Malloy administration issues warning: Spending nears cap [Waterbury Rep-Am]

September 22, 2011

Story as it appeared in the REPUBLICAN-AMERICAN on 9/21/11

The Malloy administration is warning that additional budget demands could push government spending over the constitutional spending cap.

If unaddressed, the governor’s budget office is now projecting spending will be $2 million over the cap. The adopted $20.1 billion budget is just $1 million below the mandated spending limit.

The Office of Policy and Management disclosed the troubling development in its monthly budget report to the state comptroller’s office. The fiscal year started on July 1.

OPM Secretary Benjamin Barnes stated in the report that spending must be brought in line with budgeted appropriations in order to remain within the cap’s limits. The report did not make any specific recommendations.

“It is certainly a cause for concern,” said House Speaker Christopher G. Dononvan, D-Meriden.

Yet, he said it is also early in the budget year and OPM’s September report is only a projection. He said the administration and legislature are going to have to monitor spending as the fiscal year progresses.

If necessary, Barnes said, additional spending demands will have to be offset through corresponding cuts or savings elsewhere in the budget

“We cannot exceed the spending cap,” he said.

The $1 million cushion that Gov. Dannel P. Malloy and the Democratic-controlled legislature adopted is the smallest since the spending cap was enacted in the early 1990s. The cap limits yearly budget increases to the rate of inflation, or a rolling five-year average of state income tax collections.

Malloy and Democratic leaders had downplayed the possibility of the cap being exceeded. Republicans doubted Democratic assurances that spending would remain under the cap.

Sen. Robert J. Kane, R-Watertown, said the OPM report appears to confirm Republican doubts. He is the ranking Senate Republican on the budget-writing Appropriations Committee.

“I am not surprised at all. I figured sooner or later this would happen, but unfortunately it is sooner,” Kane said.

Sen. Len Suzio, R-Meriden, said he could tell the $1 million cushion would be inadequate after only a couple of months in the legislature. He won a special election in February. The two-year, $40.5 billion budget passed in early May.

Revenues are also a question mark. OPM reports that revenue projections remain unchanged. However, the administration will not have a more solid handle on tax collections until November.

The federal and state governments have extended tax filing and payment deadlines because of Hurricane Irene. As a result, this will delay the reporting of revenues for September until the end of October.

This means the administration will not have a more accurate estimate of how tax col- lections are matching adopted revenues until November.

In the meanwhile, the legislature and the administration must adopt new joint revenue estimates on Oct. 15. Barnes said OPM and the legislature’s budget office will have to base the revenue projections on whatever tax information is available.

Also, the monthly OPM budget report cautioned that the administration may have to change revenue estimates in the coming months because of economic uncertainties.

The two-year budget that Malloy and Democrats approved raises spending $909.4 million this year and $259.2 million next year. Kane said the report from OPM also suggests Republican calls for spending cuts were justified.

At this time, OPM reports additional spending requirements are exceeding budgeted appropriations by $17 million. An anticipated savings in the debt service account offsets $15 million of those budget deficiencies.

The Department of Social Services is running a $15 million shortfall in its Medicaid account for low-income adults. The Public Defenders Services Commission needs $2 million more to resolve payments to contracted child protection lawyers.

Barnes also warned in OPM’s monthly budget report that overexpenditures could affect plans for changing state accounting and budgeting practices.

The state government is converting to Generally Accepted Accounting Practices. The Government Accounting Standards Board’s far more rigid GAAP rules take full effect in 2013.

The transition involves some long term costs because GAAP forces the state to begin paying down liabilities on pensions and retiree health costs.

The budget assumed a $78.9 million surplus. Barnes noted in OPM’s monthly report that $75 million has been earmarked for GAAP transition. He said any shortfalls will reduce the projected surplus.