State comptroller projects $207.8-million deficit

The state of Connecticut’s comptroller, Kevin Lembo, has projected that the state is headed for a $207.8-million deficit for fiscal year 2018 — an amount that triggers a state requirement that the governor submit a deficit mitigation plan to the legislature because it exceeds 1% of the state’s total net general fund appropriations.

In a letter to Gov. Dannel P. Malloy, Lembo reported a deficit that is close to, but slightly higher than, a deficit reported last month by the Office of Policy and Management (OPM) because Lembo said he expects a larger $20-million deficiency in the state’s adjudicated claims account that is used to pay claims and attorney fees in the SEBAC v. Rowland settlement.

Lembo also pointed to great uncertainty related to the future of federal tax reform.

“Congress is considering significant modifications to federal tax law that could have profound implications for Connecticut, depending on what specific provisions, if any, are enacted,” Lembo said. Future revenue forecasts will need to evaluate the consequences of any tax changes on the federal level.”

Lembo said his office agrees with the November consensus revenue forecast reached between OPM and the legislature’s Office of Fiscal Analysis, and has reported in past months on the underperformance of the sales and use tax to date in fiscal year 2018 and lower-than-expected receipts in the estimated payment portion of the personal income tax.

On the spending side, Lembo said, with seven months still to go in the fiscal year, $12.5 million has already been spent from the adjudicated claims account in the SEBAC v. Rowland settlement and other issues, and the account has averaged $2.5 million per month in costs. In light of this, Lembo said, he is projecting a $20-million deficiency in adjudicated claims that could go higher because of the unpredictable nature of the settlements involved.

“Another area of concern that will require close scrutiny is the aggressive level of savings included in the adopted budget,” Lembo said. “Achieving these lapse — or savings — targets will be a significant budgetary challenge, especially in light of the high levels of fixed costs for FY 2018, such as debt service payments, pension contributions and other costs.”

Lembo said Connecticut must also catch up to the national economy in economic growth.

“In recent years, Connecticut has not fully participated in the nation’s economic recovery,” Lembo said. “The national economy continues to exhibit growing signs of strength and resilience. However, Connecticut’s economy has experienced much more mixed results across a variety of key economic indicators.”