Ben Barnes, the governor's budget chief, presents the budget Jacqueline Rabe Thomas / The CT Mirror

Eroding state income tax receipts identified Monday by Gov. Dannel P. Malloy’s administration not only widened the deficit in the outgoing fiscal year, but threatened to punch a hole in the new state budget 12 days before it begins.

Malloy’s budget office announced the red ink in the 2015-16 finances worsened over the past month by $56.7 million — a problem driven largely by a $75 million drop in projected income tax receipts.

And since prior year’s income tax receipts are a crucial factor used to project likely revenues in the following year, the new forecast raises questions about the stability of the $19.76 billion budget Malloy and legislators approved recently for the fiscal year beginning July 1.

Budget director Benjamin Barnes visiting the Capitol press room to report on state revenue forecasts.
Budget director Benjamin Barnes Claude Albert / file photo

“We’re facing a sustained period of slower-than-normal growth as we adjust to this new economic reality,” Office of Policy and Management Secretary Benjamin Barnes, the governor’s budget chief, wrote in a statement. “… We are committed to making difficult choices to reduce spending throughout the end of this fiscal year and into the next.”

The General Fund, which covers the bulk of operating costs in the annual budget, is now expected to finish 2015-16 nearly $316 million in deficit, Barnes projected Monday in his monthly budget report to Comptroller Kevin P. Lembo. Though the fiscal year ends June 30, Lembo won’t officially close the books on 2015-16 until September.

That new deficit projection, up from about $259 million, represents about 2 percent of the General Fund.

More importantly, it means the state likely will draw more than anticipated from its emergency reserve, commonly known as the Rainy Day Fund. Holding a modest $406 million, the reserve is expected to be down to $90.2 million after the deficit is eliminated, according to Barnes.

State government would enter the new fiscal year with a cushion equal to 0.5 percent of annual operating costs. The comptroller’s office recommends a reserve of 15 percent.

Revenues for 2015-16 came in about $600 million below projections both from the administration and from the legislature, Barnes noted.

Further complicating matters, a last-minute drop in anticipated income tax receipts is not the only problem threatening to push the next state budget into the red.

Legislators built a much more aggressive savings target involving labor costs when compared with the governor’s plans to shrink government. And those plans are progressing much more slowly than Malloy anticipated.

To date the Executive and Judicial branches have ordered 951 layoffs combined since plans to downsize first were initiated two months ago.

The governor had said he expected 1,900 to 2,000 layoffs to be issued by June 10 — to ensure maximum savings in the fiscal year starting July 1. These, coupled with spring retirements and hiring restrictions, would eliminated 2,500 jobs by June 10.

According to the legislature’s nonpartisan Office of Fiscal Analysis, just under 2,000 layoffs would save $133 million per year.

The new $19.76 billion budget Malloy and legislators crafted for 2016-17 cut $255 million from departmental salary accounts and also assumes the administration will find another $69 million in “general employee” savings.

Senate Minority Leader Len Fasano, R-North Haven, said minority Republicans in the legislature have been warning for several years that state tax revenues — and the economy — have been under-performing.

“Instead Democrats dismissed Republicans, saying we were simply rooting for failure,” he said. “The reality is we were sounding the alarm. Connecticut can improve, but we must change direction. We have to focus on growing jobs, boosting our economy, and making long term changes to our budget so that our families can thrive today and for generations to come. Clearly more of the same policies and more business as usual will only worsen Connecticut’s problems.”

“The state’s finances, of course, will continue to decay because we have failed to institute any significant changes to stabilize our finances,” said House Minority Leader Themis Klarides, R-Derby. “These new deficit numbers were foreshadowed by last month’s job loss report.”

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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