The final report from Gov. Dannel P. Malloy’s administration on the just-completed fiscal year offered a mix of good news and bad on Wednesday.
Malloy’s budget office says the deficit for the 2015-16 fiscal year improved modestly, from about $316 million to $279 million — largely because of a last-minute surge in federal grants.
But the administration also reported further slippage in state income and corporation tax receipts, two problems that could weaken revenue estimates for the new state budget.
Though the state’s fiscal year officially ends on June 30, the comptroller’s office doesn’t close the books until late September. Though the numbers traditionally don’t change much after June 30, small portions of state revenues received during the summer still accrue to the outgoing fiscal year.
The Office of Policy and Management, the administration’s chief budget and policy planning agency, already has acknowledged that the fiscal year is anticipated to close in the red, requiring Connecticut to tap its emergency reserves for the second year in a row.
According to OPM Secretary Benjamin Barnes’ monthly budget report to Comptroller Kevin P. Lembo, which was released Wednesday, federal grants received and applied to the outgoing fiscal year are up $66 million from the last projection.
And estimates for several smaller revenue sources were increased by a total of $9 million.
But much of that improvement was offset by new projections that downgraded income and corporation tax receipts applied to 2015-16 by $25 million and $30 million, respectively. Both drops stem from quarterly filings submitted in June.
And since prior year’s 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 in mid-May for the fiscal year that began July 1.
The new report also represents the second negative tax revenue trend since the new budget was adopted.
The administration reported a $75 million drop in anticipated income tax receipts for 2015-16 in its June 20 budget report to Lembo’s office.
Connecticut has about $406 million in its emergency reserve, which is commonly known as the Rainy Day Fund. If Lembo certifies the administration’s latest projection, the state would need to draw $279.4 million from that reserve, leaving a balance of just over $127 million.
This represents only about two-thirds of 1 percent of annual operating costs, well below the 15 percent reserve Lembo’s office recommends.