Comptroller Kevin P. Lembo made it official Friday: In a letter to Gov. Dannel P. Malloy, the comptroller says the state is on pace for a $207.8 million deficit that exceeds the 1 percent threshold requiring the administration to prepare a deficit-mitigation plan.
The letter was not unexpected. Malloy warned the legislature last month that the recently adopted budget was not sufficient to avoid a deficit in the fiscal year that began July 1 and is now approaching its midpoint. The comptroller’s projection is slightly higher than the deficit projected last month by the administration’s Office of Policy and Management.
As did the administration, Lembo reported greater demand on the state’s adjudicated claims account because of claims and attorney fees in a settlement of litigation stemming from Rowland-era layoffs later deemed to be illegal and punitive. Lembo also warned of volatility arising from the tax-reform debate in Washington.
“Congress is considering significant modifications to federal tax law that could have profound implications for Connecticut, depending on what specific provisions, if any, are enacted,” Lembo said. “Future revenue forecasts will need to evaluate the consequences of any tax changes on the federal level.”
Senate President Pro Tem Martin M. Looney, D-New Haven, said legislative leaders will meet Wednesday with Malloy to talk about how to address the deficit.
Under state law, Lembo’s letter now requires the Malloy administration to produce a deficit-mitigation plan for review by the legislature. Legislative leaders already were considering returning in special session to address an issue that jeopardizes the ability of some low-income residents to get Medicare coverage.
Senate Republican leader Len Fasano of North Haven, who accused Malloy last month of inflating the deficit projections to embarrass lawmakers, said Friday that responsibility for the deficit projection does not rest with the legislature, which sent the governor a bipartisan budget on Oct. 26, nearly four months after the start of the fiscal year. Malloy’s office was not directly involved in crafting the bipartisan deal.
But Fasano said that even if the legislature had a passed a Democratic version favored by Malloy, there still would be a projected deficit.
“He can’t really claim it was the bipartisan budget,” Fasano said. But he acknowledged the problem is real, saying, “Yeah, we’ve got to get together and fix it.”
In a statement, House Minority Leader Themis Klarides, R-Derby, largely blamed the deficit projections on labor contracts, although the cost of those contracts was clear before passage of the budget.
“The deficit was expected because the state’s budget policies over the years have been built on false assumptions, that increasing taxes will be sufficient to meet spending levels,” Klarides said. “The deficits are organic and an organic fix is required. Connecticut’s finances will likely continue to suffer because of the state employee union contracts that tie up nearly 40 percent of the state’s budget.”
A labor concession deal negotiated by the Malloy administration is expected to save nearly $1.6 billion over two years.
The governor and lawmakers have jousted over the budget, with Malloy suggesting they return to make revisions.
Lembo said the legislature was aggressive in its assumptions of the savings Malloy could find.
“Another area of concern that will require close scrutiny is the aggressive level of savings included in the adopted budget,” Lembo said. “Achieving these lapse – or savings – targets will be a significant budgetary challenge, especially in light of the high levels of fixed costs for FY 2018, such as debt service payments, pension contributions and other costs.”
Malloy already has made $880 million in cuts for the current fiscal year, though most stemmed from his implementation of the concessions deal. But $91 million came in reductions to municipal aid, raising protests in the legislature.
The comptroller also cited economic indicators as reasons for concern.
“In recent years, Connecticut has not fully participated in the nation’s economic recovery,” Lembo said. “The national economy continues to exhibit growing signs of strength and resilience. However, Connecticut’s economy has experienced much more mixed results across a variety of key economic indicators.”
Connecticut has recovered 72.5 percent of the 119,100 jobs lost in the Great Recession of 2008. The recovery began in February 2010, but the state reported a net loss of 6,600 jobs in October. Revised figures showed a slight gain in September.
In a report released nine days ago by the U.S. Bureau of Economic Analysis about gross domestic growth in the second quarter, Connecticut’s annual growth of 1.4 percent was ahead of New York’s, but 43rd among all states and last in New England.