Larger deficit looms as Malloy warns of more emergency cuts

Nonpartisan fiscal analysts again asserted Wednesday that the current state budget deficit is worse than Gov. Dannel P. Malloy’s administration has reported – and that’s despite a recent administration estimate that more than doubled the shortfall.

And while the Office of Fiscal Analysis was issuing its $191 million deficit forecast, Malloy’s budget chief directed all agencies Wednesday to brace for a third round of emergency cuts and to ensure spending is “significantly curtailed” between now and the fiscal year’s close on June 30.

The administration acknowledged last week that the deficit had worsened largely because of two trends: Medicaid payments from Washington and hospital tax receipts that both are less than anticipated.

Legislative analysts also have been more pessimistic than the administration about potential cost-overruns involving Medicaid and magnet schools. And they say a potential surplus in the debt service account is not as large as Malloy’s staff projects.

“Obviously we disagree and stand by the numbers that OPM released last week,” Gian-Carl Casa, spokesman for the governor’s budget office, said Wednesday. “But we have to wait for the April income receipts to get a fuller and more accurate picture of where we stand for the year.”

The shortfall reported by OFA is $58 million worse than the $133 million deficit projected by the administration on March 20. More importantly, it is more than three times the size of the $61 million shortfall the administration reported last month. Comptroller Kevin P. Lembo reported a $101 million deficit on March 2.

The latest deficit projection by OFA also represents more than 1 percent of this year’s general fund, which covers the bulk of state government’s annual operating costs.

And while that might seem small, state law requires the governor to submit a deficit-mitigation plan within one month whenever the comptroller certifies a shortfall exceeding 1 percent of the general fund, which would be $174.6 million this year. That’s because large portions of the annual budget cannot be cut quickly in any given year because of contractual obligations.

Republican legislative leaders have charged the Democratic governor with acknowledging deficit problems piecemeal in hopes of avoiding a deficit-mitigation plan directive. Malloy, who was re-elected last fall to a second term, insisted throughout the campaign that there wouldn’t be a deficit.

But the threat of having to issue such a plan now is a moot point given the calendar. Malloy and the legislature are required by law to close the deficit, and are expected to do so before the regular 2015 General Assembly session ends on June 3.

Even if Lembo certifies a deficit in excess of 1 percent on April 1, Malloy would have not have to issue a deficit-mitigation plan until May 1. By that point, the administration and the legislature already will have begun final negotiations on both the next state budget, as well as the steps needed to balance current fiscal year finances.

Malloy’s budget chief, Office of Policy and Management Secretary Benjamin Barnes, began that process Wednesday with a letter sent to agency heads.

The administration had already announced hiring restrictions last fall and two rounds of emergency, mid-year cuts to reduce earlier deficit projections.

While asking department heads to continue to curtail spending, Barnes also warned that one final round of emergency cuts in the final quarter of the 2014-15 fiscal year was still possible.

“My office will be taking a relatively hard line on hiring and contract requests through the remainder of the year,” Barnes wrote. “Please also be aware that OPM analysts will review expenditure patterns between now and fiscal year-end to identify opportunities for agency savings. Additional rescissions may also be necessary in the coming weeks.”

Most of the emergency cuts Malloy ordered previously, in November and in January, fell upon social service programs and on public colleges and universities.