State Budget Deficit Jumps To $121 Million – Partly Due To Low Gas Prices [Courant]

January 21, 2015

The Hartford Courant
In a surprise, the state budget deficit has jumped to $121 million for the current fiscal year as gasoline tax revenues have fallen off sharply, according to the governor’s budget office.

Gov. Dannel P. Malloy will “announce additional rescissions in the very near future” to close the fiscal gap with spending cuts for the fiscal year that ends June 30, according to budget director Ben Barnes.

Besides falling tax collections, the state is also facing $120 million in overspending in the Medicaid account due to lower-than-expected federal reimbursements, fewer cost savings than projected, and increased enrollment in the number of citizens needing healthcare coverage.

Barnes released the new estimate Tuesday in a monthly letter to the state comptroller, which is required under state law. The changes were a surprise because they came soon after the consensus revenue estimates were released last week by the governor’s budget office and the legislature’s nonpartisan fiscal office.

Tax collections are down by a net $39.3 million from the most recent forecast due largely to falling oil prices.

Since the state’s gross receipts tax on petroleum is based on the wholesale price, the amount of money collected will fall as the price of gasoline falls. When the prices plummet sharply as is the case recently the downturn runs into millions of dollars.

In another change, the state is expected to collect $10 million less than projected because more personal income-tax refunds have been issued than originally estimated.

At the same time, the amount projected to be collected in sales taxes has been revised upward by $10 million a positive sign but is still largely flat in an annual sales tax collection of $4.22 billion.

With the series of plusses and minuses in taxes, the overall net drop in projected revenue that was reported Tuesday was $39.3 million.

Besides the deficit in the general fund, Malloy is also projecting a small operating deficit of $2.7 million in the $1.3 billion Special Transportation Fund. That fund has been in the news lately as Malloy and legislators have called for a constitutional amendment to prevent any money set aside for transportation from being used for other purposes. The fund has been raided through the years as governors and the legislature have switched money to help shore up the general fund.

Part of the problem in the transportation fund is there is a $20 million shortfall in the rail operations account of the state transportation department that is “related to operational costs associated with Metro North,” Barnes wrote.

Barnes also cautioned in his letter to Comptroller Kevin Lembo that the numbers will likely change again before the fiscal year ends in June.

“As always,” he said, “it is important to note that while this is the best forecast that can be made at this time, estimates may need to be adjusted as the year progresses to reflect changes in the economy, expenditure patterns, and or other factors.”

Senate Republican leader Len Fasano of North Haven said that the state’s financial problems have not gone away.

“Connecticut’s deficit is growing yet again, and our financial situation is worsening,” Fasano said. “Projected revenues are down, planned savings have not been achieved and we continue to face a gaping and growing hole that needs to be plugged immediately.”

As he has since December, Fasano called for bipartisan talks to cut the budget deficit. His requests for a special session and for talks have been rejected by Malloy and the top Democratic leaders who control the legislature.

“This was a problem yesterday, and it is an even bigger problem today. I just don’t get it.” Fasano said. “Is there simply an inability to talk to Republicans? Every day that goes by without bipartisan action is a step in the wrong direction. But we cannot change direction until state leaders open up their doors and work across the aisle to weed out the problem, reprioritize spending, and identify a long-term solution. When it comes to state finances, everyone is disheartened by the perpetual bad news. So let’s work together to fix the problem here and now.”