The state comptroller announced Tuesday the state faces a $219.9 million deficit because of expected revenue erosion.
In a letter to Gov. Dannel P. Malloy, Comptroller Kevin Lembo said that he agrees with the legislature’s Office of Fiscal Analysis’ (OFA) recent revenue briefing that reduced the January consensus income tax estimate for fiscal year 2016 by $200 million.
“I cautioned last month that I was concerned with the potential for further erosion in the consensus revenue forecast,” Lembo said. “Economic data now supports a downward adjustment in that forecast. This projected deficit – now exceeding 1 percent of the state budget (1 percent is $181.6 million) – should prompt renewed collaborative mitigation efforts.”
Lembo said the payroll withholding portion of the income tax, which contributes over 60 percent of total collections, continues to show moderate growth. However, the estimated payment portion of the income tax – which is more volatile and largely influenced by stock market conditions – was 4 percent below last fiscal year as of January.
“In nine of the past 11 fiscal years, final payments have moved in the same direction as estimated payments,” Lembo said, adding this historical pattern raises serious concerns regarding April final payment receipts.
The comptroller said for the deficit not to grow more it is imperative that the Office of Policy and Management (OPM) achieve its spending reduction targets of $87.8 million below the budget plan for the current fiscal year. OPM is attempting to achieve $350.5 million in General Fund savings, which is $149.9 million above the original budget plan.
This savings target includes the spending reductions adopted late last year and other forced savings, which are partially offset by $62.1 million in agency deficiencies, the comptroller added.
Lembo said there is a one silver lining for Connecticut. “Despite the revenue reductions this month, Connecticut’s economy continues to experience moderate growth,” he said.
