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State Facing $1.2 Billion In Red Ink Next Year

By CHRISTOPHER KEATING

November 15, 2012

Despite the largest tax increase in state history last year, Gov. Dannel P. Malloy said Thursday that the state now faces the prospect of a $1.2 billion deficit next year — a figure far worse than most legislators had expected.

Besides facing a projected deficit of $365 million in the current fiscal year, a shortfall of $1.18 billion in the next fiscal year is forecast, according to the latest financial statistics released Thursday. The red ink would continue for another two years after that — at more than $900 million a year.

Malloy repeated Thursday that the budget would not be balanced through further tax increases. He described the budget problem as "not a deficit. … It's a shortfall."

"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'm giving you as definitive language as I am comfortable giving you at the moment. I have no intention of raising taxes."

Part of the reason for the deficit is that the state's tax collections are lower than expected, despite tax increases last year totaling $1.5 billion, including those on income, retail sales, corporations, estates, electric power plants, alcohol, cigars and cigarettes. 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 tame the looming deficit.

For days, House Republican leader Larry Cafero has been blasting Malloy for a lack of transparency in the budget numbers. He said that the first batch of bad news was released to reporters last Friday afternoon, saying that few people were paying attention as they headed into the weekend.

When asked about Cafero's comments on transparency — one of the stated tenets of the administration — Malloy responded, "He's wrong. Rep. 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 that he has made no decision about running for governor. Regardless, he said, the budget deficit 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 said of the governor's budget office. "It was his decision, his gamble [on the budget] to go a certain path that hasn't worked. ... 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.''

Cafero added, "Who's playing fast and loose with the facts? 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.''

On top of the deficits, a new report by Hartford-based Conning Inc. says that Connecticut has the lowest credit quality in the nation, in 50th place behind New Jersey and New York. When asked by a television reporter about the report, Malloy said he had not seen it.

Speaking to reporters Thursday, 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."

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, in part, on the size of the workforce, current salaries and various inflation factors that could increase the budget. As such, the legislature could cut the current services budget — but the size of the overall budget might not decline from one year to the next.

However, while the deficits are projected for the next three years, any savings that are found could spill into the future years. For example, spending cuts or tax increases that helped solve the deficit in the first year would continue to spill over and help solve the deficit in future years.

"I watch this stuff on a day-to-day basis, as you might imagine I do,'' Malloy said. "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.''

Malloy also said he was reluctant to rule anything out on possible spending cuts.

"Reductions in the workforce are not off the table,'' he said. "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.''