Lembo says all is not bleak in CT’s fiscal forecast
State Comptroller Kevin P. Lembo found a few rays of sunshine Thursday in Connecticut’s otherwise gloomy fiscal picture.
One day after analysts briefed the legislature’s budget panels on surging retirement benefit and other debt costs that could imperil state finances through the early-to-mid 2030s, Lembo peppered his monthly budget forecast with “positive economic indicators that are worth highlighting.”
But after projecting a relatively modest $82.3 million deficit in the current budget, he also acknowledged that even the good news hinges on volatile conditions that may or may not improve Connecticut’s outlook in the coming months.
Here are those highlights:
- Based on data through October, state income tax receipts tied to paycheck withholding — the single-largest source of state revenue — are up 1.5 percent over last fiscal year.
- While Connecticut lost 7,200 jobs in October based on the survey of businesses conducted by the U.S. Bureau of Labor Statistics, a competing household census survey has been pointing to job gains.
- Connecticut’s personal income grew at 4.5 percent in the second quarter of 2016, exceeding the prior year.
- Home prices are rising even faster than wage gains. The median price for an existing home sold in October was $232,200, up 6 percent.
- Home sales increases of 4.6 percent in October compared with the same month in 2015.
- And retail sales nationally were up 4.3 percent through October compared with the prior year. Gains in September and October were the largest two-month increase since the spring of 2014.
Lembo also said Connecticut still has a chance to finish in balance this fiscal year, though that largely hinges on two factors: income tax receipts and cost-cutting efforts.
The first involves the portion of state income tax tied primarily to capital gains and other investment earnings. Traditionally this has been one of the state’s most volatile revenue sources.
“By the third week in January, a more reliable trend for this tax component will be apparent,” Lembo wrote, adding that “the payroll-driven withholding component of the income tax (also) historically experiences its strongest receipts between December and March.”
The second factor behind the $82.3 million deficit in the current budget — about $59.1 million — is tied to overspending.
Lembo noted that the budget relies on state agencies achieving more than $200 million in unspecified savings — a challenging target.
“That is not historically high, but follows successive years of cost-cutting, which could make it difficult to achieve,” Lembo wrote.
Gov. Dannel P. Malloy’s budget director, Ben Barnes, told legislators Wednesday that the administration remains confident it can close this deficit before June 30.
Lembo’s $82.3 million deficit projection is about $14.6 million higher than the Malloy administration’s, but both represent less than one-half of 1 percent of this year’s General Fund.
“As we note each month, our estimate represents the best forecast that can be made given the information available to us,” Chris McClure, spokesman for the governor’s budget office, said Thursday. “Future estimates will undoubtedly differ as a result of changes in the economy, expenditure patterns, and/or other factors as the year progresses. We do not believe that there is a material difference between our projection of November 20 and Comptroller Lembo’s letter. … We will continue to work to eliminate this deficit through spending restraint at the agency level, and will continue to report our progress to the comptroller each month.”
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