HARTFORD — Financial analysts expect the state’s budget deficit for the next fiscal year to grow to $960 million as revenues have continued to decline, Gov. Dannel P. Malloy’s budget chief said Friday evening.
The figure represents an increase of between $30 million and $40 million in expectations for next year’s budget hole, depending on the spending proposal being discussed.
The governor’s budget chief, Benjamin Barnes, said revenue trends — particularly in taxes paid on investment earnings — indicated a need to revise downward beyond the figure that Malloy and lawmakers had been using to craft their deficit mitigation plans.
“It was a down year, and a lot of people made a lot less money than they did the year before, particularly those who rely on capital gains,” said Barnes, who heads the Office of Policy and Management.
However, Barnes, who talked with reporters in anticipation of the legislature’s Office of Fiscal Analysis releasing its report on the consensus revenue figures, said the drop was offset, though, by some positive revenue returns in other areas.
He said specifically that he expects windfalls in miscellaneous revenues, particularly $40 million from settlements being negotiated by Attorney General George Jepsen’s office.
Barnes also said analysts expect income tax receipts from paycheck withholding to continue “slower growth” than during other periods of economic recovery.
“I think we have reached sort of a new economic reality in which those sort of bread and butter taxes, like sales and withholding taxes, grow more slowly than they have been in previous years,” he said.
The assessment comes just one day after Democratic legislative leaders presented a plan to cut $920 million of the deficit.
Malloy’s own revised budget plan would reduce spending by $922 million, while Republicans unveiled a budget fix this week that would result in reductions totaling $936 million.
Barnes, who declined to comment on the status of negotiations between the governor and legislative leaders, said the revised revenue numbers mean the “problem’s got a little harder.”
House Speaker J. Brendan Sharkey, D-Hamden, agreed that budget negotiations will need to include finding an additional $40 million in cuts.
“There’s no question it’s a new reality,” he said. “If anybody doesn’t believe that we have a new reality, this continued trend should be ample evidence that we have to change.”
Senate Minority Leader Leonard Fasano, R-North Haven, though, said the numbers show the “devastating financial reality” that Democrats approved last June, but are now “misleading the public to cover up.”
“Let’s be clear about why the Democrats are taking this path,” Fasano said in a statement, accusing them of “doing anything and everything to avoid facing the truth.”
He also criticized Democrats for relying on the $40 million from legal settlements to help balance the 2016-17 budget, noting it’s a one-time revenue stream “the state has yet to actually gather.”
Barnes also said the drop in revenues means the state is currently facing a $256 million shortfall for the current year, although he’s optimistic that spending cuts can reduce that deficit.
“I’m hopeful that some of our efforts to constrain spending will yield additional results this year,” he said, adding the state has had a hiring freeze and other cost-saving measures in place.
Barnes said the state will have to tap the Rainy Day Fund, which has more than $400 million available, to close whatever deficit remains at the end of the fiscal year in June.
Friday’s projection represents a roughly $115 million drop in revenues from the number Barnes shared with Comptroller Kevin Lembo in an April 20 letter.
The deficit remains despite two mitigation plans, approved by the legislature, that resulted in a $570 million in combined spending cuts and revenue changes.
Lawmakers approved, with bipartisan support, a $220 million package of reductions in March, while a separate package during a December special session shaved $350 million off the deficit.
For more state legislature coverage go to: www.journalinquirer.com.
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