State budget plunges into the red with promised savings in question

Despite repeated assurances from Gov. Dannel P. Malloy that savings from union concessions and other cost-cutting measures would be achieved, nonpartisan legislative analysts reported a nearly $145 million state budget deficit Wednesday evening.

The latest projection from the nonpartisan Office of Fiscal Analysis doesn’t include the nearly $79 million in new cost-cutting measures announced Tuesday by Malloy’s budget office.

But legislative analysts did echo a warning issued a day earlier by Senate Minority Leader John McKinney: that Malloy’s latest plan counts several reductions already incorporated into earlier forecasts, making the $79 million estimate suspect.

“The budget is heavily reliant on budgeted lapses to achieve balance,” legislative analysts wrote, referring to nearly $778 million in lapses, or savings targets to be achieved by the administration, in general fund programs. The general fund, which stands this year at $18.7 billion, covers the bulk of the operating costs in this fiscal year’s overall $20.14 billion budget.

Lapses are a regular function in the state budget process, and sufficient funds routinely are withheld from agencies and departments to ensure those savings targets are met.

But the $778 million lapse in the general fund was particularly high this fiscal year, more than three times the savings target built into last year’s budget, because of expectations from the union concessions deal.

The administration said that plan would save $700 million this year — including $657 million in the general fund — from: a wage freeze, a new employee wellness program, large numbers of worker retirements, benefits changes and cost-saving ideas from three labor-management panels.

Yet legislative analysts noted that despite being responsible for $778 million in savings, the administration has withheld less than $652 million to date. “About five months remain in the fiscal year and the remaining $126.5 million may still be achieved through various savings or budgeting mechanisms,” analysts wrote.

The labor-management panels were supposed to identify various efficiencies across state government to save $170 million this year alone. But two of the three panels hadn’t even met until the fiscal year already was nearly 4 months old. Rather than wait, the administration drew up its own blueprint in October, assigning each agency a share — regardless of whether these panels recommend any efficiency strategies.

And Malloy’s latest budget challenge is further compounded by the fact that legislative analysts identified nine agencies with potential cost-overruns totaling more than $127 million. The largest of these involves the fringe benefits account for state employees. The administration initially hoped to save $120 million in this area this year with the wellness program. But while it estimated that half of all state employees would pay higher premiums rather than agree to receive regular physicals and other health care screenings, only 4 percent chose to pay more and to not participate.

Malloy’s budget director, Office of Policy and Management Secretary Benjamin Barnes, said late Wednesday that his office would review the OFA forecast, but, “I have confidence in the projections released” by the administration.

Barnes’ office reported a razor-thin general fund surplus last week of $1.4 million, which represents 1/134th of 1 percent. That also fell well short of the $75 million surplus level Malloy needs to continue the ongoing conversion of state finances to Generally Accepted Accounting Principles — one of the governor’s major campaign pledges.

Originally designed to run $88 million in the black, this year’s budget took a hit earlier this month because of declining state tax projections. The new OFA report marks the first time the budget outlook worsened significantly due to concerns about rising spending.

The governor used his emergency fiscal authority Tuesday to cut the budget without legislative approval.

The executive branch will be responsible for $72.1 million of the cuts, with $5.76 million coming from the judicial branch and $800,000 from the legislature. More than one-third of the cuts, or $28.4 million, were assigned to the Department of Children and Families, with the Department of Mental Health and Addiction services getting the next biggest hit, $14.5 million.

Malloy cut the Department of Education by $3.2 million while more than $6 million was cut from public colleges and universities.

The cuts also will mean delays in filling vacant positions.

But McKinney, a Republican of Fairfield, said Tuesday he suspected that nearly $42 million of the reductions Malloy ordered involved savings the administration already had reported to meet its lapse target, leaving only about $37 million in new reductions.

Legislative analysts wrote in their report Wednesday that “We are currently conducting an analysis of these rescissions of programmatic impact as well as potential overlap with existing lapses.”

“After passing the largest tax increase in state history, Democrats have still managed to spend us into deficit,” McKinney said Wednesday.

“Among other things,” he said, “today’s projections confirm that the labor deal Governor Malloy cut with state employee unions will not yield the savings he promised taxpayers. Now Governor Malloy has a $145 million budget hole — $220 million if he intends to keep his promise to comply with GAAP — and only $32 million worth of ideas to fill it.

“His math simply doesn’t add up,” McKinney said. “It’s time to go back to the table and discuss real spending reductions to protect Connecticut’s economic future.”

But Senate President Pro Tem Donald E. Williams Jr., D-Brooklyn, responded that “Connecticut’s budget will be balanced through the rescissions Governor Malloy has already proposed and other savings that the legislature will enact if necessary,” charging that the alternative budget Republicans offered last spring would have left the state far deeper in debt “through their smoke and mirrors budget tricks and borrowing. Fortunately, we did not go down that road and Connecticut’s projected shortfall is far less than most other states.”

Malloy said Tuesday that his latest cuts don’t reflect the maximum reduction he could have made, adding that further cuts could be ordered if the budget picture worsens before the fiscal year ends June 30.

The deficit projected by OFA falls less than $42 million shy of equaling 1 percent of the general fund. By law, if the comptroller’s office certifies a deficit of that level, the governor must submit a deficit-reduction proposal to the legislature.