The Budget

The focus for the 2017 Legislative Session in Connecticut is clear; legislators will be faced with the daunting challenge of addressing the State Budget predicament.

According to projections made by the bipartisan Office of Fiscal Analysis (OFA) on November 15, 2016, the General Fund for fiscal year (FY) 17 faces a deficit of $77.5 million resulting from deficiencies in five agencies totaling $54.3 million and a decrease in net revenue by $45.9 million. However, more recent projections from the comptroller estimate the deficit may total up to $82.3 million. Following the current trend, the State faces a $1.5 billion deficit for FY 18.

More than half of the General Fund expenditures are accounted for by fixed costs, including pension payments, retirement healthcare, debt services, entitlements and adjudicated claims. The significant growth of fixed costs is subsequently driving spending growth. By FY 18, it is projected that fixed costs will account for 53% of budget expenditures.

Another factor working against legislators are the current revenue trends for the State. Connecticut’s revenue decline began during the Great Recession and growth has continued to be weak and unsteady. This decline is particularly evident in the personal income and sales tax growth rates. The tax receipts from high income earners has accounted for 76% of all income growth since 2004, however, fluctuations in the growth of this group have been erratic since 2010.

According to OFA, in order to balance General Fund expenditures with anticipated revenues the state must reduce non-fixed costs by $1.2 billion in FY 18. Subsequently, the result would entail a 20% reduction to current services across the board. Non-fixed expenditures include education, municipal aid, state employee salaries and benefits, criminal justice, public safety, environment, and economy development costs.

OFA has anticipated that fixed costs will grow by $898.7 million in FY 18 ensuing the increase of debt service payments, Teachers’ Retirement System contributions, and state employee pension and retiree health contributions.

The state’s statutory spending cap was designed to limit the legislature from authorizing an increase in general budget expenditures for any given fiscal year by a specific percentage over the previous year. Recently, the spending cap has created additional challenges for the legislature. In order to bypass the cap, the governor would need to declare an emergency or extraordinary circumstances and at least three-fifths of each house of the legislature would need to approve the extra expenditure. The legislature is required to define “increase in personal income,” “increase in inflation,” and “general budget expenditures” by a three-fifths majority according to the constitutional spending cap-- these terms remain undefined to date. Since March 2016, a 24-member commission has been meeting to collaborate and propose definitions for the constitutional spending cap; the commission was unable to come to a consensus on a proposal to bring to the legislature.

DePino, Nuñez, & Biggs will continue to follow the budget negotiations through out the legislative session.

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