“Budgetary quicksand” – State in deficit for 2014-15 fiscal year[CT Post]

July 2, 2015

CT Post

The fiscal year that ended at midnight Tuesday was $115.7 million in the red, with a chance to rise as the state tidies up its books over the summer.

The deficit is likely to prompt Gov. Dannel P. Malloy to dip into the state’s nearly $520 million emergency reserves, called the Rainy Day Fund, for the first time since taking office in 2011.

Republicans warned it’s another sign of the state’s fragile economy and a new two-year, $40.3 billion budget that spends too much.

State Comptroller Kevin Lembo, a Democrat, said Wednesday that better-than-expected revenues, mostly in corporate taxes, cut the deficit by about $49 million over the last month.

“These projections will undoubtedly undergo further adjustment as accounting corrections continue to be posted after June 30 and revenue and expenditure accruals are processed,” Lembo said in a letter to Malloy.

“Any remaining General Fund deficit for Fiscal Year 2015 will be eliminated through a transfer from the Budget Reserve Fund,” Lembo said. “While some revenue categories have exceeded expectations — such as the corporation tax — overall economic growth has remained relatively stagnant. The recovery from the last recession has been slower and more gradual than we need, and unlike any other we’ve experienced.”

Republican leaders on Wednesday said the lingering deficit calls into question many of Malloy’s budget pronouncements, both this year and last.

House Minority Leader Themis Klarides, R-Derby, one of the chief critics of the budget that Malloy signed Tuesday and took effect Wednesday when the previous fiscal year ended, said Malloy’s re-election campaign promises seem misleading.

“The governor repeatedly insisted, going back to 2014 that there would be no deficit on July 1 because he alone was taking steps to fill the deepening budget hole that we saw every month,” she said in a statement. “Over and over again, he assured Connecticut that his stop-gap steps would fix the problem. Well, it is July 1 and, remarkably, we have a deficit.’’

Budgetary quicksand

Another critic of the budget pushed through after negotiations between majority Democrats and the Democratic governor, Senate Minority Leader Len Fasano, R-North Haven, said while Malloy — during the election campaign and in his February budget proposal — promised not to raise taxes, in the end, he approved the second billion-dollar-a-year tax hike in four years in office.

“We cannot ignore the fact that we are in financial trouble,” Fasano said. “For the past eight months the governor ignored all the warning signs that a budget shortfall was imminent. And now his only option is to use our state’s emergency cash to make up the difference. That’s irresponsible, not to mention dangerous. The state budget is like quicksand, and taking from the Rainy Day Fund is the first sign of Connecticut sinking.”

Devon Puglia, spokesman for Malloy, said the deficit estimate will become clearer as the accounts of the old fiscal year get totaled up.

“The bottom line is we have to wait and see what the numbers look like over the next couple of months,” Puglia said. “We may very well come in right on target. But let’s also put this in perspective. We’re talking about tiny fraction of a $40 billion budget.”

In fact, the $115.7 million deficit is about six-tenths of one percent of the $20 billion annual budget that ended at midnight Tuesday. But it’s 22.25 percent of the Rainy Day Fund.

Gian-Carl Casa, spokesman for the Office of Policy and Management, the governor’s budget office, said Wednesday the reserves are robust.

“The Rainy Day Fund was at zero when the governor took office,” Casa said. “Now it’s at half a billion dollars, through the governor’s effective management and budgeting. Bond rating agencies see this as important. A healthy Rainy Day Fund will continue to be one of the governor’s priorities.”