State Comptroller Kevin Lembo reported today that the state’s deficit has increased $4 million to $122.4 million. He said that accounts for about $102.8 million in previously announced rescissions in spending.
In a letter to Gov. Dannel P. Malloy, Lembo said the Office of Policy and Management’s latest deficit projection is feasible based on its past success in achieving overall budgeted savings goals. However, Lembo said the ongoing collaborative budget talks involving the administration and legislative leaders still need to trim up to $370 million in light of troubling economic trends over the past two months.
“I am very concerned about more recent disruptions to the state’s positive economic trends,” Lembo said in a statement. “Of greatest concern are the last two consecutive months of state job losses and the related negative impact on the withholding portion of the income tax.” He said $350 million is a reasonable reduction target.
That projection could change if interest rates rise, Lembo added. He said it would limit the state’s ability to realize future savings in debt service through low borrowing costs and related bond premiums received by the state treasurer.
Lembo said there are several economic factors that will continue to influence the state budget going forward and must be watched. “Part of the state’s slow withholding growth can be attributed to the distribution of job gains by employment sector during this recovery. The financial services sector pays wages that are more than 50 percent above the statewide average for all sectors – however, the financial services sector remains 14,700 jobs (10 percent) below its pre-recession level,” he said.
He said downturns in the national economy could also impact the state budget deficit. “Our state economy is linked to the national economy which, in turn, is dependent on the global economy. Global economic events have generally constrained domestic growth,” Lembo added.
