On the state revenue front, an early hint of good news
After watching state income tax receipts fall short of expectations for three years in a row, Gov. Dannel P. Malloy and the legislature could be on the cusp of some fiscal good fortune this spring — albeit something modest.
According to very preliminary data based upon tax returns, income tax receipts are on pace to finish the month $87 million ahead of projections, the legislature’s nonpartisan Office of Fiscal Analysis reported Tuesday.
If those numbers hold up, the governor and legislature still would have a small deficit to close this year – and much larger shortfalls in the next two.
But it’s a start.
Receipts are particularly volatile during the first two weeks after the April 15 income tax filing deadline, and projections can change by more than $100 million based upon a single day’s results. But Tuesday’s report is based upon collections through Monday — including the first weekend’s mail following the deadline — a traditional testing point.
The income tax had been anticipated to bring in $1.5 billion in April, and the extra $87 million now considered likely would be on top of that.
The administration offered a cautious response to the preliminary numbers.
“It’s still too early to draw conclusions,” Gian-Carl Casa, spokesman for the governor’s budget office, said Tuesday. “We will have a better picture in the next week or two. This week is perhaps the most important collection period.”
If the $87 million estimate holds up, this year’s budget deficit would be reduced, but not eliminated. The Office of Fiscal Analysis says this year’s general fund is $179 million in the red. The Malloy administration pegs the shortfall at $121 million. Comptroller Kevin P. Lembo, whose last deficit projection was $173 million, is due to report next on May 1.
Malloy and the legislature have enough money in the emergency reserve, commonly known as the Rainy Day Fund, to close this year’s deficit as it stands now. There is almost $520 million in the reserve.
But the income tax revenue growth projected Tuesday might be more important for the next state budget.
Growth in the current year’s income tax receipts often leads analysts to project a matching increase, or slightly more, in income tax revenues for the next year or two.
If that $87 million in projected growth for this year leads analysts to assume a similar increase, or slightly more, in each of the next two years, that would mean the budget deficits OFA has forecast for the next two fiscal years — $1.3 billion in 2015-16 and $1.4 billion in 2016-17 — each would drop by at least $87 million.
Analysts for the legislature and the governor must produce a detailed consensus projection of income tax receipts and of other revenue sources — both for the remainder of this fiscal year and for the next three — on April 30.
Malloy’s recent history with the post-April 15 deadline period has been one of disappointment.
Each of the past three springs, analysts responded to a lackluster April by scaling back their income tax expectations — both for the then-current year and for the one to come.
In April 2012, as Malloy’s first annual budget neared its close, income tax receipts for the following year were scaled back by more than $220 million.
Twelve months later, analysts downgraded expected income tax receipts for the 2013-14 fiscal year by $143 million.
And Malloy absorbed a politically painful hit that year as he geared up his re-election effort.
Buoyed by another rosy-yet-preliminary forecast, the governor announced plans in January 2014 for a $55-per-person tax rebate in the fall. But once April returns led analysts to reduce projected tax receipts by almost $390 million in 2013-14, and by another $246 million in 2014-15, the governor withdrew his rebate plan.
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