Budget Gap Closed, But State Heading for Fiscal Wall

The General Assembly this week overwhelmingly approved a plan that closes most of this year’s $372 million state budget gap without tax increases but with more borrowing, account transfers, federal aid, and some spending cuts. Gov. Rell signed the legislation into law.
While the budget package will help get Connecticut through this fiscal year, the state will soon hit the wall on finances, starting with next year’s budget gap of about $726 million, which will quickly be followed by deficits of about $4 billion in each of the succeeding three fiscal years.
This year’s budget deficit had been estimated at $518 million in March, but the governor earlier used her executive authority to postpone $100 million in payments to the state employee pension fund and made other cuts to narrow the gap to $372 million.
To win bipartisan approval of the deficit mitigation package in the House and Senate this week, Democrats took away proposals to increase the state’s estate tax and impose a new 5.5 % tax on hospital gross revenues this year. However, Democratic leadership said they would revisit those tax ideas in future deficit negotiations.
Contained in the budget-revision package approved this week:

• About $90 million in state spending cuts made in many social service, health care, and education services and programs
• $103 million in additional federal aid over this fiscal year and next—by moving health benefits provided through the state’s welfare program for single adults without children under the umbrella of the federal Medicaid program
• Transfers of about $100 million from smaller state accounts into the General Fund
• A transfer of $242 million from next year’s Rainy Day Fund to this year’s budget
• Increases in fines for certain motor vehicle violations, such as the minimum fine for speeding, which jumps from $35 to $50
• A rollback of increases made last fall to various state park fees and hunting and fishing licenses.

Lawmakers wrapped up talk on this year’s budget challenge with the patchwork fix and now set their sights on bigger fiscal challenges. Tough decisions will be necessary to produce a smaller government that lives within what taxpayers can afford.
Revenue of all types continues to fall, and Connecticut’s jobless now number over 100,000. Meanwhile, proposals are still on the table that would increase state spending next year, postpone a planned decrease in energy costs, and impose a whole new corporate tax structure.
The focus in the legislature is supposed to be on jobs and growing our economy, but time is running out, and results so far are not encouraging.
For more information, contact CBIA’s Bonnie Stewart at 860.244.1925 or bonnie.stewart@cbia.com.