Analysts at the Office of Fiscal Analysis say that red ink in several Connecticut state agencies, combined with slightly lower tax revenue, will eat into Connecticut’s projected surplus for the fiscal year and decrease the amount of money the state will use to build up its reserve fund and reduce its pension debt.
A small reduction of $5.4 million in revenue, combined with $245 million in expenditures for agency deficiencies will reduce Connecticut’s overall surplus by $251 million from the budgeted $399 million to $148 million. The adjustment will also lower the volatility transfer to the reserve fund and pension funds from a little more than $1 billion to $627.3 million.
Although sales tax estimates were reduced by roughly $200 million, other revenue sources, including the income tax, were revised upward along with other revenue sources, marking only a small reduction in revenues to the General Fund.
However, agency deficiencies, primarily within the Department of Social Services (DSS) and the Office of the State Comptroller (OSC) translate to a “net total spending overrun” of $245.6 million.
DSS is looking at $140 million in cost overruns due to Medicare Part D clawbacks, “costs for undocumented individuals,” and adjustments to the Home and Community Based Services funding provided by the federal government as part of the American Rescue Plan Act. The OSC, on the other hand, has to pay out adjudicated claims that were not accounted for in the budget and fringe benefit costs for state employees totaling $65.4 million, according to OFA, which is partially offset by lapses from the previous year.
The Department of Correction has a $26 million cost overrun due to “increased costs for utilities, food, clothing and pharmaceutical medical supplies” for an inmate population that has grown 3.9 percent since fiscal year 2023. Various other agencies and the Department of Mental Health and Addiction Services (DMHAS) account for another $18.6 million.
Although the cost overruns will cut into Connecticut’s surplus and volatility transfer, the state will still be in the black for its operating budget by $145 million for fiscal year 2024, according to the latest estimate, but budget analysts, including Gov. Ned Lamont’s budget chief Jeffrey Beckham, have warned lawmakers that increased spending could jeopardize future budgets.
Connecticut is currently operating under a set of fiscal guardrails that limit the growth of spending and bonding and send volatile tax revenue, largely from Wall Street earnings, into the budget reserve fund and to pay down pensions. Thus far, the paydown of pension debt has resulted in roughly $500 million per year in lowered pension costs.
While those guardrails, along with the COVID-era federal money, are credited as putting Connecticut into a better fiscal position, they have also come under scrutiny by some lawmakers, state agencies and advocacy groups who say the guardrails are limiting or cutting funding for needed services and education.
Meanwhile, the state’s Special Transportation Fund is still going strong, despite the new Highway Use Tax continuing to underperform. The STF will take in $45 million, boosting its operating surplus to $249.5 million and building the STF’s balance to $919.5 million. That balance is projected to erode, however, in the coming years, according to previous OFA reports.
Ultimately, the budget reserve fund balance will be left with $5.8 billion. Under the fiscal guardrails, the reserve fund is capped at 18 percent of the state’s $22.5 billion General Fund budget, or roughly $4.05 billion.
The remaining $1.03 billion would be transferred to pay down pension debt, which currently stands at $37 billion, requiring $3.5 billion in annual payments.
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Do t forget about the state employees wage opener that is starting to get bargained for…
This is more like what I expected from the state. I still can not figure out how, during the pandemic, the state managed to be in the black for the past three years when businesses were closing, people were leaving, unemployment costs were increasing, inflation was running at up to 9%, staffing was the same or increased all without funding from the federal government. Talk about VooDoo economics! Lamont would like us all to believe that he and Democrats miraculously fixed decades of shortfalls and deficits without Federal aid or severe tax increases. I call B.S. It appears that the magic pot of money is drying up.
He has been cutting government services. We used to pay more and had a very responsive government. Now we pay less and its like dealing with harried workers who dont have time for you. I am hopeful we can cut hard and pay off the debt then restore the service level to what it had been. We are one of the best areas in the country to live in due to income and education. Our property values are high but not as high as many areas giving a very good value. If you look at schools in other parts of the country where taxes are low,
( look at real estate sites) , you will see why their taxes are so low. The level of schooling is very low. We have excellent schools here! Top in the country. The low tax states also take a percentage of Connecticut’s money in the form of our federal taxes that get redistributed to lower income states. The GDP of those states is also incredibly low. People, men and women, really work hard in New England. We get penalized in federal taxes and dont complain that a percentage of our money goes south. We have beautiful communities, the best schools etc… That does cost more. Our residents make more though and our kids leave us better able to get great jobs. That costs more in taxes but many find that worth paying more for. One other area that costs us more is road maintenance. Where it dosent freeze like here, roads dont buckle, salt dosent corrode bridges etc… we are in a land of 1000 rivers and tiny streams that need bridging! Im not saying there arent places where taxes can be cut but we have to stop bashing our own state and give it support where needed and credit for what we are doing right.