Concerns over a growing budget deficit intensified late last week, as the Governor’s budget office projected a current fiscal-year deficit for the first time since the budget was passed last spring. Last Friday, the Office of Policy and Management reported a deficit of $66.9 million out of an overall $20.14 billion budget – and counting the $75 million OPM needs to set aside for the ongoing conversion to GAAP, the shortfall totals nearly $142 million. Worse still, there is a growing likelihood that the state will face a deficit larger than $500 million in FY 2014.
As Keith Phaneuf at the CT Mirror reports, the current and projected fiscal-year deficits are being driven primarily by faltering upper-end income tax revenue collections:
According to memos prepared by the nonpartisan Office of Fiscal Analysis…receipts for capital gains, dividends and other earnings paid quarterly are running more than $116 million below expectations for April. Income tax receipts from investment earnings are very volatile and can fluctuate by tens of millions of dollars from day to day at the tax filing deadline. But if this year's income tax receipts remain more than $100 million below expectations — and if projections for future years are downgraded in similar fashion — the Democratic governor's new plan isn't balanced even for one year.
As we mentioned earlier this month, much is riding on the April 30 consensus revenue estimates being prepared by the Office of Fiscal Analysis – and this bit of news is not likely to allay growing deficit fears.
The fiscal picture will continue to clear up as the state finishes tallying up personal income tax returns from the April filing period, and as the Comptroller and OFA release their own estimates. However – it’s worth highlighting that the state’s new, highly-successful earned-income tax credit (EITC) is not driving these deficit projections. In fact, EITC refunds are coming in under budget by about $5 million.
As the state takes steps to balance the budget in this and coming years, it’s critical that we do so in a fair and balanced way that protects our investments in children and families. See Wade Gibson’s blog post from last week on not robbing future generations of essential resources in the name of short-term fiscal fixes. We’ll have more next week, when OFA releases their consensus revenue estimates, which may result in revised budget deficit figures – stay tuned!