Red ink awaiting CT lawmakers outstrips rainy day fund by almost $175M

The red ink legislators and Gov. Dannel P. Malloy must deal with beginning next week now outstrips Connecticut’s emergency reserves by almost $175 million, based on a new deficit forecast released late Monday.

The legislature’s nonpartisan Office of Fiscal Analysis projects the current fiscal year’s budget deficit is $72.2 million. Coupled with a shortfall of roughly $507 million in the 2016-17 finances — which Malloy and the legislature must begin to adjust starting Feb. 3 — and the red ink to be resolved approaches $580 million.

And with just $406 million in Connecticut’s emergency reserve, commonly known as the Rainy Day Fund, lawmakers can’t simply tap the state’s savings account to balance the books in a legislative election year.

Malloy and the legislature thought they had found balance, at least for this fiscal year, when they adopted a deficit-mitigation plan in a December special session.

That plan closed a shortfall topping $250 million this fiscal year, restored modest funds for hospitals and social services, and mitigated larger deficits in the next three fiscal years.

But only a few weeks later, when analysts revised revenue estimates on Jan. 15, declining income tax receipts reopened a new deficit this fiscal year, and effectively reversed any improvement in the shortfall forecasts for the out years.

Besides the eroding income tax receipts, nonpartisan analysts cited another major reason for the latest $72.2 million shortfall: The administration hasn’t identified where it will find $47 million in savings called for in the December deficit-mitigation plan.

Malloy’s budget office pegged the new deficit this year at just $7 million — attributing the problem chiefly to declining forecasts. Set against the $18.2 billion general fund legislators appropriated for this fiscal year, that is so small it approaches a rounding error.

Even OFA’s $72.2 million projection represents less than one-half of 1 percent.

But the nonpartisan forecast — if it is correct — increases the odds that the governor and Democrat-controlled legislature will be unable to avoid ordering deeper spending cuts over the next four months to restore balance to this fiscal year and the next.

“This is clearly a fiscal fiasco that the Democrats have refused to acknowledge and continue to refuse to acknowledge,” Senate Minority Leader Len Fasano, R-North Haven, said.

Fasano and House Minority Leader Themis Klarides, R-Derby, had urged Democrats last December to consider new restrictions on overtime and to pursue negotiations with state employees to further reduce labor costs.

“The Rainy Day Fund won’t cover” the deficits, Klarides said. “We are already in a fiscal drought. This should be a warning signal as we begin the next legislative session as we craft laws and consider what we do.”

Fasano added that he fears the deficits will not be resolved through spending cuts in the next session, meaning Connecticut’s reserves would be emptied in 2016.

The problem with that scenario is that state government then would have to tackle a much larger deficit projection — topping $1.7 billion — which nonpartisan analysts say is built into 2017-18, the first new fiscal year after the 2016 state election. And the rainy day fund would be empty.

“Whether the governor’s or legislature’s projections are more on target, when the session convenes next week, and the governor delivers his proposed adjustments, the challenge of ensuring the state budget is in balance begins in earnest,” House Speaker J. Brendan Sharkey, D-Hamden, said. “An important part of that challenge is bringing more predictability and sustainability to the overall budget over time, and encouraging more regional approaches to local governing that increase efficiencies, lower property taxes, and reduce the need for state subsidies.”

“We’ve said before that the world is changing and state government has to take the necessary steps to change with it,” said Gian-Carl Casa, spokesman for the governor’s budget office. “Just as households need to curb spending when necessary, so does government.”

The Senate Democratic Caucus did not comment immediately after OFA released its projection late Monday.

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