Hartford — The state's projected $505 million surplus for this year is now estimated to be several hundreds of millions of dollars less than expected.

This means taxpayers will no longer receive tax rebates of $55 to $110 and the state will not make an additional $100 million contribution to employee pension funds.

The budget proposals for the fiscal year that begins July 1 are going to be tweaked over the next eight days because both the Appropriations Committee's and the Finance, Revenue and Bonding Committee's proposals relied on the $505 million surplus and increasing revenue returns to help fund the 2014-15 budget.

"It's clear that we are going to have enough money to do our priorities, which is additional funding in education and additional funding for job creation," said Gov. Dannel P. Malloy. "What we are not going to be able to do is everything that we wanted to do."

On Monday, the governor's budget chief, Benjamin Barnes, said in a letter to the General Assembly that the budget surplus was lower than anticipated because less in capital gains were claimed in calendar year 2013 than initially assumed. But House Minority Leader Larry Cafero, R-Norwalk, said the low tax returns are because the economy is not doing well.

"What does that indicate to me?" Cafero said. "The economy is not near as good as everyone predicted it would be good — based on many of the policies that have been put forth by this governor, this administration and the Democratic majority."

A couple of Malloy's gubernatorial competitors also weighed in on the surplus reduction.

"Priority number one for Dan Malloy when he was elected in 2010 was to lead Connecticut out of the Great Recession," gubernatorial candidate and Danbury Mayor Mark Boughton said in a press release. "After four years of trying, Dan Malloy has clearly failed at the task."

Gubernatorial candidate and Greenwich businessman Tom Foley called the reduced surplus an example of "Malloy Math."

"Even with phony accounting including revenues brought forward from last year, overestimating capital gains revenues, and excluding many expenses, the governor couldn't get to a fictional election year surplus," Foley said.

Earlier this year, the nonpartisan Office of Fiscal Analysis and the governor's budget office projected a $505 million budget surplus and Malloy proposed contributing $250 million to the state's Rainy Day Fund, $100 million to the state employee pension fund and $155 million to taxpayers in the form of a rebate. Barnes said any surplus this year would be deposited into the Rainy Day Fund.

The rebate would have been a $55 check to single filers and a $110 check to joint filers. Republicans have frequently called the $55 rebate an election year gimmick that wouldn't even fill up someone's gas tank. Cafero said he believed the governor eliminated the tax rebate because he had to.

"It was the most unpopular election year gimmick," Cafero said.

Malloy defended his rebate proposal and said, "It wasn't a gimmick. I happen to firmly believe and still believe when we have lots of money come in, well in excess of what we otherwise predict, that that should be shared with taxpayers. Let's be very clear my position is not different — circumstances are different."

Barnes said that the tax revenues were hundreds of millions of dollars less than expected because of the expiration of the federal tax cuts, named after George W. Bush, on Jan. 1, 2013. In 2012, many investors sold their securities in order to have their capital gains taxed at the lower rate, he said. In 2013 the state was able to collect more tax revenue than anticipated because of the high volume of claimed capital gains, which are part of Connecticut's income tax.

But in 2013 investors were charged a higher federal tax for realizing capital gains, which could have deterred investors from selling securities.

Connecticut was not the only state affected by the tax cut expiration.

"A survey of preliminary data from states with similar tax structures and high net worth taxpayers shows that final payments in April are down between 10 and 30 percent," Barnes said.

Cafero called this reasoning "baloney."

"How in God's name can a $55 tax rebate plan have something to do with George Bush?" Cafero said. "It is beyond my comprehension. You screwed up, take it on the chin and move on."

The reason there is less revenue from capital gains this year could be that investors often sell securities when the stock market peaks and then drops, Cafero said.

"The stock market didn't drop; it maintained in 2013," Cafero said. "It maintained at a high level so there was no reason for people to cash in capital gains."

Legislators also planned some additional ways to spend this year's surplus.

The Appropriations Committee was going to spend $51 million of the surplus to pay for retired state employee health care expenses and the Finance, Revenue and Bonding Committee was going to spend $500,000 of the surplus on a comprehensive tax study and $12.7 million on payments to municipalities that were never paid last year. The finance committee had also allocated $3.5 million of the surplus for the state-run television program called CT-N Connecticut Network, which had requested funds to upgrade equipment and increase staff.

Besides having to deal with the reduced budget surplus this year, the legislature and Malloy administration will have to figure out by May 7 which programs will receive less funding or how to obtain new revenues in order to balance next year's budget.

"This will require some significant changes to our plans and expectations," Barnes said.

Senate President Pro Tempore Donald Williams, D-Brooklyn, urged lawmakers to complete a fair and balanced budget on time.

OFA has not released official revenue figures and Malloy's administration would not provide precise figures on Monday. But OFA and Malloy's budget office are expected to release consensus revenue projections on Wednesday.

j.somers@theday.com