Will Malloy be forced to send deficit closure plan to legislators?

Gov. Dannel P. Malloy, who has struggled for two months to avoid the political embarrassment of being forced to craft a formal budget deficit closure plan, could soon be out of time.

If nonpartisan analysts are right – and if Comptroller Kevin P. Lembo agrees – the deficit is at least $80 million worse than the governor reported last week.

And if it tops $175 million in Lembo’s eyes, Malloy – who spent last summer and fall assuring voters there wouldn’t be a budget deficit – would be forced to deliver a formal plan to close the shortfall to the General Assembly within a month.

The legislature’s Office of Fiscal Analysis reported Wednesday that this year’s $17.5 billion general fund, which covers the bulk of annual operating expenses, is on pace to finish $202.5 million in the red on June 30.

That projection doesn’t take into account $31.6 million in emergency cuts Malloy ordered unilaterally last week.

But it is unlikely that those cuts lowered the deficit by a matching amount.

That’s because every state budget is balanced, in part, on “lapses” – assumed savings targets that agencies are expected to achieve throughout the fiscal year. And the governor’s emergency cuts often cancel at least some spending that agencies already had planned to suspend to achieve savings targets. In those instances, the governor rescinds spending that already effectively had been cut, saving the state nothing.

If the full value of last week’s cuts are removed from the deficit, as projected by OFA, the shortfall stands at $170.9 million.

State law requires the governor to submit a deficit-mitigation plan whenever the comptroller certifies a shortfall exceeding 1 percent of the general fund, which equals $174.6 million this year.

But given that Malloy’s cuts probably duplicated some of the savings already planned by agencies, OFA’s deficit projection – which will be updated at week’s end after a review of the governor’s cuts – could top the 1 percent mark.

Leaders of the legislature’s Republican minority have charged Malloy has been disclosing budget problems piecemeal since he won re-election in November in hopes of avoiding a deficit of $175 million – and the resulting legal mandate.

After reporting no signs of red ink from July through October, the administration projected a $100 million shortfall in mid-November, just after the election.

GOP leaders cried foul, noting that projection didn’t fully address concerns about surging retirement health care costs or miscellaneous revenue collections.

Malloy has limited authority to impose modest budget cuts unilaterally, and used it in November to reduce the deficit below $35 million.

Eroding fuel tax receipts and rising Medicaid costs pushed it back above $120 million, the administration reported last week, before ordering another $31.6 million in emergency cuts.

But according to nonpartisan analysts for the legislature, cost-overruns involving Medicaid and magnet schools are worse than the administration estimates. And a potential surplus in the debt service account is not as large as Malloy’s staff projects.

Senate Minority Leader Len Fasano, R-North Haven, who has been pushing for bipartisan negotiations with the governor on greater budget reductions, called again Monday for Malloy to acknowledge the state’s fiscal problems are worse than originally anticipated.

Do we really have to hit that (1 percent) threshold to say that there’s an issue?” Fasano said. “We can get everyone in the room and talk about this. Wouldn’t that be refreshing for the Capitol if we were a little proactive?”

Gian-Carl Casa, spokesman for the governor’s budget office, said, “We will continue to closely watch state spending and revenue. If necessary, the governor will take additional steps, or propose additional steps to the legislature, to keep this year’s budget in balance.”

Lembo’s next monthly budget assessment is due on Feb. 1.

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