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Budget Deficit Estimated At $4.3B Over Four Years

by | Nov 17, 2015 5:30am () Comments | Commenting has expired | Share
Posted to: The Economy, State Budget, Special Session, Pensions, Taxes, State Capitol

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.

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Comments

(12) Archived Comments

posted by: zeleration | November 17, 2015  6:30am

Sharkey and Looney are finally agreeing with what the business community told them for more than a decade ... We need a large restructuring of government and the scope of it’s services. However agreeing to do that now after the debt and taxes are far too high is usually too little, too late.

The bond market controls our destiny because without them we can’t pay for operations. This is using a credit card to pay for the interest on another credit card and so on - it always ends in insolvency. We are ALREADY spending 10% about $2 billion of the budget just to pay back interest on old debt.

Malloy still believes that we don’t have a crisis because of this years $250 Million deficit but that’s not the crisis we are worried about Malloy its this 4 BILLION IN 4 years that’s the issue - seems like the business community is VERY worried who do you think you should believe CT?

posted by: shinningstars122 | November 17, 2015  6:37am

shinningstars122

“Hartford calling to the faraway towns
Now war is declared and battle come down
Hartford calling to the underworld
Come out of the cupboard, you boys and girls
Hartford calling, now don’t look to us
Phony TaylorSwiftmania has bitten the dust
Hartford calling, see we ain’t got no swing
‘Cept for the ring of that truncheon thing”

“The ice age is coming, the sun is zooming in
Meltdown expected, the wheat is growin’ thin
Engines stop running, but I have no fear
‘Cause Hartford is drowning, and I, I live by the river”

posted by: Independent Mind | November 17, 2015  6:56am

“We are expecting the governor is going to be aggressively negotiating in the best interest of the state,” HAHAHAHAHA!!!  When has ever done that?  He is going to spend us into a black hole and then when he loses the next election, the media will turn it around and blame a republican for the mess.

posted by: perturbed | November 17, 2015  7:22am

perturbed

Hey, how about a little accuracy here!

According to the OFA report, what Christine describes above as a “6.9 percent increase in state employee pay” actually includes an increase in pension fund contributions, which is likely the largest single contributor to the increase (see the jump of the green line in 2018 in the graph from this article):

Explanation of Categories:
1. State Employees: Includes wages and salaries for state employees as well as fringe benefit costs (including pension and health costs for active and retired state employees), workers’ compensation costs, and funds reserved for salary adjustments.

The Center for Retirement Research at Boston College just published a detailed report on the CT pension system which explains clearly why the growing pension fund obligations are so high. (HINT: It’s not because the pension obligations for current employees are too high; they’re actually below the national average.)

— perturbed

posted by: State_of_Connecticut_Ombudsman | November 17, 2015  8:08am

This runaway debt is result of irresponsible financial management by the State of Connecticut Democratic Majority.  Yes, Governor Malloy is also guilty and responsible, based on his wasteful and reckless spending and vote-chasing misguided priorities.  If you want a better Connecticut for us all, you must remove the Democratic Majority (Malloy, Looney, Sharkey, Duff, Harper, Bye, etc.) from office with your votes.  It is the only solution!

posted by: Greg | November 17, 2015  12:14pm

Are we sure this deficit actually exists, because the last one didn’t…until it did.

posted by: Noteworthy | November 17, 2015  1:25pm

These budget problems were drafted, promoted and passed with arrogant gusto by Democrats intentionally leaving Republicans out of the conversation entirely. If this is the new normal, it is because nitwits who can’t seem to add and subtract are in charge of the checkbook - and never know when to say no. They’re borders and we’re all broke because of it. I should send Thank You Notes to all the Dems.

posted by: ocoandasoc | November 17, 2015  2:10pm

“To put that in perspective…” LOL!
Here’s some perspective: Malloy has just put in the two biggest tax increases in the State’s history… and CT is still facing a deficit larger than when he took office. The administration and legislature are finding it politically difficult to cut $200 million from the current budget. How in the world will they be able to cut 20 times that? That’s right, they won’t! And even higher taxes will accelerate the State’s downward economic spiral. But CT News Junkie fans needn’t worry; we’ll have PolitiJoe and Perturbed here to give us arcane political science lessons and rearrange the deck chairs as the ship goes down.

posted by: ehdatascientist | November 17, 2015  3:12pm

Proposed budget revisions from the governor, the Republican legislative leaders, and the Democratic legislative leaders have been published BUT none address all the long term budget deficit problems indicated in this article. 
@perturbed the statistics you indicate are important but incomplete as it appears that the CRR comparisons are limited to CT vs other state public employee systems rather than appropriately some relevant comparisons with private sector systems including some consideration of taxpayers who have no pension coverage at all. 
In that regard the research sponsored by Yankee Institute is more informative and should be emulated to some extent in studies sponsored by liberal and conservative leaning entities as well.

posted by: LE 2015 | November 17, 2015  4:30pm

On January 1st my health care premiums will increase. This means my taxable income will go down so less revenue for the state. This also means my take home pay will go down. Less money to spend so less sales tax revenue for the state. The state deficit is being under stated.

posted by: artythesmarty | November 18, 2015  8:22am

This article says that in 10 years the pension contribution by us(taxpayers) must be 3.5 billion or 1,000 each for every man, woman and child for PENSIONS ALONE.

posted by: ehdatascientist | November 18, 2015  1:27pm

@artythesmarty To give it another perspective, if the article and your calculations are accurate, the 1,000 from every person is more than double the public employees contribution to their own pension!

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