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Business wary of future budget shortfall, analyst says

Connecticut’s budget deficit projections are becoming increasingly grim, as officials continue to revise their estimates.

Since the state Office of Policy and Management updated its projection for the 2013 fiscal year to $365 million in a Nov. 15 report, the Office of State Comptroller has revised its own projections to at least $415 million.

The two figures represent different projection methodologies, which the Comptroller’s office says it has done more conservatively as a safeguard.

The projected deficit is largely due to increased demand for Medicaid services for low-income residents, which officials pin on the state’s high long-term unemployment levels and on recent changes that have expanded the state’s Medicaid program to include low earners.

Five weeks ago, the Comptroller’s office had projected a $60 million budget gap, but with more Medicaid spending data available, the estimates have sharply increased.

“Projected state spending above budgeted levels and the slow pace of national economic recovery are impeding the state’s ability to bring the budget into balance,” State Comptroller Kevin Lembo wrote in a Dec. 3 report. “The economic indicators are below the levels normally observed at this stage of a recovery.”

Any deficit occurring in the current fiscal year is in addition to what state officials project as a $1.2 billion budget shortfall facing the state for its 2014-2015 fiscal year, with negotiations over the state’s biennial budget package expected to begin when the General Assembly convenes in 2013.

Medicaid spending has increased over the last year and the trend is expected to continue into the state’s 2014 fiscal year, which begins July 1, 2013, according to the report.

Additionally, Lembo wrote that the state budget relies on more than $100 million in Medicaid saving initiatives that have not yet been implemented.

Under state law, because the projected deficit exceeds 1 percent of total general fund appropriations, a deficit mitigation plan must be released within 30 days.

Prior to the Dec. 3 report being released, Gov. Dannel P. Malloy released a list of $170 million in spending cuts to various state agencies in an attempt to address the expected deficit.

Within the next couple of weeks, the legislature is expected to make the remaining cuts, the governor’s office said.

Malloy has said previously that he would not raise taxes as a means of closing the current deficit or any projected fiscal year 2014-2015 budget deficit.

The bulk of the cuts listed by the Malloy administration affect social service agencies, the state’s employee health system and funding for higher education.

“Many of these cuts are very difficult to make, especially now when so many residents continue to struggle in a tough economy,” said Ben Barnes, secretary of the Office of Policy and Management, in a statement. “But as painful as they are, cuts are necessary to keep this year’s budget in balance. State government needs to live within its means.”

Peter Gioia, economist and vice president of the Connecticut Business and Industry Association (CBIA), said business owners have expressed concern over the possibility of a billion-dollar deficit facing legislators as they prepare for the next budget cycle.

CBIA is currently in the process of conducting a statewide survey, with nearly two-thirds of the respondents from the state’s northwestern areas saying that a state deficit would impact their business decisions.

“It’s not that the cuts are aimed at social services,” Gioia said. “It’s that it has a potential impact on the psyche of businesses leaders making investments in the state. You don’t want to invest in a state and tie yourself to investment if you think you have the potential to get whacked with more taxes.”

Gioia said the $170 million round of cuts will likely have a negligible impact on business, but added that he expects more painful sacrifices down the road, especially taking the fiscal cliff into consideration.

As congressional negotiations over the cliff play out, Gioia said he’d like to see the state continue its commitment to quality transportation, infrastructure and education, which affect the moving of goods, people and knowledge in the economy.

“I don’t think this is going to be easy by any stretch of the imagination,” he said.

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About The Author

Jennifer Bissell
Reporter

Jennifer Bissell is a reporter for both the Fairfield and Westchester business journals. Previously she attended the University of Minnesota and contributed to several regional publications including the St. Paul Pioneer Press, St. Cloud Times and Twin Cities Business magazine.

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