Federal shutdown, health care costs and shrinking sales tax loom over CT budget

State government’s finances are in balance early into the fiscal year — for now.

But the state’s chief fiscal watchdog warned Tuesday that the federal government shutdown, continued strong demand for health care for the poor and declining sales tax receipts, could erase the budget’s black ink very quickly.

Technically Kevin Lembo, the state comptroller, is projecting a tiny surplus for the general fund, which covers the bulk of the state’s annual operating budget. But that $4.4 million surplus represents less than 1/39th of 1 percent of the $17.2 billion general fund.

More importantly, Lembo echoed concerns raised late last month by Gov. Dannel P. Malloy’s administration about surging demand for Medicaid-funded health care services for the poor and about the potential for a prolonged federal government shutdown to weaken Connecticut’s economy.

Medicaid costs exceeded last year’s state budget by about $240 million.

Several economists warned this week that could be greatly jeopardized if a federal shutdown persists for a month or longer.

And Tuesday, Lembo added another concern to the list: early trends showing sales tax collections might not hit the $4 billion target built into the budget.

“At this point in time, the trend is not sufficiently established to result in a revenue revision,” Lembo wrote in his monthly letter to the governor. “However I will be closely monitoring this and other revenue sources and will make adjustments to my projections as required.”

Connecticut’s economy “continues to post moderate monthly growth” since the state fiscal year began on July 1, Lembo added.

The state’s 8.1 percent unemployment lags the national average of 7.3 percent, and Connecticut still has recovered just 51 percent of the more than 121,000 jobs it lost in the last recession.

Steven P. Lanza, the executive editor of "Connecticut Economy," the quarterly review published by the University of Connecticut, said Monday that even a shutdown of a just a few days would mean two-tenths of a percentage point off the gross domestic product, a contraction that would mean the loss of 300 jobs in Connecticut.

And a shutdown of three to four weeks would cause a 1.4 percent loss in GDP, enough to cost 2,000 jobs in Connecticut with an income of $100 million, he said.

An even larger danger, he said, is that economists like Mark Zandi of Moody’s Analystics see a shutdown followed by a debt-ceiling debate as potentially triggering a severe recession.

“Even a mild recession would have severe effects on Connecticut’s economy,” he said. In 2000, the U.S. economy fell into recession for just two quarters, costing the state 23,000 jobs.

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