Sen. Kane: GOP gave budget warnings while Gov. Malloy dawdled (Republican-American)

April 2, 2015

Article as it appeared in the Waterbury Republican-American

How big is the state deficit?
Governor, comptroller disagree on what to do, but more cuts ordered


HARTFORD — Comptroller Kevin Lembo is recommending that Gov. Dannel P. Malloy and the legislature start planning right away how to close an estimated $172.8 million budget shortfall.

The Malloy administration rejected Lembo’s recommendation for quick action. Instead, the administration plans to wait on developments over the next two months while the legislature is meeting.

Meanwhile, the governor’s budget office announced an additional round of $13.7 million in spending cuts aimed at reducing the projected deficit. The announcement came shortly after Lembo released his monthly budget report for April on Wednesday morning.

The comptroller office’s latest deficit forecast is $40 million higher than the $132.8 million shortfall than the Malloy administration’s most recent estimate, due to lower-than-estimated income tax collections, a potentially ominous development.

The administration is counting on strong income tax receipts to balance this year’s $19 billion budget. Similar expectations were dashed last year when taxes on capital gains came up approximately $400 million short.

The comptroller’s $172.8 million estimate is just shy of a threshold that would trigger a state law that requires Malloy submit a plan for reducing the deficit to lawmakers.

One top Republican lawmaker on the Appropriations Committee questioned if Lembo manipulated his budget estimate to avoid that scenario. In the past, GOP leaders and Lembo have disputed the accuracy and independence of the comptroller’s estimates.

“Because my current estimate is so close to the mitigation trigger and only three months remain in the fiscal year, I recommend that deficit reduction planning with the legislature should proceed without delay,” Lembo said.

Benjamin Barnes, the governor’s budget director, rejected the comptroller’s recommendation.

“If it proves to be the case that we have to do deficit mitigation it will be part of the end-of-session budget negotiations,” he said.

FINAL NEGOTIATIONS ON the next two-year budget plan will not start until after the legislature’s two Democratic-led budget committees adopt spending, tax and bonding packages later this month. The regular session ends June 3.

Republican leaders have been calling for bipartisan action since the Office of Policy and Management first reported a budget shortfall in November just after the governor’s re-election.

“We have seen this fire on the horizon for a while, and unfortunately now they are just acknowledging part of the problem,” said Sen. Robert J. Kane, R-Watertown, the ranking Senate Republican on the Appropriations Committee.

He said Republicans have been warning that available options would keep dwindling as Malloy and the Democrats continued to delay and dawdle in hopes of a turnaround.

House Minority Leader Themis Klarides, R-Derby, said Malloy has consistently underestimated the depth of the budget shortfall.

“This was all predictable and avoidable had he taken us up on our repeated offers to address our vanishing revenues,” she said. “Now it is likely too late do anything except a thousand tiny cuts as the budget continues to crumble.”

Senate Minority Leader Leonard A. Fasano, R-North Haven, said he suspects Malloy will propose tapping the state’s $519 million rainy day fund.

“I fear the budget reserve fund is now the only way to close this shortfall,” he said.

UNDER STATE LAW, IF THE comptroller reports a deficit equal to 1 percent of the general fund, the governor must propose a plan for closing the gap to the General Assembly. The threshold is $174.6 million.

Lembo reported the most significant revenue shortfalls are related to federal grants, the health provider tax and the income tax. The comptroller’s office saw notable gains in the sales and corporation taxes.

Federal grants are down $106.2 million. The health provider tax is raising $49.4 million less from the 27 hospitals that pay it. Income taxes are off $40 million.

Sales taxes are up $58.8 million, and the corporation tax is doing $30 million better than anticipated.

The decline in the income tax receipts could be troubling.

Last year, the administration and comptroller’s office had incorrectly predicted the continuation of a surge in capital gains taxes that occurred after the partial expiration of Bush-era federal tax rates at the end of 2012.

Instead, capital gains cratered, wiping out most of an anticipated $500 million-plus surplus and Malloy’s plans for it, including providing $155 million in tax refunds.

In the comptroller’s March report, Lembo questioned if income tax receipts would match the Office of Policy and Management’s expected level of increase.

The March report said estimated quarterly payments of income taxes through January had grown 4.9 percent over the last year. The January payments have provided an indication of the final payments that can be expected in April.

The comptroller’s office said OPM was counting on the largest increase between January and April in a decade.

Kane said he is doubtful that income and capital gains taxes will bail the administration out of the current budget problem.