State government’s $19.01 billion budget is $63.4 million in deficit, just seven weeks into the new fiscal year, due to a shortfall in anticipated federal funding and higher than expected demand for social services, Gov. M. Jodi Rell’s budget office reported today.

But mixed amid the bad news are higher than expected income and sales tax collections, which are leading a new surge in revenue projections, the governor said.

Though a full analysis of Connecticut’s share of the recently enacted federal stimulus extension measure has not been completed, the state Office of Policy and Management estimates state government will receive $193.4 million less stimulus aid than anticipated when 2010-11 budget was adopted in early May.

The spending side of the budget also is facing some early problems, with expenditures now expected to exceed approved amounts by $171.7 million, due largely to surging demand for social services.

Those revenue and spending challenges largely were offset though, by surging revenues in other areas, the governor reported. Chief among them are projections for the state’s two largest taxes, the income and sales levies, which are up $127.5 million and $153.8 million, respectively.

“I will be working with my budget officials to erase the shortfall through administrative actions,” said Rell, who reported her first budget assessment of the fiscal year today to state Comptroller Nancy Wyman. “The fiscal year has barely begun and we have an opportunity – one we cannot afford to miss – to control this deficit before it grows unmanageable. I will be announcing the details of my budget-cutting plans soon.”

Rell added that while she is developing a “budget-cutting plan” to eliminate the $63.4 million shortfall, “I am encouraged by the improvements in the state revenue picture. But it would be a mistake to look at these projections and believe that our problems will resolve themselves.”

Despite her intentions to develop a cost-cutting plan, Rell is not required to do so yet. State law mandates such a plan only when the projected deficit exceeds 1 percent of the General Fund. In this fiscal year’s budget, that means a shortfall of $177 million.

Keith has spent most of his 31 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. He has been the state finances reporter at CT Mirror since it launched in 2010. Prior to joining CT Mirror Keith was State Capitol bureau chief for The Journal Inquirer of Manchester, a reporter for the Day of New London, and a former contributing writer to The New York Times. Keith is a graduate of and a former journalism instructor at the University of Connecticut.

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