Despite the largest tax increase in state history, the state’s budget deficit is worse than most legislators expected.
Besides facing a projected deficit of $365 million in the current fiscal year, the state is facing another deficit of $1.18 billion in the next fiscal year – according to the latest financial statistics. The red ink would continue for another two years after that – at more than $900 million per year.
The state’s tax collections are lower than expected, despite tax increases totaling $1.5 billion, including those on income, retail sales, corporations, estates, electric power plants, alcohol, cigars and cigarettes. Malloy’s budget increased taxes on more than 50 items in different categories, including charging sales tax for the first time on previously tax-free items such as nonprescription drugs, clothing and shoes under $50, pet grooming, automotive towing, manicures and pedicures. The tax on retail sales increased to 6.35 percent, while the maximum rate on the state income tax increased to 6.7 percent for those with the highest incomes.
Republicans are already calling for a special session and a deficit-mitigation plan to chop down the looming deficit.
But Malloy refused to use the word “deficit” and instead said the current situation is a “shortfall.”
“This is not a deficit,” Malloy said. “It’s a shortfall.”
Since last Friday, House Republican leader Larry Cafero has been blasting Malloy for a lack of transparency in the budget numbers. He said that bad news was dumped on reporters late Friday afternoon, saying that few people were paying attention as they headed into the weekend. He decried the notion that state tax revenues were $52 million below what was expected, saying that the number was clearly wrong.
“We have a budget deficit, four months into the fiscal year, that requires a deficit mitigation plan,” Cafero told Capitol Watch last week. ”For the governor to come out with a press release using the figure $52 million is wrong. At worst, it’s deceiving and deceitful. Where does he get $52 million when the report itself says $128 million?’’
“For the governor to put out a press release on $52 million is the least transparent, most deceitful thing I’ve seen,” Cafero said. “It’s wrong. It is very wrong, and that is unconscionable.”
When asked Thursday by Capitol Watch about Cafero’s comments on transparency, which has been one of the stated tenets of the administration, Malloy said, “He’s wrong. Representative Cafero has expressed his desire to become governor of the state of Connecticut. You folks are going to have to get used to putting everything in context, and I’m sure that that will appear in your papers every time you report what he has to say. Having said that, he’s wrong. I don’t know how else to say it. The data is the data. The data becomes available when it’s available.”
Cafero rejected Malloy’s statement, saying he has made no decisions about running for governor. Regardless, he said late Thursday afternoon that the budget numbers are a fact.
“Whether I say it, Tom Foley says it, my mother says it, a fourth-grader says it, we’re repeating facts from his own Office of Policy and Management,” Cafero told Capitol Watch. “It was his decision, his gamble [on the budget] to go a certain path that hasn’t worked. … It didn’t work. We knew it wouldn’t work. He made a decision to balance this budget on tax increases and phantom savings alone. He did not reduce spending. He increased it. It doesn’t take a math whiz to figure out that doesn’t add up. It doesn’t take a rocket scientist to realize you’re going to have a deficit. We predicted it when he passed the thing.”
“Who’s playing fast and loose with the facts?” Cafero asked. “I’m just going by his figures, his statements. We’re in very bad financial shape. Let’s admit that it hasn’t worked. Stop playing defense, governor, and fix the problem.”
When asked Thursday by a television reporter about the report by Hartford-based Conning Inc. that was featured on the front page of Thursday’s Hartford Courant, Malloy said he had not seen it.
When asked, Malloy said, “They’re probably using 2010 data. … I haven’t seen that particular one, so it’s difficult for me to make a comment on. Who was it? I haven’t seen it.”
The TV reporter, Mark Davis of Channel 8, responded that the data was from 2011.
Malloy immediately ruled out offering an early retirement incentive program for state employees – some of whom have been seeking incentives to leave their jobs.
“No, we don’t pay people to retire,” Malloy responded quickly. “We don’t pay people to retire because it further burdens the retirement system, which none of my predecessors funded properly.”
Malloy went back and forth with veteran reporters Thursday about whether he would propose raising taxes further.
“I have no intention of raising taxes,” Malloy said. “No, I’m not leaving a window open. I have no intention of raising taxes. … I have no intention of raising taxes. …. I’m giving you as definitive language as I am comfortable giving you at the moment. I have no intention of raising taxes.”
He added, “We have absolutely no intention of raising taxes in dealing with the next biennium. Folks, that’s the language.”
The latest fiscal projections show that the deficits will continue in the “out years’’ of 2014-15 and 2015-16. The projected deficits in those years are $958 million and $907 million, based on the state’s current level of services. The “current services’’ designation is important because that is a projection that is based on a whole series of factors and assumptions that include, but are not limited to, the size of the workforce, current salaries, and various inflation factors. As such, the legislature is still able to “cut’’ the current services budget without making the size of overall budget go down from one year to the next.
The current deficit of $365 billion is for the fiscal year that ends on June 30.
When asked by a TV reporter whether he sees any signs that the economy is getting better, “I watch this stuff on a day-to-day basis, as you might imagine I do. There are probably more negative signs with respect to the period between now and July 1. I think a quick resolution to the problems in Washington could change that substantially. I think the longer the problems in Washington continue, the more dampening the effect that they will have.”
“Reductions in the workforce are not off the table. We have the right to continue to reduce workforce through attrition, through other means as well. There are guarantees in contracts through a certain date. … Having said that, there’s relatively little room to move - but there’s room.”
He added, “The Republicans were accusing me of building surpluses into the budget, which obviously they were wrong about. But they’ve been wrong about other things, as well.”