State's projected two-year budget deficit now at $2.5B
The estimated budget deficit for the upcoming two-year state budget jumped to $2.5 billion this week from $2.1 billion two months ago, according to the Office of Fiscal Analysis.
"Even though the amount of the deficit isn't as great as it was two years ago, I would argue we are in worse financial shape because the ... things with which we could address that deficit have been depleted because of the SEBAC (union) agreement and other factors," state Rep. Larry Cafero, R-Norwalk said on Thursday.
The budget deficit for fiscal year 2014 is estimated to be nearly $1.19 billion, which is up from $1.13 billion in November.
Net spending is estimated to decrease by $11 million and net revenues are estimated to decrease by $68.3 million, which is how the 2014 fiscal year budget deficit grew by $57.3 million.
One spending reduction, $64.7 million, for fiscal year 2014 is predicted to come from State Employees Retirement Contributions because of updated actuarial information.
Some predicted revenue losses include $71.4 million less from personal income tax withholdings and $130 million less from sales and use tax withholdings. These losses were somewhat offset by increases in the corporation business tax, $8 million, and an estimate that $11.4 million less would be given out in tax refunds because of a new fraud detection policy created during the December deficit mitigation plan, according to the OFA document.
Besides the upcoming budget years, the state's current year, fiscal year 2013, has a $138.6 million budget deficit, according to OFA. In December, 1,800 jobs were lost statewide and Moody's Investors Service said Connecticut's need for $550 million in credit for cash flow needs was "credit negative because it reflects the state's liquidity and budget challenges."
Moody's downgraded the state only a year ago to Aa3 from Aa2. The downgrade was in part due to underfunded state pensions. Connecticut's funded ratio - pension fund assets divided by its liabilities - was 42.3 percent, according to the most recent actuary report prepared on June 30.
"Moody's just last week … warned us that this whole scheme as proposed by the treasurer to get a line of credit to pay for our operating expenses because we don't have a lot of cash is being frowned upon by Moody's," Cafero said.
The above scenario is why Cafero said the latest $1.5 billion in proposed bonding for the University of Connecticut to upgrade its infrastructure is hard to comprehend. Just last week, the state's Bond Commission approved about $5.6 million in bond allocations for projects throughout the state.
The governor and the legislature have their hands full during the upcoming budget session. Gov. Dannel P. Malloy will announce his budget proposal on Feb. 6.
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