Connecticut is heading toward a budget deficit of $365 million for fiscal year 2013, according to new consensus estimates of the Office of Policy and Management and Office of Fiscal Analysis. And that's just the beginning, say state officials.

OPM Secretary Ben Barnes testified before the legislature’s Appropriations Committee this week that higher costs—especially for Medicaid; and lower tax receipts—especially in corporate and sales and use taxes—account for the projected gap which has grown by $300 million since October.

One day later, Barnes released a state budget update that projects a $1.1 billion budget gap for the fiscal year that will begin on July 1.

In the meantime, the administration is already preparing a formal plan to address this year's shortfall.

Required by law if the budget deficit is projected to be 1% of the general fund, the budget mitigation plan will be issued if the state comptroller certifies the projections.

This year’s operating budget is $19.4 billion, which means the threshold for a mitigation plan is $191.4 million.

Life saver?

Asked at the committee hearing if the impending federal fiscal cliff could prove a tax-revenue life saver for this year’s budget if wealthier individuals sell off stocks and report capital gains, Barnes said, “it’s a possibility.”

In any case, he said he shares Governor Malloy’s “hope that we will see rapid improvement in revenue estimates.”

There is a precedent from such a capital gains “bailout,” said Barnes, dating back just to 2010. Faced with a similar situation, many investors moved assets, reported capital gains, and buoyed state tax receipts.

But Barnes said he was wary that, after a few years of an underperforming stock market, there is a similar pot of revenue gold to be had.

He also said that the January 1 deadline for an agreement on the fiscal cliff does not overly concern him because, he said, federal lawmakers can “undo” tax hikes at any time as the year progresses. However, the Malloy administration is “giving it a great deal of thought.

“We are very concerned about sequestration and how it may negatively affect our economy,” said Barnes.

Medicaid

Governor Malloy said that the national economy was largely to blame for the budget shortfalls, not state fiscal policy. The weakened economy, he said, has increased the need for medical and social services.

In fact,  Medicaid costs continue to rise on many fronts in Connecticut, from higher case loads to nursing home expenses and hospital costs, said Barnes.

Lawmakers on the committee expressed concern that the state’s Money Follows the Person program that is designed to provide lower-cost, long-term healthcare in community or home-based settings, is not progressing as fast as expected.

Filed Under: State Spending, Taxes

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