Faltering state income tax revenues left Gov. Dannel P. Malloy reporting his largest budget deficit to
date on Friday.
And unless tax receipts reported this week by nonpartisan
legislative analysts improve, Malloy's budget plan for next year -- including a
state employee pension fund fix and increased education aid to towns -- could
be out of balance now and headed for more than $500 million in red ink by
2013-14.
The governor's budget agency, the Office of Policy and
Management, reported that the general fund in this year's $20.14 billion budget is $66.9 million in deficit. Malloy needs to finish $75 million in surplus
this year to maintain the ongoing conversion of state finances to Generally
Accepted Accounting Principles, and the administration now faces a $142 million
hole.
"The state is in the middle of the year's busiest two
weeks for tax collection," OPM Secretary Benjamin Barnes said Friday, referring to the
rush of income tax filings the state has been receiving in the days before and
after the April 17 deadline.
"While early receipts are below targets, it is too soon
to draw any firm conclusions about our income tax results for the year."
Barnes also warned of an "emerging shortfall" in
the Medicaid program that could involve more than $90 million in cost overruns.
But it's the income tax -- and particularly its most
volatile component, that was threatening not only the current budget, but
Malloy's plans for next year.
The $20.7 billion plan the governor offered in February for
the fiscal year that starts July 1 was balanced -- but only for 12 months.
According to the administration's own numbers, that plan would slip $424
million into deficit by 2013-14.
More than half of the new spending in that budget was
dedicated to shoring up the state employee pension fund and increasing
education cost-sharing grants to cities and towns by $50 million. And while
Republican legislators argued the proposed new spending was not sustainable,
administration officials defended the plan, noting they still had time during
the 2013 General Assembly session to deal with the projected shortfall.
But key lawmakers from both parties on the Finance, Revenue
and Bonding Committee said the state can't afford to take a wait-and-see
approach any longer.
"We have no fiscal cushion. We have cash flow problems.
The governor wants more spending and we're slipping into deficits," Rep. Vincent Candelora, R-North Branford,
a veteran member of the Finance panel, said. "There was no room for error
when he proposed his budget" in February, "and now we're seeing more
problems with our revenues."
According to memos prepared by the nonpartisan Office of
Fiscal Analysis and released by Candelora, receipts
for capital gains, dividends and other earnings paid quarterly are running more
than $116 million below expectations
for April.
Income tax receipts from investment earnings are very
volatile and can fluctuate by tens of millions of dollars from day to day at
the tax filing deadline.
But if this year's income tax receipts remain more than $100
million below expectations -- and if projections for future years are downgraded
in similar fashion -- the Democratic governor's new plan isn't balanced even
for one year.
And Candelora said he fears that
Malloy and the legislature's Democratic majority will try to solve it next
January -- after the November legislative elections -- with more tax increases.
Malloy and the legislature ordered $1.6 billion in state and
municipal tax hikes one year ago to close a huge budget deficit.
"I don't think you're going to find much appetite for
any new revenue legislation, either this year or looking ahead to next year's
session," Rep. Patricia Widlitz,
D-Guilford, co-chairwoman of the committee, said. "We were very aggressive
about raising new revenue last year."
Barnes said, "OPM continues to take every available
step to end the year in balance and may take additional steps after consensus
revenue is complete as warranted."
Friday's deficit forecast marks the first time that the
Democratic governor reported a deficit. Last month the administration reported
the general fund still to be $12.4 million in surplus.
Comptroller Kevin P. Lembo
projected budget deficits in each of his past two monthly reports, including a
$45.8 million shortfall announced on April 1. The Office of Fiscal Analysis has
been tracking state finances in the red largely since the calendar year began,
and reported a $124.4 million deficit on March 26.
And neither of those gaps, $45.8 million or $124.4 million,
reflect the additional $75 million needed to fulfill Malloy's GAAP pledge.
The governor repeatedly has promised to maintain his planned
conversion to a series of common financial guidelines established by the
Government Accounting Standards Board to emphasize transparency. Unlike the
modified cash basis state government has long used, GAAP rules require that
funds be on hand to cover expenses as they are incurred.
State government would need another $1.7 billion in its coffers
to cover all its obligations under GAAP rules. And that differential grows
annually with inflation.
The $75 million surplus Malloy needs this year would be used
only to cover that inflationary cost and stop the GAAP differential from
growing
http://www.ctmirror.org/story/16092/faltering-income-tax-widens-deficit-threatens-malloys-budget-coming-year