State’s budget taking big hit from nation’s financial, economic crises

Tax revenues declining, deficit deepening

Lower state tax revenues are opening bigger gaps in this year’s budget, and the situation could get worse in the next few years, said Gov. Rell’s budget director, Robert Genuario, in a recent address to CBIA’s Board of Directors.

From the personal income tax to motor vehicle and gasoline taxes, nearly every source of tax revenue the state is being affected by the financial crisis and economic downturn. The crisis is far from over and the state’s short- and long-term prospects are not very good.

Wall Street’s woes will have a big impact on state tax receipts this year because many Fairfield County residents — who account for 45% of Connecticut’s personal income tax collections — are in the financial services industry. At best, Wall Street bonuses will be severely cut. At worse, there will be many job losses.

Also slowing down are state sales tax receipts, corporate taxes, payments from the gaming industry and the state’s investment income.

All of which means the deficit for this fiscal year keeps growing. The governor’s office estimated the gap at $300 million, and the state comptroller said it could actually be $800 million. Every factor is pointing toward these numbers getting worse, not better, as the fiscal year progresses.

Genuario said that unless state spending is more tightly controlled, he expects deficits will deepen for several years.
Because the situation worsened since she first trimmed the state budget by about $150 million in June, the governor ordered a second round of budget cuts totaling $35 million. She has also ordered a hiring freeze, a ban on out-of-state travel and a reduction in state purchases.

Later this month, the governor will send a plan to close this year’s budget gap to the General Assembly. It’s very likely she’ll recommend more spending cuts beyond the 5% of the state budget she's allowed to make by law.

Democratic leaders in the legislature are waiting for a public hearing of the Finance and Appropriations committees in mid-November before making recommendations. They have said they want to eliminate wasteful spending and audit the Department of Social Services, and will consider tapping the state’s Rainy Day Fund.