Connecticut’s fiscal budget is running in the black, but that financial cushion won’t last if Washington cuts millions in state aid as part of the deal to raise the country’s debt limit, state Comptroller Kevin Lembo warns.
In his monthly financial report Monday to Gov. Dannel P. Malloy, Lembo said that, after the state repealed borrowing of $646.1 million to pay for operating expenses, the state’s projected General Fund surplus for fiscal 2011-2012 has reached $158.9 million.
But there is not much financial flexibility for the state, since those funds have already been allocated to pay off debt and to fund future liabilities, Lembo said.
Additionally, Lembo said the surplus was largely a result of one-time financial fixes, including $739.6 million in federal stimulus money that helped fill holes in the state’s budget. Without those funds the state would have likely had a deficit over $1 billion, Lembo said.
“We reached this surplus using a federal lifeline that has now disappeared,” Lembo said. “A looming vote on the federal debt puts a dark cloud over Connecticut’s financial outlook. Dollars that we depend on year after year could suddenly disappear if federal spending cutbacks result in drastic funding cuts to Connecticut. One year’s federal stimulus money could become another year’s devastating federal cutbacks.
Lembo also said the state’s high unemployment rate, continuing downward pressure on home prices, and the federal debt debate could compromise the state’s fiscal outlook.
“These economic uncertainties reinforce my position that the state must plan for its own economic health and rebuild its Budget Reserve Fund – or Rainy Day Fund – to protect taxpayers against market volatilities,” Lembo said. “I will continue to urge the legislature – as I did earlier this year – to increase the Budget Reserve Fund cap to 15 percent.”
