If the absence of bad news is good news, then Connecticut received the latter Tuesday when analysts released their latest revenue projections for the state budget.
General Fund revenues for this fiscal year and each of the next two have grown — but by a tiny fraction of 1 percent in each case — according to a consensus report from Gov. Dannel P. Malloy’s budget agency and the legislature’s nonpartisan Office of Fiscal Analysis.
And while that might seem mild at first glance, these reports predominantly have downgraded earlier growth projections since they began eight years ago.
The latest revenue growth does eliminate the small deficits projected for the current fiscal year by the Malloy administration and by Comptroller Kevin P. Lembo.
But it does very little to mitigate the 8 percent deficits state finances are headed for in the 2017-18 and 2018-19 fiscal years, based on current spending and revenue trends.
“This consensus reflects our cautious confidence about Connecticut’s economy,” Office of Policy and Management Secretary Ben Barnes, Malloy’s budget director, said. “Corporate profits and equity markets appear to have ended 2016 strong, offsetting mixed results in some other revenue areas. … Our collective challenge to balance the biennial budget remains daunting, but we appreciate that growing revenues appear to be making that task a little bit less so.”
Malloy, whose proposal for the next state budget is due to legislators on Feb. 8, must use the consensus projections included in Tuesday’s report.
Most of the good news in the current fiscal year stems from the settlement last week of a multi-state lawsuit against Moody’s Investors Service over the credit agency’s ratings mistakes leading up to the 2008 Wall Street collapse.
Connecticut’s share of that settlement was $31.5 million. This payment, coupled with further growth in corporation tax receipts, led to an overall projected growth in General Fund revenues this fiscal year of $56.7 million.
That is enough to wipe out the deficit forecasts of $41.6 million from the Malloy administration and $56.2 million by Lembo.
But both the administration and the comptroller have warned they remain concerned about several areas of the budget, including aggressive savings targets yet to be achieved involving state agency salary accounts.
The corporation tax growth also was enough to offset further downgrades in the coming years involving the state’s two chief revenue engines: the income and sales taxes.
Analysts agreed to downgrade income and sales tax revenues combined for each of the next two fiscal years by just over $50 million. But they also bumped up expectations for corporation tax receipts in 2017-18 and in 2018-19 by more than $80 million annually.
That means the overall General Fund revenue forecast improved by $31 million for the upcoming fiscal year, and by $23.4 million in 2018-19. Compared with overall revenues, the growth represents less than one-fifth of 1 percent in the first year and less than one-eighth of 1 percent in the second.
That means Connecticut still faces more than $3 billion in potential red ink in its next two years budget unless adjustments are made.
Even after the new revenue growth is factored in, nonpartisan analysts project a $1.42 billion deficit in 2017-18 and a $1.60 billion shortfall in 2018-19.
“Connecticut will continue to struggle to meet its financial obligations in the two years ahead,” said House Minority Leader Themis Klarides, R-Derby. “Today’s consensus figures underscore the very issues highlighted by the ratings agencies that have taken a dim view of Connecticut’s fiscal outlook: the volatile nature of our revenue streams. This will continue to hamstring our ability to erase perpetual deficits absent meaningful structural changes on the spending side.”
“This one-time funding is not a fix by any means to reform state spending.,” Senate Republican President Pro Tem Len Fasano of North Haven said of the legal settlement revenue. “With a budget deficit of over $1 billion already projected for next year, it’s discouraging to see that the answer to this year’s problems has consistently been to wait, see and hope for something better. Our state needs predictability and stability. We need to base our budgets on real numbers, not one time revenues. From the start, we have to budget using money that we have, not money that we find after the fact.”