New revenue forecast — same big deficit

If state officials were hoping for a last-minute silver bullet to solve their budget crisis, they didn’t get it Friday when revised revenue estimates made almost no dent in the $3.7 billion deficit for 2011-12.

Gov. Dannel P. Malloy spent much of his first week-and-a-half in office urging legislators not to “sugar-coat” the scope of the deficit, which equals nearly one-fifth of current spending and effectively represents the largest gap in state history.

“There’s not much sugar in this report, I’m afraid,” Office of Policy and Management Secretary Ben Barnes, Malloy’s budget director, said shortly after his agency and the legislature’s nonpartisan Office of Fiscal Analysis approved their latest consensus revenue forecast.

The two agencies are projecting $16.51 billion in revenue for the fiscal year that begins July 1, roughly $119 million higher than the level projected in their last forecast on Oct. 15.

But nearly half of that projected growth, about $53 million, involves federal reimbursement for Medicaid – funding which would be available if state health care and social service expenses also are on the rise.

And since Connecticut receives roughly 50 percent reimbursement for its Medicaid expenditures, a $53 million increase in revenue projections likely means officials expect health care costs are growing by double that amount.

The net result would be a reduction of between $10 million and $20 million in the $3.67 billion deficit – effectively making almost no change.

Barnes noted the new report isn’t devoid of all good news.

State income tax projections continue to rise modestly, up $83 million for this fiscal year and $99 million for 2011-12. The income tax is the single-largest source of revenue, providing nearly $6.9 billion in the current, $19.01 billion budget.

“While the new estimates do show a small increase in projected revenue, the improvements need to be taken in context, including $646 million in bonding used to help fund the current year’s budget and other one-time revenues,” Barnes said.  “While these increases do indicate a slowly recovering economy, they’re far from being enough to balance our state budget.”

The legislature’s nonpartisan OFA staff traditionally does not comment beyond its written reports.

Barnes said the consensus revenues were negotiated with little disagreement with the OFA, adding that both offices were committed to providing an honest assessment of the fiscal situation. “If anybody had suggested we should project a big revenue gain right now I would have been very skeptical given what I know about the economy,” he said. “It is good news that we didn’t see a double-dip recession that would make the problem worse.”

The Executive and Legislative branch budget agencies have been producing consensus revenue forecasts three times annually for the past two years.

The consensus revenue statute arose from a dispute between former Gov. M. Jodi Rell and Democratic legislative leaders in spring 2009, when fiscal analysts for the two branches of government differed by more than $2.7 billion over the severity of a two-year deficit forecast.

The legislature overrode a Rell veto and required the two branches to review and negotiate a common revenue forecast each January, April and October.