Lembo says state must rein in spending to avoid another deficit

While confirming a deficit Tuesday for the last fiscal year, state Comptroller Kevin P. Lembo urged officials to keep an extra close watch on spending to avoid another shortfall this year.

The General Assembly and Gov. Dannel P. Malloy budgeted for just 2.6 spending growth in this fiscal year’s general fund — which covers the bulk of operating costs. State government has had a difficult time keeping spending growth at this level in the past.

“This rate of (spending) increase is historically low and will require careful monitoring and swift remedial action if outlays trend higher,” Lembo said.

Further complicating matters, general fund revenues are budgeted to grow at a modest 3.1 percent, leaving little margin for error if significant cost overruns develop.

By comparison, general fund spending rose about 5.2 percent last fiscal year above 2010-11 levels.

More than 40 percent of that growth, just over $409 million, stems from Medicaid caseloads that expanded by more than half during the past fiscal year, Lembo said.

Other major spending increases included retirement benefits for teachers and state employees, and debt service.

Salary and wage costs declined by more than 8 percent, Lembo reported. Nearly all state employees’ salaries were frozen, both for last fiscal year and for the current one, as part of a union concession agreement ratified in August 2011.

Lembo reported a $143.6 million General Fund deficit for the 2011-12 fiscal year. Though the state’s finances follow a July 1 to June 30 calendar, the comptroller doesn’t officially close the books until early September.

Actual revenues to support last year’s general fund came in $227 million short of projections, according to the comptroller.

Anticipating a shortfall, Malloy and his fellow Democrats in the legislature’s majority adopted a controversial plan to cover any gap back in May.

They agreed to divert $222 million originally dedicated last year to pre-pay debt from the 2009 budget.

Based on Lembo’s numbers, $143.6 million from those funds would be used to close out the 2011-12 deficit, with the remainder going into the state’s emergency budget reserve.

“The good news is that for the first time in years Connecticut will end the year with money in its rainy day fund,” Gian-Carl Casa, spokesman for the Office of Policy and Management, said Tuesday. “This announcement from the comptroller confirms what we’ve been saying all along — that through careful management of the state’s finances, we were able to close a very small deficit and end the fiscal year with about $100 million in our rainy day account.”

But Malloy drew criticism for the deficit fix from Republican legislative leaders, who noted that as a gubernatorial candidate in 2010, Malloy said repeatedly that he would stop the practice of using the state’s credit card to cover operating costs.

And while the governor said this solution was not borrowing, but rather re-directing a debt payment, Republicans argued there really is no distinction.

“Instead of paying off debt, we’re covering a new debt,” Senate Minority Leader John P. McKinney, R-Fairfield, said, adding that Lembo’s warning about controlling spending should be taken very seriously, given Connecticut’s recent history. “We should be worried about facing a similar deficit this year because even with a huge tax increase last year the state didn’t live within its means.”

“We’re spending too much damn money, and if we don’t stop we’re going to be in bigger trouble next year — that’s what the comptroller’s memo really says,” added House Minority Leader Lawrence F. Cafero, R-Norwalk.