Wall Street Watches As Budget Gaps Continue To Pop Up
Moody’s Investor Services said even though the General Assembly addressed the hospital provider tax language that could have created a $1 billion hole in fiscal year 2018, it is still grappling with a drop in revenue.
Two weeks ago, officials from the Office of Fiscal Analysis and the Office of Policy and Management projected that revenue will fall about $178.4 million shy of expectations in 2018 and $147.1 million in 2019. Just last week OPM projected a $202.8 million deficit in 2018, which is enough to trigger a deficit mitigation session if it’s confirmed Dec. 4 by state Comptroller Kevin Lembo.
“We expect economic weakness to be an ongoing challenge for Connecticut that will push against its initiatives to place state finances on sounder footing,” Marcia Van Wagner, a vice president and senior credit officer at Moody’s, said last week in an analysis.
She said the “prolonged stand-off” regarding the state budget, which was more than 120 days late, “was fueled by the increasingly difficult choices the state must make to accommodate its high and growing fixed costs for debt, pensions, and retiree health costs.”
The new consensus revenue estimates revised the personal income tax estimate downward by 1 percent and sales taxes by 1.6 percent compared to the enacted budget.
And, Van Wagner said if the state has to make an adjustment mid-year to address the deficit, it will likely “prove challenging.”
The governor has already adjusted municipal aid payments downward by $91 million.
Legislative leaders said they’re going to discuss what to do about that, and a potential deficit, Wednesday, Nov. 29.
“Mid-year solutions may more likely be nonrecurring in nature, and could potentially involve tapping the state’s $213 million rainy day fund, leaving future gaps to be addressed for fiscal 2019,” Van Wagner concluded.
Connecticut’s economy will not offer any salvation if the recent job losses continue.
Connecticut lost 12,200 jobs from June through October based on sampling data from the Bureau of Labor Statistics. That means it’s only recovered 73 percent of all nonfarm jobs lost during the most recent recession. The private sector is doing slightly better and has regained 92 percent of the jobs lost.
“The little momentum the state had gained earlier in the recovery has lost steam since 2015,” Van Wagner said. “The underperformance interacts with demographic changes — Connecticut has lost population for several consecutive years. Even with a slowing economy, the unemployment rate has drifted down to 4.5 percent (see Exhibit 2), indicating a tightening labor market that could contribute to hindered economic and revenue growth.”