Lembo reports a balanced budget – but has big concerns

Comptroller Kevin P. Lembo

ctmirror.org

Comptroller Kevin P. Lembo

Updated at 5:20 p.m. with response from Comptroller Kevin P. Lembo

State Comptroller Kevin P. Lembo raised concerns Monday — for the second consecutive month — about the stability of the current state budget, though he stopped short of reporting a deficit.

In his latest monthly budget forecast, Lembo affirmed the conclusion of Gov. Dannel P. Malloy’s administration that the $19.7 billion budget adopted in June for 2016-17 is on pace to finish $200,000 in the black, just as it was written.

But Connecticut’s chief fiscal watchdog also expressed caution about both spending and revenue trends in the current budget.

Republican legislative leaders already have said they believe state finances are in deficit and that Malloy is masking this problem to help his fellow Democrats in the legislature’s majority survive this fall’s state elections.

In adopting the budget, legislators set very aggressive savings targets for the executive branch to achieve once the fiscal year was underway. Nearly $191 million in efficiencies and other cost savings were built into the budget this way.

But one key cost-saving measure has gotten off to a slow start.

The governor announced back in April that he anticipated making about 2,000 layoffs before the new fiscal year began on July 1 to help balance finances. Further complicating matters, legislators assumed labor savings that reflected closer to 3,000 layoffs.

And, to date, state government has laid off fewer than 1,100 workers since April.

“While that ($191 million) savings target is not at a historically high level, it follows successive fiscal years of significant cost-cutting, with each year’s target becoming more challenging to achieve,” the comptroller wrote Monday in his monthly report to the governor.

Lembo noted that the current budget also counts on overall operating costs effectively remaining flat compared with last fiscal year. “To realize no growth in actual year-over-year outlays is a considerable management challenge that will require the skillful efforts of all agencies and branches of government.”

State government closed each of the last two fiscal years in deficit. The 2015-16 year ended with a $170.4 million shortfall, and 2014-15 closed $113.2 million in the red.

Lembo also told Malloy he would continue to monitor Connecticut’s revenue situation very closely.

“In fiscal year 2016, tax revenues fell more than half a billion dollars short of initial budget projections,” the comptroller wrote. “Volatility in capital markets and slower-than-expected growth in workers’ wages were major contributing factors to sluggish revenue growth.”

And there already are signs that the current budget’s revenue picture is not stable.

The Malloy administration reported in late June that it had downgraded expected income tax receipts for the outgoing fiscal year by $75 million, and sales tax revenues by $28 million.

And since prior year’s tax receipts are a crucial factor used to project likely revenues in the following year, the new forecast probably lowers expectations for the 2016-17 fiscal year.

“Different day, same song from Connecticut Democrat leaders,” Senate Minority Leader Len Fasano, R-North Haven, said. “Just like we saw two years ago, Democrats are refusing to admit our state is facing a deficit until after November elections. As I said after the comptroller’s letter last month, we’ve seen this movie before, and we know it ends in post-election tax hikes.”

Fasano added that, “Instead of denying that the state is facing a deficit already, lawmakers should be working together now to address our budget problems before they grow even larger. Except that doesn’t go with the Democrat narrative that everything’s fine and the Republicans are just rooting for failure.”

“If Senator Fasano would like, I can personally help walk him through the letter and financial data that we conveniently provide online, as well as the financial discipline measures that I’ve repeatedly urged,” Lembo responded.

The comptroller also noted in his letter there are some positive signs in Connecticut’s finances and economy.

  • The withholding portion of the state income tax increased 3.4 percent last fiscal year compared with 2014-15.
  • Preliminary estimates showed Connecticut added 300 jobs in August and 18,600 positions over the past year. The state’s unemployment rate has continued, in general, to decline since it hit 9.5 percent in October 2010.
  • Connecticut single-family residential home sales increased 9.1 percent in August while the median price rose 5 percent to $269,000.
  • And national consumer confidence rose in September to its highest point in the past nine years.
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About Keith M. Phaneuf

Keith, with Jacqueline Rabe Thomas, won first prize in investigative reporting from the Education Writers Association in 2012 for a series of stories on the Board of Regents for Higher Education. The former State Capitol bureau chief for The Journal Inquirer of Manchester, Keith has spent most of 24 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut's transportation and social services networks. A former contributing writer to The New York Times, Keith is a graduate of and a former journalism instructor at the University of Connecticut. E-mail him at kphaneuf@ctmirror.org.

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