A Lot of Lemons: Governor, Legislature Face Growing Deficits In Current Fiscal Year and in 2017 as Election Year Looms for General Assembly
You’d never know we are in Connecticut as the lemon trees seem to keep producing lemons. The problem is we’re running out of lemonade recipes. Just recently, the administration’s Office of Policy and Management (OPM) estimated the FY16 deficit will reach $7.6 million, while the Legislature’s nonpartisan Office of Fiscal Analysis (OFA) is projecting a deficit of $72.2 million for the current year.
The state fiscal year runs from July 1 to June 30.
This all comes in the wake of the Legislature’s December 2015 deficit mitigation legislation that was supposed to eliminate the current year’s shortfall. (Note: There will not be another deficit mitigation plan for the current fiscal year unless the deficit reaches one percent of the total state budget, or $180 million).
More concerning is the ballooning deficit looming in 2017. On February 3rd when the Legislature convenes the regular 2016 session, the Governor will present his mid-term budget revisions for FY 17, which will likely include a variety of options for addressing the shortfall and covering the state’s expenses (CT has a two-year budget, which often has to be adjusted in the second year). The Appropriations Committee will have hearings on the Governor’s budget and then typically proposes its own plan to the Legislature in April. This is when the high-level negotiations begin.
As of right now, however, neither OPM nor OFA has determined the exact magnitude of the 2017 shortfall budget policymakers will be faced with, but Gaffney Bennett estimates that it will be close to $700 million.
This projection is composed of three parts: 1) After December’s deficit mitigation plan passed the Legislature, OFA estimated that the FY17 deficit would be $358 million. 2.) Since then, both OPM and OFA have reduced their revenue forecast for FY17 by $144 million. 3.) Add these two numbers to the 2017 reductions contained in the December deficit package, which totaled $195 million and will likely be rolled out as budget cuts in the Governor’s midterm budget, and the projected deficit for FY17 adds up to $697 million.
Because this is a statewide election year for the state Legislature – all 187 seats in the General Assembly are up for grabs – as well as Connecticut’s congressional delegation and U.S. Senator Richard Blumenthal – and given the rocky state economy, it will be interesting to see how things play out.
Cutting the budget by nearly $700 million will be a challenge for the Legislature, especially if tax increases are off the table. The state’s budget reserve fund (rainy day fund) stands at $406 million, not enough to cover shortfalls for FY16 and FY17.
You can be certain of one thing: all proposals, fiscal and otherwise, considered in the upcoming session will be viewed through the prism of politics.
An Important Postscript…
Next week be on the lookout for materials, including committee deadlines, that we will be sending out in preparation for the 2016 session. We will also be sending a summary of and details on the Governor’s budget when it comes out on February 3rd. We urge you to review all of these materials, because some are time sensitive, and to contact us with any concerns or questions you may have.