State Comptroller Kevin P. Lembo (file photo)
State Comptroller Kevin P. Lembo (file photo) Keith M. Phaneuf /

State Comptroller Kevin P. Lembo confirmed Friday that Connecticut’s finances are back in balance — for now.

But the state’s chief fiscal watchdog reminded officials that Connecticut is due to test its revenues again shortly after the April 18 income tax filing deadline, and that the potential for more red ink remains very real.

“My greatest concern continues to be further erosion in General Fund revenue through the final months of Fiscal Year 2016,: Lembo wrote in his monthly budget assessment to Gov. Dannel P. Malloy. “… Connecticut’s economy continues to experience moderate growth, but is falling short of the growth required to support original budget estimates.”

Connecticut’s income tax receipts tied to quarterly filings — much of which involves capital gains, dividends, and other investment earnings — are coming in several hundred million dollars below original expectations for this fiscal year, which ends June 30.

Quarterly filings provide roughly 40 percent of the $9.4 billion in income tax receipts Connecticut anticipates this fiscal year, and this remains an area of concern.

The remaining 60 percent comes from paycheck withholding, and Lembo noted that while this component “showed solid growth in the month of March, it is still underperforming on a year-to-date basis.”

Though Connecticut added 1,200 jobs in January and another 5,000 in February, overall the news from the state Department of Labor was much worse last month.

Specifically, the department dramatically reduced its job growth projections for 2015 by 55 percent, lowering its final total from 26,900 jobs gained last year to just 12,200.

And Malloy has said he will issue layoff notices in about two weeks to a “very significant” number of state employees. Many legislators have said privately they expect close to 2,000 pink slips to be issued, or possibly more.

The comptroller added there also has been “some slippage” in sales tax receipts, and that “national economic growth projections have moderated.”

Connecticut has little fiscal margin for error despite the fact that legislators and Malloy agreed last week on a package of cuts and sweeps of one-time accounts to close a $220 million deficit in 2015-16 finances.

That’s because the state’s emergency reserve, commonly known as the Rainy Day Fund, holds a very modest $406 million, or just over 2 percent of annual operating expenses. Lembo has said on several occasions that Connecticut needs to build a reserve of at least 15 percent given the volatile history of its income tax revenues.

The majority Democrats on the legislature’s Appropriations Committee are expected next week to recommend revisions to the preliminary budget for the 2016-17 fiscal year. The legislature’s nonpartisan Office of Fiscal Analysis projects that preliminary budget is $900 million in deficit, and some legislators have said at least a portion of the Rainy Day Fund should be used as revenue to mitigate cuts in the coming fiscal year.

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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