State budget deficit looms into 2018

The latest edition of the bipartisan agreement includes:$130 million in cuts to UConn over the two-year budget.

The latest edition of the bipartisan agreement includes:$130 million in cuts to UConn over the two-year budget.

Lawmakers hadn’t yet finished voting on the long-delayed, $41.3-billion state budget last week, when the spending package sprung another leak: a projected $178-million shortfall in the first year of the biennium.

But after dealing with three consecutive years of below-expected tax collections, topped by a massive, $5 billion deficit that delayed a bipartisan budget compromise more than four months into the fiscal year, Gov. Dannel P. Malloy and lawmakers agreed they would likely deal with the latest deficit sometime in early 2018, possibly after the General Assembly gathers again in February.

They said that with the huge deficit handled through close, bipartisan cooperation, the smaller, budding deficit can be handled easier.

“There are only 60 days until we start in February,” said Senate Majority Leader Bob Duff, D-Norwalk. “We’ll get a better handle on some of the revenue pictures after the December and January reports come in.”

Duff said that $100 million of the deficit is anticipated federal funding, which has not arrived.

“We’re a prisoner, held hostage by what’s happening in Washington right now, especially since we’re so tied into Wall Street,” he said. “I think we have to let the budget play itself out over the next few months and see what happens.”

“Obviously we have to be ready to react when it becomes necessary,” said Senate President Pro Tempore Martin M. Looney, D-New Haven. “We’re already into November. If it becomes necessary, potentially we could perhaps do something in January, if the need is evident at that point.”

Republican Senate Leader Len Fasano, R-North Haven, said he is particularly concerned about last week’s revenue forecast that showed a $34-million shortfall in projections on those filing withholding taxes.

“That leads me to be believe there has been a decrease in wages paid, or those who left the state were the higher income folks,” said Fasano. “If we have a deficit, we need to come in right away ... If you wait and you wait and you wait, you get in deeper and deeper.”

Peter Gioia, chief economist for the Connecticut Business & Industry Association, said last week that if Connecticut could fill the 25,000-to-30,000 skilled, good-paying jobs that are vacant right now, the additional tax revenue would help the state’s budget picture and spark the stagnant economy.

“The challenge that we have is that we’ve been seeing now, for about three years, disappointments in revenue collections,” he said, stressing that it might take a couple more years before the structural changes recently approved by the General Assembly to start paying dividends. “We still have the migration of high-wealth individuals. People don’t decide to move to Florida in a week. They plan for years.”

The good news for business, he said, is that legislative leaders proved they can work together and tackle a massive budget deficit with no major tax increases.

Malloy on Friday angered legislative leaders by announcing more than $880 million in so-called lapses and holdbacks: funding cuts that the new budget shifts to his responsibility.

“These holdbacks represent real, difficult decisions that the bipartisan budget agreement requires state government to make,” said Ben Barnes, secretary of the Office of Policy and Management. “But they're also necessary in order to give taxpayers, businesses, and bondholders the stability they need and deserve.”

“We’ve got to meet some extraordinary lapses that were just added on to yesterday,” Malloy told reporters Thursday, the day after the House put the finishing touches on the two-year spending plan.

“To meet those lapsed targets we’re going to meet some holdbacks on the expenditure sides. We’re done a lot of work over the last seven years to address the problems that prior legislatures and prior governors set up and put the state in. It doesn’t make you popular to clean up the mess, but it is necessary.”