The state’s budget deficit might be wider than reported based on new, shrinking revenue projections from nonpartisan analysts.
While the new estimates from the Office of Fiscal Analysis were not scheduled to be released until shortly after the November elections, the top Republican in the House of Representatives requested an update now, arguing that any challenge the new numbers pose to current and future budgets needs to be recognized immediately.
House Minority Leader Lawrence Cafero
The biggest potential revenue drop cited by OFA is $24.2 million — state government’s share of video slot revenues from the two Native American casinos in southeastern Connecticut. The state is also projected to experience an additional $23.1 million drop in corporation tax revenues.
Nonpartisan analysts also modestly downgraded expectations for sales and electricity generation taxes, and also increased anticipated refunds the state must pay out in connection with various taxes.
The OFA projected a $50 million increase in federal Medicaid reimbursements. But that stems from a surging Medicaid caseload. Projections are that additional state spending in excess of $50 million will be needed to qualify for the extra federal dollars.
Last month, the administration and Comptroller Kevin P. Lembo projected a $27 million deficit in the general fund — which, at $19.1 billion, covers most operating expenses and represents the bulk of the state’s entire, $20.5 billion budget for this fiscal year.
Based on Thursday’s new OFA projections, the deficit would rise to $98 million. But that still is roughly half of 1 percent of the general fund — not enough to trigger a mandatory deficit reduction plan.
Republicans, who are in the minority in both the House and Senate, have tried to gain traction with voters this fall by pointing to the $1.5 billion in new state taxes and fees that the Democratic governor signed into law last year.
“Despite all assurances from the Democrats and Governor Malloy that we could tax our way out of the previous deficit, Connecticut’s budget remains structurally broken because we continue to spend more money than we take in,” Cafero said. “Until we address that basic fact, we will run deficits.”
State government finished the last fiscal year with a $143 million shortfall.
But the governor’s senior policy adviser, Roy Occhiogrosso, responded Thursday that “The closer we get to Election Day, the more desperate the Republicans become. The more desperate they become, the more heated their rhetoric becomes. The more heated the rhetoric, the more they play fast and loose with the facts. They should probably just take a deep breath and begin coming up with the excuses they’ll need to explain away another failed campaign season.”
Malloy, who took office in January 2011, inherited a built-in shortfall of an estimated $3.67 billion — nearly one-fifth of the state’s entire operating budget. It was left to him by his GOP predecessor, Gov. M. Jodi Rell, and the previous legislature, which was under Democratic control.
Malloy, who frequently referred to that gap during the 2010 campaign as a “bipartisan train wreck,” also relied on a major union concession plan and several agency consolidations to try to close the deficit.
The governor said last month that he intends to do everything possible to avoid proposing any further tax hikes when he offers his plan in February for the 2013-14 and 2014-15 fiscal years.
In September, he directed all agency heads to search for new ways to streamline government and reduce spending as new economic reports paint a gloomy picture for the state’s sluggish recovery from the last recession. If the OFA’s revised revenue estimates hold up, they will further challenge Malloy’s efforts to avoid tax increases.
Fiscal analysts were projecting a $424 million hole in 2013-14 finances before Malloy and the legislature agreed last May to eliminate $186 million in spending.
But even as officials were scaling back spending for this year — which in turn would reduce a potential deficit in 2013-14 — analysts also downgraded revenue expectations for 2013-14 by $311 million.
“Since taking office the governor has been focused on a few priorities: job creation, stabilizing the state’s finances, fixing what’s broken in our public schools, and making state government leaner, cheaper, and more effective,” Occhiogrosso said. “There is no question that based on statistical evidence on each of these issues, and others, Connecticut has made progress under Governor Malloy. That said, the governor is mindful of how far we still have to go. Just as the governor’s first budget and subsequent budget adjustments reflected these priorities, so too will next year’s budget.”
Nonpartisan legislative analysts and Malloy’s budget agency, the Office of Policy and Management, are required by law to issue a consensus revenue projection on Nov. 15.
Cafero asked nonpartisan analysts for the update now, however, noting that the fall consensus revenue report previously was due on Oct. 15 until the legislature this spring enacted the statute pushing things back one month. Republican lawmakers grumbled about the change, noting that it pushes a report originally due before the Nov. 6 state elections until after them.
“We cannot ignore what is going on,” said Cafero, who wants both parties to begin searching for major new cuts to state spending. “That is how we got into trouble in the first place. If we are facing another huge deficit, we are going to have to act as soon as possible to fix this.”
Gian-Carl Casa, spokesman for the governor’s budget office, noted that the consensus report will be out in a few weeks. “While we always monitor revenue and spending, we’re in the process of doing our own analyses and it would be premature to comment either way” on the OFA projections.