Lembo says state finances are $42 million in deficit

Comptroller Kevin Lembo

Keith M. Phaneuf / CTMirror.org

Comptroller Kevin Lembo

State finances are $42 million in deficit this fiscal year, Comptroller Kevin P. Lembo wrote Tuesday, a modest shortfall that splits the difference between competing budget projections from Gov. Dannel P. Malloy and nonpartisan legislative analysts.

Lembo legally is required to certify — to publish in the state’s official financial records — the $5.7 million General Fund deficit the Malloy administration reported on Oct. 20.

The comptroller offered the alternative deficit number in the written commentary portion of his report.

Lembo’s chief disagreement with the administration involved the spending side of the budget.

The comptroller warned about possible cost-overruns in debt service accounts, a concern raised last month by the legislature’s nonpartisan Office of Fiscal Analysis, which projected a $77.9 million deficit.

A second difference between Lembo’s numbers and those of the Malloy administration involve the cost of settling with state employee unions over layoffs imposed illegally by Republican Gov. John G. Rowland in 2003. The administration built only a portion of the settlement expense into its deficit forecast, while Lembo recognized an additional $17 million.

Regardless of the potential cost overruns in debt service and legal claims accounts, the comptroller added, “Continued active budget management may eliminate this shortfall.”

The overall shortfall Lembo projects represents about one-quarter of 1 percent of the General Fund. And while that is modest in the context of the full budget, much state spending is locked in by contractual obligation. Because of that, the governor must submit a plan to the legislature to address any deficit in excess of just 1 percent of the General Fund.

“We appear to be largely in agreement on the condition of the state budget — namely that we are very close to balance and should continue to be diligent in managing expenditures,” Malloy spokesman Chris McClure said. “We will continue to do just that, and also to report any changes that we see in our revenue or expenditure trends.”

And while Lembo largely backed the administration’s revenue forecast, for now, he warned that Connecticut’s tax receipts remain a concern.

“I am in general agreement with OPM revenue projections,” the comptroller wrote, referring to the Office of Policy and Management, the administration’s budget agency. “However it should be noted that estimated income tax payments are volatile and must be closely monitored for additional deterioration in the state’s revenue outlook.”

Lembo specifically noted that quarterly income tax filings — reports that cover capital gains and other investment earnings, as well as income from the self-employed — dropped by more than 10 percent during the fall compared with the same period one year ago.

Current projections, based on stock market activity, call for those quarterly filings to improve later this fiscal year.

Lembo’s report is the final budget forecast before Election Day, and caps several weeks of partisan battles over the health of state finances.

The Mirror disclosed on Oct. 11 that the Malloy administration reported a $133 million revenue shortfall to dozens of agency heads on Sept. 6, but excluded that data in its official monthly report to Lembo on Sept. 20, claiming the current budget is in balance.

Republican legislative leaders, who have argued since the budget was adopted in May that it was out of balance, pressed nonpartisan analysts to issue a forecast.

Shortly after the budget was approved, fiscal analysts noted that income, sales and corporation tax receipts this summer were weaker than anticipated. Since then, administration plans to save money from layoffs have progressed much more slowly than anticipated, further raising concerns about whether the new budget remains in balance.

After the Office of Fiscal Analysis released its $77.9 million shortfall projection on Oct. 13, the administration came back in its next report, filed Oct. 20, with a minuscule $5.7 million deficit projection.

“It appears that the comptroller landed about half way between the governor’s minimalist deficit and the nonpartisan OFA report of two weeks ago,” House Minority Leader Themis Klarides, R-Derby. “The problem is the state of Connecticut continues heading in the wrong direction when it comes to our finances. The real news comes Nov. 10 when the consensus projections for the next two years arrive, and we are likely looking at billions in red ink.’’

“Republicans tried to do the best we could to determine the real budget shortfall after Governor Malloy purposefully withheld information from the public,” Senate Minority Leader Len Fasano, R-North Haven, said. “Democrat legislative leaders … wouldn’t participate in a hearing to try to figure out these numbers. Instead they continued to close their eyes and wish their problems would go away. But the truth is a problem exists, and recent history has shown that whatever the deficit is at this point in the year, it will only grow considerably as the fiscal year progresses if we don’t take action. We have a fiduciary obligation to our constituents to recognize these realities. Ignoring the truth gets us nowhere.”

“Here we go again with this hysteria from Len Fasano,” House Majority Leader Joe Aresimowicz, D-Berlin, responded. “Last week he staged a purely political event and now that the numbers aren’t matching up with his political narrative, he doubles down instead of walking back from his comments. This is the type of unpredictability and unsteadiness in leadership that the people of Connecticut are afraid of. With Len it is always about scoring political points instead of coming up with real solutions to move the state forward.”

“There is nothing Len Fasano won’t say or do in an attempt to bail out his party’s fading electoral fortunes,” House Speaker J. Brendan Sharkey, D-Hamden, added. “The comptroller’s report puts the budget within a quarter of one percent of estimates, which by all measures is essentially on target.”

“The comptroller just agreed with what Republican lawmakers have been saying: the state budget is in deficit,” Fasano responded. “The administration was caught misleading the public and finally we are beginning to get numbers on the projected shortfall because the truth can no longer be avoided. Once again Representative Aresimowicz is long on words and short on action. That lack of action and ignoring state problems is exactly the behavior that continues to drive our state into deficit again and again.”

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