Budget Deficit Estimated At $4.3B Over Four Years
The legislature’s nonpartisan fiscal analysts projected the state will face $4.3 billion in budget deficits over the next four years.
In a report released Friday, the Office of Fiscal Analysis estimated that the state is facing a $254.4 million budget deficit in 2016 and a $552 million deficit in 2017, but the deficit grows even further to $1.7 billion in 2018 and $1.8 billion in 2019.
To put that in perspective, Gov. Dannel P. Malloy inherited a single-year deficit of almost that size — $3.67 billion — when he was sworn into office in 2011. But that doesn’t make the task of solving it in an election year any less daunting.
The governor’s Office of Policy and Management released similar deficit figures Friday: a deficit of $508.1 million in 2017, $1.3 billion in 2018, and $1.23 billion in 2019. Those numbers don’t account for inflation, like the projections used by the Office of Fiscal Analysis.
Both the Office of Fiscal Analysis and the Office of Policy and Management will present their reports to the two budget writing committees at 1:30 p.m. Wednesday.
Meanwhile, a bipartisan group of legislative leaders and Malloy are trying to close the current deficit through negotiations, which will culminate in a December special session.
The reason budget projections didn’t hit their mark four months into the 2016 fiscal year was because of income tax growth projections, which fell behind estimates. The Malloy administration lowered its estimate for personal income tax growth from 7.1 percent to 4.5 percent in September. In October the withholding portion of the tax was lowered from 5.2 percent to 3.2 percent.
State Comptroller Kevin Lembo told Malloy earlier this month that in 2005, when the economy was expanding, the withholding portion of the income tax grew 8.1 percent. But over the past three fiscal years the growth has been below 4 percent.
Actual income tax growth already has been reduced in 2016 by about $195.7 million, according to Lembo.
But it’s not just the immediate problems that lawmakers will have to focus on to solve the budget crisis.
According to the fiscal accountability reports, Connecticut’s long term obligations total more than $70 billion — that’s up $2.7 billion from last year.
Some of the biggest drivers on the spending side include a 10 percent jump in debt service in 2018. In that same year, analysts are projecting a 6.9 percent increase in state employee pay and a 25.1 percent increase in payments to the teachers’ retirement fund.
Malloy’s budget office estimated that the state’s debt service in 2018 will be around 11.8 percent of the general fund and there are plans to increase the amount of borrowing that year to $2.9 billion.
Republican lawmakers have been critical of Malloy and his decision to borrow $2.5 billion this calendar year. Republicans estimated that the governor has moved $1.6 billion in operating expenses to the state’s credit card.
“Connecticut is borrowing excessively for operating expenses, swiping the state credit card for daily necessities. And that card is far from getting paid off each month,” Senate Minority Leader Len Fasano has said.
In 2013, Connecticut ranked number four nationally in state and local debt per capita, and number 24 in state and local debt as a percentage of personal income.
State employee pay is also a factor in spending growth. Malloy is expected to start salary negotiations with every state union except the state police in January. However, the health and pension portion of the state’s contract with all state employees can’t be reopened until 2022, unless there’s an agreement between the unions and the governor to open it earlier than that.
Republicans also have argued they can offer a retirement incentive to state employees through the legislative process and not through collective bargaining. They estimated they could save $80 million this year by offering three years of service to state employees already eligible to retire.
Malloy also has plans to change how the state employee and teacher pension plans work, but it’s still unclear if he will be able to do everything he wants to do in order to extend the payments another 15 years and split the state employee pension plan into two, one for mostly retirees hired before 1984 and one for active employees who are contributing more now to their pensions.
House Speaker Brendan Sharkey, D-Hamden, said they wanted to look at state employee concessions to close the budget hole, however, those negotiations will be left to the governor.
“We are expecting the governor is going to be aggressively negotiating in the best interest of the state,” Sharkey said Monday.
He said he would like to see Malloy seek health and pension concessions from state employees.