State Comptroller Nancy Wyman certified a $60 million-plus deficit this afternoon for the new fiscal year, even as she closed the books last year with a final surplus of nearly $450 million.
The $63.4 million deficit for the $19.01 billion budget launched on July 1 stems from modest growth in income and sales tax offset by rising social service costs and a faulty assumption about federal aid.
Specifically, Gov. M. Jodi Rell and the legislature gambled when they approved the budget in early May, assuming Congress would extend emergency federal stimulus grants for health care, child welfare services and education, all set to expire on Dec. 31.
Federal lawmakers did so in early August. But state government will receive significantly less than anticipated. Much of that is due to federal requirements that states use the additional education aid to supplement already-approved grant programs for municipal school districts.
Wyman cautioned officials against being too optimistic about the $449.4 million surplus for the fiscal year that ended June 30.
That’s because last fiscal year’s budget effectively relied on about $1 billion in borrowing. Specifically, the governor and legislature bonded $1 billion to close a shortfall in 2008-09, even though they had the funds to cover the deficit in the emergency budget reserve. But by financing the deficit, they could use the reserve funds to prop up spending in 2009-10 without further tax hikes or spending cuts.
Connecticut also relied last fiscal year on nearly $880 million in emergency federal stimulus aid.
“State government was fortunate to have these … funds available to help weather the economic downturn, but there was little other positive news in a very difficult year for our state and our taxpayers,” Wyman said.
Further complicating matters, this fiscal year’s budget also relies on another $956 million borrowing. So while the $450 million surplus for last year is about $310 million higher than Rell and legislators anticipated when they adopted the latest budget in May, they still need another loan to keep government afloat.
Considering the $310 million enhancement of last year’s surplus and the $63 million deficit in the current budget, state government still needs to borrow about $700 million to balance its books.
The Rell administration estimated late last month that income and sales tax revenues are running $127.5 million and $153.8 million ahead of projections, respectively, and other tax receipts also are up nearly $66 million.
But Wyman noted today that Connecticut lost about 15,000 payroll jobs in the first six months of the fiscal year. And though it gained most of them back, it still ended the year with a net job loss of 1,800 positions. It is that upswing in jobs that has led to recent gains in the two major revenue generators – the income and sales taxes.
“While we all hope that this positive trend in jobs and revenue continues, it is still far too early to call this a solid recovery,” Wyman said.