Revised State Budget Deficit Estimates Might Trigger More Cuts - NBC Connecticut

Revised State Budget Deficit Estimates Might Trigger More Cuts

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    Revised estimates show Connecticut's current budget deficit has grown large enough to potentially trigger a mid-year, budget-cutting plan from Democratic Gov. Dannel Malloy.

    In a letter sent Monday to State Comptroller Kevin Lembo, Malloy's budget director said the current fiscal year is now projected to be $202.8 million in deficit. Ben Barnes says that's slightly more than 1 percent of net appropriations in the state's main spending account, the threshold requiring Malloy to issue a deficit-mitigation plan.

    Lembo would first have to confirm the figure.

    Barnes' letter comes a week after his office and the General Assembly's Office of Fiscal Analysis estimated the current fiscal year is $178.4 million in deficit. He blames the larger shortfall on changes made to a tax on hospitals that triggers federal reimbursement funds.

    THERE'S FINALLY A BUDGET. WHY DOES CONNECTICUT STILL HAVE DEFICITS?

    One major reason for the projected deficits is sluggish state tax revenue collections. The latest numbers show Connecticut's sales tax has so far generated $65.8 million less than first projected in the newly minted budget, while the personal income tax has fallen short by $34 million. The new budget, which lawmakers finally passed four months into the new fiscal year, did not increase the income tax or sales tax rates.

    "We are very reliant on those two taxes," said House Majority Leader Matthew Ritter, D-Hartford. "They're the major drivers. So, we'll have to see how they perform in the next couple of quarters of the fiscal year."

    Whether those deficit figures worsen could depend on several factors, including holiday spending, casino revenue and federal tax changes.

    "It's hard to predict when you're a state that relies so much on the income tax, so much on capital gains. And a lot of that is driven by what's going on in Washington," Ritter said. "So, we all wait and see."

    Long-range deficits have also been predicted by the Office of Fiscal Analysis, estimated at $1.8 billion in fiscal year 2020, $2.5 billion in 2021 and $3 billion in 2022. But lawmakers note how much can change by then, including the impact of various budgetary reforms included in the new budget plan.

    WHAT HAPPENS NEXT?

    One of the late budget fixes approved by lawmakers last week involves a complicated tax on Connecticut's hospitals, which triggers federal reimbursement funds. After the bill's passage, Malloy said his administration could proceed with its application to the Centers for Medicare and Medicaid Services, but warned "there are no guarantees when it comes to approval from the federal CMS agency."

    Chris McClure, a spokesman for Malloy's budget office, confirmed how this year's projected deficit could climb by about $156 million, and by roughly the same amount next fiscal year, if CMS does not approve the application.

    The current projected deficit is already close to requiring the governor to come up with a mid-year deficit-cutting plan.

    That threshold is reached when the deficit is certified to be greater than 1 percent of the state's main spending account, the general fund. In this case, that figure would be about $187 million.

    ANY OTHER WORRIES?

    Besides capital gains income, other revenue Connecticut depends upon could also be affected by what happens in Washington.

    State Treasurer Kevin Sullivan, a Democrat, has been warning the state's all-Democratic congressional delegation about the pitfalls in both the Senate and House Republican tax proposals, which could change in the coming days.

    Sullivan predicts the "long-term unfunded cost" of both plans will lead to large cuts federal funding, such as Medicaid, which is crucial for Connecticut.

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