State Comptroller Kevin P. Lembo announced a nearly $400 million surplus Tuesday for the fiscal year that ended June 30.

But while Connecticut’s chief fiscal watchdog called that surplus “a sign of cautious optimism for the future,” he also noted some weaknesses tied to the state’s job market that remain to be resolved.

Though a final audited statement of the 2012-13 fiscal year won’t be completed until Dec. 31, Tuesday’s report effectively closes the books on the last budget year.

Lembo reported a $398.8 million surplus in the General Fund, which represents about 2 percent of the annual operating budget.

Gov. Dannel P. Malloy and the legislature already dedicated $220.8 million of that surplus to support spending in the new state budget. That leaves $178 million to be deposited into the emergency reserve — commonly known as the Rainy Day Fund. Coupled with the $93.4 million already in the fund, the new reserve total stands at $271.5 million, or about 1.6 percent of this year’s operating budget.

“This payment is a great first step towards replenishing the Budget Reserve Fund,” Lembo said. “The ultimate goal for funding the Rainy Day Fund should be approximately $3 billion, or 15 percent of the current General Fund, in order to fully protect taxpayers against future economic downturns.”

Though nearly all major sources of state tax revenue grew last fiscal year compared with 2011-12, Lembo said, “The state’s surplus should be a sign of cautious optimism for the future – a good outcome, but potentially the result of one-time revenue windfalls.”

General Fund revenues overall grew by more than $840 million, up about 4.5 percent from 2011-12, the comptroller reported.

But while the income tax, the state’s single-largest source of tax revenue, finished up almost 5 percent — and nearly $165 million over budget — the payroll component of the income tax was down slightly from the prior year.

“The growth was largely driven by strong stock market performance and an increase in the federal capital gains tax rate that pushed future year gains into Fiscal Year 2013,” Lembo said. Couple that with a more than $200 million windfall in the inheritance and estate tax, and much of last year’s surplus was due to good fortune, according to the comptroller’s report.

But Lembo also noted there were other reasons behind that surplus.

The Malloy administration and the legislature, which agreed last December on a plan to wipe out about $360 million in red ink, kept spending growth to about 1.3 percent in 2012-13, the comptroller noted.

“To put this level of growth into historical context,” Lembo said. “In the four fiscal years leading up to the 2008 recession, average annual General Fund budget growth was 7.3 percent.”

The state’s largest agency, the Department of Social Services, posted spending growth of just 2 percent last fiscal year. That department typically posts growth rates in excess of inflation.

Other optimistic signs cited by Lembo on Tuesday include a modest, 1.7 percent growth in the sales tax last fiscal year, and a  $69 million increase, or 10.5 percent growth, in state contributions to the cash-starved, state employees’ pension system.

Looking at the current fiscal year, Lembo said keeping the budget in balance could hinge on controlling health care costs. That budget “is predicated on significant savings being realized in the Medicaid program,” he said, adding there is some cause for early concern given that “current spending patterns do not reflect the budgeted level of savings.”

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.

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