Malloy budget chief concedes emergency deficit reduction plan is ‘likely’

One day after Gov. Dannel P. Malloy called it “premature” to talk about state budget deficits, his budget chief told reporters that state finances were far enough in the red to “likely” trigger a mandatory deficit-reduction plan.

“It seems likely that we will” be creating a spending reduction plan, Office of Policy and Management Secretary Benjamin Barnes told members of the media before the start of the Education Cost Sharing Task Force meeting Tuesday.

Barnes’ staff and the legislature’s nonpartisan Office of Fiscal Analysis released a consensus report Friday that showed a dramatic plunge in how much money the state expects to get this year — a drop likely to push state finances up to or beyond a deficit of $300 million.

Malloy budget chief Ben Barnes

The report lowered revenue expectations $128 million below the level assumed when the legislature adopted this year’s budget in late June. And it also showed evidence of surging demand for state Medicaid services, a problem expected to push state spending on social services well beyond the amounts budgeted.

More detailed reports on state finances from executive and legislative branch analysts are due Thursday to the legislature’s Appropriations and Finance, Revenue & Bonding committees.

But if Comptroller Kevin P. Lembo — whose next monthly budget assessment is due Dec. 1 — certifies that there is a deficit larger than 1 percent of the general fund, state law requires Malloy to submit to lawmakers a plan to lower the deficit. In this year’s $20.54 billion total budget, the general fund — which covers most operating expenses — totals $19.14 billion, putting the 1 percent threshold at $191.4 million.

“To be talking about a deficit, I think, at this point is a little premature, quite frankly,” Malloy told a Hartford Courant web reporter Monday.

Malloy said he is optimistic that state income tax receipts will climb next spring as many of Connecticut’s wealthier residents sell their stocks and report capital gains now before federal income tax rates rise.

President Obama said this week that while he is “open to compromise” on reducing the federal deficit, he would veto any effort to extend the Bush-era tax rates on households earning more than $250,000 per year. Those expiring rates include a 15 percent levy on income from capital gains, which would revert to 20 percent on Jan. 1 if no action is taken.

“We’re probably going to see a fair amount of income come in a result of people trying to recognize that income in the current fiscal year as opposed to next fiscal year,” the governor told The Courant.

Malloy added, “We should really have this (deficit) discussion in greater detail in January and February, but we’re going to do whatever it takes to balance the budget.”