. They waste money at all levels unabated. The caste system of perks for management in State Agencies still exists and no one in the press reports on it.Raiding the Transportation Fund again? REALLY? The taxpaying working class in Conn are being abused by our General Assembly and present Governor.

posted by: BrianO | May 1, 2013  12:19pm

Lose the Republican v. Democrat mentality or you are destined to repeat the mistakes of the past 30 years.  Our imbedded deficit has been a uniquely bi-partisan effort fed by the two party system inability to work together.  Under Republicans, Rowland built and expanded prisons, the LOB, CT Juvenile “Training” Center (another prison), expanded UConn and negotiated Union deals that are now strangling us, all while cutting taxes, increasing bonded debt and ignoring the spending cap because of self-created “emergencies.”  The silence of Democrats was bought with legislative appointments and funding of enough social programs to keep them quiet.

I greatly appreciate the comments from obvious state employees looking to defend salaries, benefits and pensions.  In the state with the worst private sector jobs market in the country, state employees are a very powerful demographic here in CT, but it is time to wake up.  Those of us in the private sector lose our jobs – now frequently – pay for our own health insurance and do not have pensions. 

The present administration is doing the best with a very poorly dealt hand.

posted by: ASTANVET | May 1, 2013  12:46pm

Open for business right—- Riiiigggghhhhht

posted by: ASTANVET | May 1, 2013  2:46pm

BrianO - dude - come on… when has there been a Republican Majority in the house…or Senate?  The bills, the spending, the expansion is primarily a D issue.  Unless you just thought Rowland, or Rell were just going to veto everything… they did what you guys like to call compromise.  Which has led us where exactly?  The poor house.  I agree with your assessment on Public/Private employees… and even Hazardous employees should be transitioning to a 401K system like some of the municipal PD’s.  But if you don’t think we can’t cut the dumb crap from the budget and reduce nonsensical regulation in order to spur economic growth, you’re crazy.  See if we can cut regulations in this state?  Heck even a building code? not likely.  WHo controls the CGA?  D’s… who controls the Senate?  D’s… who’s in the Gov’s office?  D’s.  Until you can accept that there is a failed philosophy we are definitely going to continue to re-create every mistake from the last 50 years.  Check out New Hampshire… they have 0 income tax… they have low property taxes… huh… I wonder how they do that.

posted by: BrianO | May 2, 2013  7:32am

Engage in the same senseless debate about Democrats and Republicans and you will get the same senseless results.

posted by: ASTANVET | May 2, 2013  11:36am

Brian - normally I would agree with you, but the first step in fixing a problem is identifying it.  Fiscal insanity is just that - you can’t spend more than you make, the govt cannot ocntinue to tax every cent from the people… we have a spending problem…if you want me to blame it on republicans or little green men, I don’t care…but it is the financial philosophy of the state that has failed… why don’t we try a new direction?

posted by: Joebigjoe | May 2, 2013  1:58pm

working together?

I’m kind of tired of that. You shouldnt have to compromise your principles. The Dems were wrong and now trying to blame both parties to spread the anger around is the tactic.

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