Legislative session doesn’t clear up uncertain fiscal outlook

Gov. Dannel P. Malloy downplayed long-range deficit forecasts when the legislative session opened in February, noting there was time for the state’s finances to improve.

But after a spring marked by declining revenue projections and a handful of questionable cost-cutting moves, legislators from both parties conceded Thursday that the state’s fiscal outlook emerged from the session as murky as when it entered.

“I worry about the state’s finances all the time,” Malloy told reporters one day after the session closed. But “I think financially we’re still in a pretty good place.”

Malloy spent the last month of the session urging reporters to keep some perspective. He inherited a $3.67 billion deficit built into 2011-12 finances — about one-fifth of all spending– when he took office 16 months ago. The shortfall he and legislators just closed with seven weeks left in the fiscal year was no larger than $285 million, barely over 1 percent.

The governor said he’s more worried about the ongoing European debt crisis and its impact on Connecticut exports, and more importantly, on Wall Street.

More than one-third of Connecticut’s income tax stream comes from capital gains, dividends and other investment-related income, and it has rebounded sharply and more quickly than other components of the state’s tax system following past recessions.

But that hasn’t been the case this time.

And the Dow Jones Industrial Average, which stood at 12,883 points when the session opened, and shot over 13,200 by mid-March, has fallen gradually since then and closed Wednesday at 12,835 — barely changed from its early February standing.

State fiscal analysts, who already had downgraded last summer’s revenue forecast in October and January, did so again in April — a month when state income tax deadline filings often offer the first hints of new revenue growth.

Malloy, whose original $20.7 billion proposal for 2012-13 was projected to run $424 in deficit by 2013-14, agreed with legislators to slice $186 million off that plan. But given the declining revenues, the new budget still is on pace for more than $400 million in red ink 14 months from now.

But Republican legislative leaders argued that thanks to some gimmicks Malloy and majority Democratic lawmakers used in lieu of true spending cuts, state government’s long-term fiscal outlook is more unstable than it was in February.

“One party government doesn’t work,” Senate Minority Leader John P. McKinney, R-Fairfield, said Thursday. “It’s given us a budget that’s out of balance, that’s not honest and that doesn’t work.”

The new budget, which takes effect in February, makes $54 million originally earmarked for transportation available for other purposes with two moves:

A $30 million municipal grant program to help communities fund road work will be put on the state’s credit card next year, rather than paid with operating cash as it is now.

And major bonding for long-term road and other infrastructure repairs will be delayed, freeing up $24 million that was supposed to cover interest and other transportation debt costs.

Can the state afford to delay another bond issue? Should town aid remain on the credit card year after year? Reversing these practices will add another $54 million to the long-range deficit.

“It was this governor who said no more tricks, no more gimmicks,” House Minority Leader Lawrence F. Cafero, R-Norwalk, said. “We have a deficit that will grow in the out years.”

The new budget also forecasts saving $50 million by tightening eligibility and limiting nursing home coverage in a Medicaid program that serves poor adults who don’t have minor children. The changes include limiting enrollment to people with assets below $10,000, excluding a house and car, and counting family income in determining eligibility for applicants who are under 26.

Some of the governor’s fellow Democrats on the Appropriations Committee have questioned how much savings an asset test can produce, since it’s not clear how many people in the program would be excluded if an assets test were imposed. There is no asset limit now in the program, known as Medicaid for Low-Income Adults, or LIA, and the Department of Social Services doesn’t collect information on applicants’ assets.

But Senate Democratic leaders said that while state government still has fiscal challenges, the Republicans’ doom-and-gloom approach reflects partisan politics than economic reality.

“By no means do we have a robust economy — anywhere in the country,” said Senate President Pro Tem Donald E. Williams Jr., D-Brooklyn.

But Williams noted that when Democrats raised $1.5 billion in new state taxes in 2011 to close a huge deficit, Republicans accused them of taxing excessively in order to build ensure surpluses in future budget. “A year ago the Republicans were saying we had done too much,” he said. “It’s not as if we’re looking at a $1 billion surplus this year.”