HARTFORD, Conn. — As Connecticut lawmakers made last-minute fixes last week to the newly passed, two-year, $41.3 billion state budget, they learned the bipartisan tax-and-spending plan is already in the red.
Consensus revenue estimates released by Democratic Gov. Dannel P. Malloy’s budget office and the General Assembly’s nonpartisan fiscal office project the current fiscal year will end $178.4 million in deficit, while the new fiscal year beginning July 1 will be $147.1 million in the deficit.
News of more red ink was disappointing but not surprising for legislative leaders who negotiated throughout the summer before finally reaching a bipartisan agreement last month that covered a two-year, $3.5 billion deficit. Lawmakers know their work is not done.
“There’s no end for the time-being. There just isn’t,” said House Minority Leader Themis Klarides, R-Derby.
A look at Connecticut’s continuing budget challenges:
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.