COMPTROLLER LEMBO PROJECTS $386.7-MILLION DEFICIT ALONGSIDE GROWING BUDGET RESERVE FUND
Comptroller Kevin Lembo today, following an updated consensus revenue forecast, projected that Connecticut is on track to end the current fiscal year with a $386.7-million deficit even as the state’s Budget Reserve Fund (BRF), essentially the state’s savings account, grows. In a letter to Gov. Dannel P. Malloy, Lembo said that a substantial portion of the projected deficit is related to delays in the receipt of federal reimbursements related to hospital supplemental payments and other Medicaid-related claims.
The remainder of the deficit is attributable to the revised consensus revenue estimates announced this week. Despite significant improvements in the state’s income tax revenue, a new state revenue volatility law requires that most of that new revenue be captured and transferred to the BRF if the legislature chooses not to use it for deficit mitigation.
“The bad news is that the state continues to face a growing deficit,” Lembo said. “The good news is that state income tax revenue, as well as the state’s rainy day fund, is growing even larger.
“The most notable positive news is that, following April tax collections, estimated and final payments under the income tax have increased by $240 million over earlier expectations. The state’s new revenue volatility law now requires that any collections of this income above $3.15 billion be transferred to the Budget Reserve Fund, even in the face of a General Fund deficit.”
Lembo said that estimated and final income tax collections are expected to reach $4.44 billion, which would result in a transfer of $1.29 billion to the BRF, unless the legislature acts to use some of it to mitigate the deficit.
Under current circumstances, such a transfer to the BRF would bring the BRF balance to just over $1.5 billion, or approximately eight percent of General Fund expenditures.
“While this would represent a vast improvement over the current level ($212.9 million), I have long recommended that the Budget Reserve Fund reach a level of 15 percent of General Fund expenditures to protect Connecticut against future economic downturns.”
On the negative side, Lembo said the consensus forecast confirmed that some revenue categories are underperforming, including federal grant revenue, the sales and use tax and the corporation tax.
“Connecticut’s overall budget results are ultimately dependent upon the performance of the national and state economies,” Lembo said.
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