The state budget deficit shrank modestly over the past month to $32 million, Comptroller Kevin P. Lembo reported Friday.
But the state’s chief fiscal watchdog also noted that the deficit would have been larger were the budget not bolstered somewhat by borrowing that has become increasingly controversial in recent years.
The $31.6 million deficit, which represents less than 1/5th of 1 percent of the general fund, is down $13.2 million from the $44.8 million shortfall reported one month ago.
The comptroller is tracking about $59 million in potential cost-overruns in various accounts, led by about a $40 million problem in Medicaid.
And while that was offset over the last month by about $72 million in projected savings in different line items, Lembo noted that much of this black ink is in the debt service account, which has benefited significantly from what are commonly referred to as “bond premiums.”
At issue is a tool that helps the treasurer’s office market the state bonds sold on Wall Street to finance school construction and other major capital projects.
The state, in some instances when issuing bonds, will pay a higher interest rate than originally planned, in return for a premium – extra money to the state in addition to the bonds’ face value.
If the state uses the premiums to replace funds already budgeted to reduce debt — rather than to augment them — it leaves a surplus in the debt service account. And if Malloy and the legislature reassign those funds to cover deficits in other areas in the budget, Connecticut effectively will be paying interest to operate government day-to-day.
Republican legislative leaders and Treasurer Denise L. Nappier have said they will propose legislation this year to require such premiums to be used to reduce debt.
The Malloy administration had estimated a deficit of almost $100 million in early November, but Gov. Dannel P. Malloy ordered $48 million in emergency cuts, and secured another $7 million in voluntary reductions from the Legislative and Judicial branches and from the state’s watchdog agencies.
Still, Lembo warned Friday that if the deficit is to be eliminated entirely, “this reduction in the spending growth trend must continue into future months. While there has been some improvement in key economic indicators, current revenue collections do not indicate a positive change to the consensus projections.”
Malloy’s budget chief, Benjamin Barnes, also warned in his last forecast on Dec. 20 that no major growth in state revenues was anticipated at this time.
But Barnes also did not project any decline in the state’s resources.
The governor’s budget office and the legislature’s nonpartisan Office of Fiscal Analysis are scheduled to issue their next consensus projection on state revenue trends on Jan. 15.
Lembo did note, though, that the state posted another positive month of job growth in November, adding about 4,600 positions. Connecticut now has posted job gains in nine of the past 10 months.