Despite a major deficit-mitigation effort last month, state officials still have a little more red ink to deal with this fiscal year, Comptroller Kevin P. Lembo reported Wednesday.


Kevin Lembo

The state’s chief fiscal watchdog’s latest projection of a $40 million deficit — which represents less than one-quarter of 1 percent of the state’s operating budget — wasn’t a big surprise. That’s because Lembo had projected a slightly larger shortfall than either Gov. Dannel P. Malloy’s administration or nonpartisan legislative analysts had last month when the governor and legislature wiped $365 million in red ink off the books.

But Lembo also warned state government’s fiscal fortunes could hinge on crucial new revenue projections due two weeks from now.

“Revenues through November have continued to underperform budget expectations,” Lembo said Wednesday, “and the economy continues to recover at a slower pace than originally forecasted.

The comptroller cited data from state and federal labor agencies showing some modest, positive signs, including:

  • Connecticut added 300 payroll jobs in November, and 900 over the past 12 months, possibly could have added more this fall were it not for the disruption of Hurricane Sandy.
  • While the state overall has recovered about one-fourth of the 117,500 nonfarm jobs it lost in the last recession, the private sector has regained more than 38 percent of its job losses.
  • Initial claims for unemployment insurance have been on a generally downward trend, and were running through November 2012 about 13.4 percent below 2011 levels.
  • Connecticut mortgage rates continued their steady decline last year, new home sales were up 17 percent last October over the previous year, and housing permit issuances surpassed 2011 levels in each of the last five months of 2012.
  • And personal income in Connecticut grew by 2 percent in the third quarter of 2012.

Still, Connecticut’s unemployment rate in November was 8.8 percent, compared with the national rate of 7.8 percent.

And advance retail sales have slowed nationally. After growing by about 6 percent over much of last year, they rose just 3.7 percent last November compared with November 2011.

But one biggest factor that may influence state revenues projections for the remainder of this fiscal year — which runs through June 30 — is the health of the stock market, which received an important shot in the arm over the New Year’s holiday when Congress and President Obama struck a bipartisan deal to reduce the federal budget deficit and avoid the array of sharp tax hikes and deep spending cuts that economists have dubbed the nation’s “fiscal cliff.”

Malloy and the General Assembly relied chiefly on spending cuts back on Dec. 19 to slash $252 million off the state budget deficit. That action, coupled with emergency cuts Malloy ordered in November using limited authority to act unilaterally, lowered the overall deficit by $365 million.

Most of the remaining red ink projected by Lembo involves cost overruns in Medicaid programs providing health services for the poor.

Connecticut’s hospitals took the single-largest hit, losing nearly $103 million this year, with the state paying less to help treat both uninsured and Medicaid patients.

Many of the state budget cuts ordered in late 2012 focused on social services and health care, but also targeted higher education and tourism initiatives.

The governor and legislature also raised more than $46 million in new revenue for operating programs by imposing new limits business tax credits, launching a new crackdown on insurance tax fraud, and by tapping a few one-time sources of funding to support other ongoing programs.

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.

Leave a comment