The projected hole in state finances awaiting the winner of the next gubernatorial race surged dramatically Friday, exceeding $1.1 billion and raising the specter of another tax debate at the Capitol.
The red ink estimated by the legislature’s nonpartisan Office of Fiscal Analysis is 50 percent larger than the gap estimated five months ago as revenues continue to grow sluggishly and health care costs keep rising.
And while Gov. Dannel P. Malloy’s administration offered a markedly smaller, $600 million deficit Friday for the fiscal year that begins July 2015, it relied on a new methodology that assumes legislators’ choices two years from now. For example, it assumes legislators will continue to waive various legally mandated increases in town aid programs, and also withhold inflationary increases in other accounts.
The news was better for current finances. Both the governor’s budget office and legislative analysts projected modest surpluses for this fiscal year, as well as for the year that begins next July.
But those surpluses remain controversial. Republican legislators charge those surpluses wouldn’t exist had the governor and his fellow Democrats in the legislature’s majority not used borrowing, fund raids and other fiscal gimmicks to postpone hundreds of millions of dollars in state costs –- plus interest -– until after the next election.
And Friday, top Republicans were worried that a deficit of this size again would prompt Democrats to seek big tax hikes in 2015.
“The Democrats have always looked toward tax increases to solve our fiscal problems,” said Senate Minority Leader John P. McKinney, R-Fairfield, who is running for governor. “I have always fought those and will continue to fight their attempts to raise taxes.”
After signing more than $1.5 billion in tax and fee increases into law in 2011 to help close the $3.7 billion shortfall he inherited upon taking office, Malloy has tried to avoid going back to taxes.
But the two-year spending plan approved last June extends several expiring taxes, limits credits and cuts tax reimbursements to hospitals –- all of which cost taxpayers more than $600 million over this year and next.
“We continue to be heading down the wrong path, toward a fiscal abyss that Governor Malloy does not want voters to know about,” said House Minority Leader Lawrence F. Cafero, R-Norwalk. “For the sake of his own political future, he is putting Connecticut’s finances, and the state’s future, at risk.”
But Malloy’s budget director, Office of Policy and Management Secretary Benjamin Barnes, downplayed the post-election deficit in a written statement.
“Estimates for the budget beyond next year are consistent with what out-year projections typically show: that we need to continue our efforts to grow the economy, add jobs and budget within our means in the future, just as we have done for the last three years,” he said.
Malloy’s has struggled with red ink for much of his tenure.
Connecticut’s economy has grown and continues to grow from the depths of the last recession. But the administration and legislature repeatedly have built budgets that assume a much faster recovery.
Back in February, when Malloy proposed a budget for the current year, his own numbers projected — based on spending and revenue trends — that state finances were headed for a $682 million deficit by the first budget of the next gubernatorial term.
When legislators and the governor adopted the current budget in early June, nonpartisan analysts offered a similar post-election shortfall of $712 million.
Since then, analysts for the governor and the legislature have acknowledged that revenues from several sources, including income taxes and casino receipts, likely won’t grow as much as originally planned.
The new $1.1 billion deficit projection represents 6 percent of general fund expenses in 2015-16 — a significant shortfall, but only one-third as large as the 18 percent gap Gov. M. Jodi Rell and the 2010 legislature left for Malloy to clean up.
So is the glass half full or half empty?
The administration’s new projections include a $135 million surplus for the current year and $35 million in black ink in 2014-15. Legislative analysts largely agreed, projecting surpluses of $117 million and $8 million, respectively.
And the administration insisted Friday that the deficit is very manageable — so manageable, in fact, that it offered a different way of looking at the problem.
If one assumes that the legislature, as it often does, will suspend statutorily required increases in certain municipal grant programs and a few other segments of the budget, then the post-election gap is closer to $600 million.
But Republican legislators countered that things aren’t so simple.
Even if it were appropriate to count relatively-easier-to-achieve budget cuts now, before they have been achieved, that means nothing but ugly choices are left to handle most of the rest, if projections about continued modest economic growth are right. In 2011 that meant tax hikes, higher education tuition increases, cuts to town aid or social service programs, or labor concessions.
“For three years Governor Malloy has calculated state deficits using current services estimates,” McKinney said, referring to a calculation method that makes few assumptions on how lawmakers may or may not act in the future. “Now, as he approaches an election year, he has chosen a different accounting method in order to show a rosier picture.”
But Barnes said the new report “underscores the steady progress Connecticut has made in overcoming the significant deficit we inherited, implementing GAAP (Generally Accepted Accounting Principles), shoring up the state employee pension system, reducing the size of state government and more.”
Friday’s reports, which involve detailed analyses of current and future budget trends, are due each November to the legislature’s Appropriations and Finance committees. The panels will review both at a Nov. 25 hearing.