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Surplus? What Surplus?

by | Jan 23, 2012 5:30am () Comments | Commenting has expired | Share
Posted to: State Budget

Poof. Just like that Connecticut’s more than $83 million budget surplus has all but disappeared in a matter of weeks.

The budget surplus is now a measly $1.4 million, according to the Office of Policy and Management’s monthly letter to state Comptroller Kevin Lembo. The letter was released Friday.

The OPM budget estimate posted the 20th of every month was not unexpected after the consensus revenue estimates last week showed revenues from income and capital gains taxes were below projections.

Revenues are nearly $102 million below projections and the only bright spot seems to be the sales tax, which has been revised upwards to $25.5 million.

On the spending side of the budget, OPM is now projecting two significant net deficiencies in the account that funds health care for retired state employees, and a shortfall is also expected in the account that funds pension payments to state employees. Some of those shortfalls are related to changes in the State Employees Bargaining Agent Coalition agreement and the 2,700 retirements that followed.

“In light of the unexpected decline in revenues noted above, I have been charged by the governor with developing and implementing a plan to reduce spending in order to maintain balance in the General Fund on a GAAP basis,” Office of Policy and Management Secretary Ben Barnes wrote in the report.

“By early next week, I fully anticipate that the governor will exercise his rescissionary authority. Additionally, other efforts to achieve balance may be implemented to include delayed or cancelled hiring, reductions in discretionary spending, closure of some programs, and, if necessary, action will be requested of the legislature,” Barnes added.

Gov. Dannel P. Malloy promised last week to end the year in the black and under Generally Accepted Accounting Principles by cutting spending and avoiding more tax increases. Last year, the state passed the largest tax increase in history to close a more than $3.5 billion budget deficit.

“We’re going to balance the budget,” Malloy said last Wednesday. “We’re going to make spending cuts that’s what we’ll do.”

The governor has the power to rescind spending in many line items by up to 5 percent without legislative consent, but those rescissions don’t include municipal aid.

Republican lawmakers charged last week that the tax increases hindered the state’s economic recovery and threatened the Democratic governor’s campaign pledge to transition the state to GAAP accounting.

In his letter to Lembo, Barnes said under GAAP the state already has a $73.6 million operating deficit.

In order to get to GAAP the state planned to set aside $75 million in anticipated surplus at the end of the fiscal year to begin paying down the GAAP differential which is about $1.7 billion. 

Under the modified cash basis of accounting that the state currently uses it’s able to avoid counting expenses it already made while counting revenue it did not yet have. It can’t do that under GAAP.

In an editorial Barnes wrote in the New London Day Sunday he said the state has no plans to delay implementation of GAAP accounting.

“Specifically, our implementation of GAAP is on track with the plan laid out in the executive order and in the Conversion Plan submitted by Office of Policy and Management to the General Assembly,“ Barnes wrote. “The myth has developed that somehow Gov. Malloy “backed off” implementing GAAP right away. Not true. With Exec Order No. 1, Gov. Malloy immediately moved the state to GAAP.”

“I have every expectation that the state will end the year in balance,” Barnes wrote in his Jan. 20 letter to Lembo.

Last week, Malloy anticipated Barnes to give him a plan to resolve what’s anticipated to be a nearly $95 million deficit by today.

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Comments

(9) Archived Comments

posted by: Disgruntled | January 23, 2012  8:20am

Their smoke and mirror budget vanished as quickly as Dan flying business class to Davos,or land values in Haddam. Davos?!!
When the going gets tough…the tough talkers go anywhere but the hotseat in Hartford.
While his cronies blame the national economy for Connecticuts ills they also hold their breath for a rebound so they can take credit for a recovery.
The bottom line is that Dan has not cut spending. He has not trimmed payrolls.He has increased taxes on average citizens to historic proportions and…he got his wife a cushy job.
The budget will probably be “balanced” with a few more mirrors and a little more smoke but one can expect another ratings downgrade when they go to the markets again and the costs of financing will continue to increase. And this in a period of almost zero inflation and almost free money. What will happen when (not if) those parameters change?

posted by: DirtyJobsGUy | January 23, 2012  8:23am

The budget process was a dance to disguise the generation of political payoffs to the Municipal Unions (teachers etc.).  If you are going to impose a significant tax hike, you need to make it work.  Part of that is to see that everyone takes at least a small haircut.

Gov. Malloy didn’t do this but let his aides bully the press into not looking very hard.

We are surrounded by states that kicking and screaming are having to address the cost of public employee benefits.  By avoiding it Gov. Malloy is missing the boat.

posted by: hartfordresident | January 23, 2012  9:32am

Incomes are going to continue to plummet, especially over the next couple years. 1) Unemployment benefits are drying up so no more income, therefore no more buying. 2) What is the point of working when all income goes to the top 20%. We are going to see plummeting college grad rates, high school grad rates, and people just not working. THere is no point when income inequality is so high. Ask Ben Barnes what he thinks of that. He thinks the rich should get richer. Typical Fairfield County perspective.

posted by: SocialButterfly | January 23, 2012  10:04am

Politicians are known to tell people—what they want to hear.  That’s how they stay in office.  Gov. Malloy and his crew have distorted the truth out of our budget, which is the reason why we still have a budget deficit—after the biggest tax hike in our history.

Keep listening to our illustrious Governor.  He will continue to tell you what you want to hear! However, “watch your wallet, if you still have some money left—as Malloy is the biggest pic-pocket artist in the state.”

posted by: meridenite | January 23, 2012  11:23am

If the income taxes paid by the gold coast plunges as bonuses are cut, the new tax credit on earned income is paid out and the suggestion box comes in at zero, what then???

posted by: OutOfOutrage | January 23, 2012  1:03pm

OutOfOutrage

There have got to be at least one or two $50 Million ideas in that box by now.  Has anyone checked it?  Where is that key?

posted by: JAM | January 23, 2012  1:04pm

The Budget relied on tax increases with a significantly improving economy that would boost revenues over what was budgeted. It didn’t rely on cost cutting. Despite all the hoopla, the concession agreement won’t come close to the savings advertised (although those “savings” appear to still be in their projections).
In other words, the budget was based on assumptions about events they couldn’t control (revenues)rather than things they could control(costs). The idea was the former would hide the sins of the latter.
It hasn’t worked.

posted by: andygayle | January 23, 2012  4:36pm

It’s time to go after the state employees. It must be their fault we are in a deficit. SPEND, SPEND, SPEND, GOVERNOR MALLOY.

posted by: eastrivertype | January 24, 2012  11:14am

It sure is a good thing that the Governor fought so hard for all those concessions from the unions.  Otherwise we might not have balanced the budget.  We have the highest per capita indebtedness of any state in the nation.  Did anyone think that the massive tax increase was going to solve the problem?  What is next Governor?  Who gets gored this time around?

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