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Hartford — State Comptroller Kevin Lembo announced today that he agrees with the governor’s budget office and the nonpartisan Office of Fiscal Analysis that the state has a $43.4 million budget surplus this year instead of a $505 million surplus.
“These final income tax payments buck historical trends — but reinforce my position that economic volatility and uncertainty demand sustained financial caution, discipline and rebuilding our Budget Reserve Fund,” said Lembo. “I am pleased to hear that any surplus will be directed to the Budget Reserve Fund.”
The majority of the $461.5 million revenue reduction is due to lower than anticipated income tax payments, which include capital gains, Lembo said. But $72.4 million of the revenue reduction is due to other revenue reductions such as lower than predicted sales tax revenues and corporation tax revenues.
The income tax revenue decline is likely because investors decided to claim more capital gains before the expiration of the George W. Bush-era tax cuts than after taxes rose, he said.
“In the absence of this federal change, some of the prior year gains would likely have been realized this fiscal year,” Lembo said.
On Monday, when the governor’s administration announced that the surplus would be several hundreds of million less than initially expected, budget chief Benjamin Barnes said any surplus would go to the state’s Rainy Day Fund. However, with new spending planned in the Appropriations Committee’s budget proposal for next year, it remains to be seen where the surplus funds will go.
Lembo said he remains concerned about budget deficits in future years and urged lawmakers and the administration to put any surplus funds in addition to the $43.4 million in the Rainy Day Fund.
The state’s Rainy Day Fund contained $270.7 million as of June 30, 2013, which is 1.6 percent of spending, Lembo said.
“I have advocated for a reserve level of 15 percent of spending,” Lembo said. “Sufficient dollars in reserve will guard against future tax increases and service reductions during inevitable future recessionary cycles.