State budget passed, deficits resume
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Hartford celebrates
Less than three weeks after legislators approved a new state budget, eroding revenues have opened deficits topping $175 million this fiscal year and nearing $150 million in 2018-19.
Eroding income and sales tax receipts in particular also probably have worsened the multi-billion-dollar projected shortfall Connecticut must solve after the next election.
The new deficit estimate for the current fiscal year also falls dangerously close to the threshold that would force Malloy to craft a deficit-mitigation plan.
New state budget isn’t sustainable…
Even before Monday’s report, one of the chief criticisms of the new budget was that it sets up the winners of the next state election to face a deficit much worse than the one lawmakers just tackled.
Analysts had said state finances, unless adjusted in the present budget, were on pace to run $1.6 billion in deficit this fiscal year and $1.9 billion in the red in 2018-19 — or a biennial shortfall of $3.5 billion.
Much of that gap stemmed from surging retirement benefit costs and sluggish overall revenue growth.
Legislators boasted that they averted the shortfall without increasing income or sales tax rates, relying on smaller tax hikes and significant spending cuts. But they also diverted hundreds of millions of dollars from off-budget, specialized and one-time sources — moves that shift burdens onto the next governor and legislature.
Further complicating matters, the new budget orders tax cuts for businesses, estates, retirees, students and others — about $130 million per year. But it delays most of the relief until after the next election, when analysts say state finances will be in worse shape than they are now.
Even as the new budget was adopted last month, nonpartisan analysts warned that plan wasn’t sustainable.
If continued into the 2019-20 and 2020-21 fiscal years, the plan would amass red ink totaling $1.9 billion and $2.7 billion respectively — gaps of 10 and 13 percent.
In other words, while legislators averted a potential, two-year deficit of $3.5 billion, they set up the winners of the next state election to close a $4.6 billion gap.
… And post-election finances look worse
The new report downgrades expectations for income and sales tax receipts not just in the current budget, but at the start of the next two-year cycle as well.
For example, projections for income tax receipts in the 2020 fiscal year now are about $70 million less than they were three weeks ago, when analysts warned of a major post-election deficit.
Similarly, sales tax projections for the first fiscal year after the election are down about $56 million from where they were three weeks ago.
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