Two reports released in the past two weeks by the state Office of Policy and Management detailed the grim fiscal picture for Connecticut.
Office of Policy and Management Secretary Ben Barnes authored a report released Tuesday that shows the state suffering from a $64.7 million budget shortfall. This follows the Consensus Revenue Report, released on Jan. 15, that revealed the state’s revenue coming in about $163 million dollars below the projections originally used to calculate this year’s budget.
These struggles come a month after a bipartisan deficit mitigation plan passed in December that included major cuts and cost savings, but failed to curtail the shortfall completely. Gian-Carl Casa, undersecretary for legislative affairs at the Office of Policy and Management, said his office was not surprised by the shortfall.
“The economy and state government finances are extremely difficult to project in these unusual times, particularly given the significant shifts in income tax revenue that occur surrounding the dates of major tax changes,” Casa said.
According to sources from both sides of the aisle in Hartford, it is unlikely that any immediate action will be taken until Gov. Dannel Malloy releases his budget for the coming two fiscal years, which he is expected to do in about two weeks. Most of the debate over how to address the state’s budgetary challenges — which Pat O’Neil, press secretary for House Republican Leader Larry Cafero, described as a potential shortfall of up to $1 billion over the next two years — will occur in the Legislature following the release of the governor’s budget.
State law does not require the governor to submit an emergency fiscal reduction package until the deficit is greater than 1 percent of the total state budget, which is about $20 billion. While Malloy was forced to propose such a package in December, the current deficit has not yet reached that level.
Malloy is working to present a balanced budget for the coming years, said Adam Joseph, communications director for the Senate Democrats.
“Job creation and economic growth in the state has been a top priority, and the budget is an opportunity to set the stage for economic growth,” Joseph said.
While both parties agree that the budget should be balanced, they approach the issue differently.
Republicans in the House blame budget shortfall on the massive tax increase passed last year and think spending cuts will lead to both a balanced budget and economic growth.
“[The solution is] cutting spending, which we’ve never done,” O’Neil said. “The current budget when this year ends, before we took any action, [had] a net total of [a] 5.5 percent spending increase.”
Many options for cutting the deficit have been exhausted, O’Neil added, citing a downgrade in the state’s credit rating a year ago and the deal struck by the governor with major state labor unions a year ago, which prevents layoffs to state workers for another two years.
Larry Dorman, the spokesman for Council 4 AFSCME, which represents over 30,000 state and municipal employees in Connecticut, said that workers made immense sacrifices in salaries and health care and pension benefits in 2011, when they agreed to a concession package negotiated with the state. He said that the focus of budgetary decisions should be on reaching comprehensive solutions like raising revenue.
“The last time I checked, keeping middle-class workers employed is good for the economy, not bad,” Dorman said. “The state would be in a sufficiently worse position if we had not agreed to the concession package.”
He said the union is working in coalition with other groups, including New Haven nonprofit Connecticut Voices, to make recommendations about raising revenue.
Economist Steven Lanza, the executive editor of The Connecticut Economy, a publication of the Economics Department at the University of Connecticut, said that both raising taxes and reducing spending have the effect of slowing economic growth. The growth rate of the national economy has been slower than following previous recessions, Lanza added, requiring difficult budgetary decisions to be made.
He said that short-term effects are going to be similar no matter where funding is cut, as the government will buy fewer goods and services. But he added that preserving funding for initiatives that help the economy gain productivity — like investments in technology and education — is important to long-term growth.
“Hopefully we will make the tough choices, live within our means and hopefully the economy will pick up this year or next year,” Lanza said. “I think a lot of economists are cautiously optimistic.”
According to state reports, sales tax revenue is down $159.7 million compared with projections used in the budget.