Red ink is on the rise in the state budget again, with a new deficit topping $64 million just one month after lawmakers met in special session to balance the books. .
The $64.4 million shortfall in the general fund — reported this week by Gov. Dannel P. Malloy’s administration — is only about one-third of the minimum threshold needed to force the governor to draft another deficit-mitigation plan.
The Malloy administration had been projecting a deficit of about $365 million late in 2012. That gap was closed through a combination of emergency spending cuts ordered by the governor in late November, and additional cuts and some small revenue increases approved by the legislature in special session in mid-December.
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 on 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.
Even while that process was going on, Lembo warned it wouldn’t be sufficient to balance the state’s books, citing cost overruns in the Medicaid program. And two weeks after the special session, the comptroller released the $40 million deficit report.
The state budget took another hit on Jan. 15 when Malloy’s budget staff and the legislature’s nonpartisan Office of Fiscal Analysis downgraded their consensus revenue projections for the current fiscal year.
The new $64.4 million deficit projection from the administration builds on Lembo’s Jan. 2 report, factoring in the new revenue downgrades.
The sales tax — the second-largest revenue source in this year’s $20.5 billion state budget — was the chief culprit behind the latest deficit report. Projected sales tax receipts for the current fiscal year, which ends June 30, recently were downgraded by $116 million.
That sales tax hit was offset in part by rising estate tax receipts and additional savings tied to health costs for active and retired state employees.
Malloy’s budget chief, OPM Secretary Benjamin Barnes, wrote in the report that the one of the largest variables in the current budget, the income tax, might remain uncertain for several more months.
“Less than half of this year’s projected income tax receipts have been collected to date and April remains the most significant month for income tax collections,” Barnes wrote.
Both Barnes and Malloy also have said that new changes in federal income tax law, specifically increasing the top rate on capital gains from 15 to 20 percent starting in 2013, could help state finances this spring. If wealthier households sold stock and took extra capital gains in late 2012 — presumably so those gains could be taxed at the lower federal rate — they still would also have to pay state income taxes on those earnings.
The $64.4 million deficit is roughly one-third of 1 percent of the general fund, which covers the bulk of operating expenses in the current budget. If the deficit again exceeds the 1 percent mark, or $191.4 million, the governor would be required to submit another mitigation plan to lawmakers.
The state has enough funds to close the new deficit in its emergency budget reserve, commonly known as the Rainy Day Fund, with $93.5 million in that account.
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