Home Banking & Finance Lamont lays out deficit mitigation plan; Fasano calls it ‘dangerous and shortsighted’

Lamont lays out deficit mitigation plan; Fasano calls it ‘dangerous and shortsighted’

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Gov. Ned Lamont and the Office of Policy and Management (OPM) have released a deficit mitigation plan for Fiscal Year 2021, following Comptroller Kevin Lembo’s certification of a 10% projected General Fund shortfall on Sept. 1, 2020.

But Senate Republican Leader Len Fasano (R-North Haven) is maintaining that the plan is insufficient and misguided.

Lamont’s plan, transmitted to the Connecticut General Assembly as required by state law, provides the legislature with the governor’s recommendations for closing the state’s anticipated $2 billion General Fund shortfall. Included in the plan is a partial use of the state’s Budget Reserve Fund, or Rainy Day Fund; what Lamont called “modest spending cuts” using his rescission authority; cost savings related to newly implemented hiring restrictions; and policy revisions designed to help alleviate some of the shortfall early in the year and provide the state more predictability throughout the fiscal year. 

“The size and scope of the budget shortfall we are anticipating this year due to the Covd-19 pandemic leaves us few options,” said OPM Secretary Melissa McCaw. “Fortunately, we were able to save more than $3 billion over the last few years that allows us to avoid the drastic actions some states across the country have needed to take such as short-term borrowing or tax increases.

“While these steps are only a start,” she continued, “it is important that we address the projected shortfall as early in the fiscal year as we can.”

Under Connecticut General Statutes Section 4-85, when a projected General Fund deficit is greater than 1% of appropriations, the governor has 30 days to submit a plan to the committees of cognizance for addressing the shortfall.

Additionally, the governor has statutory authority to rescind up to 5% of any line item and 3% of any fund without seeking legislative changes to the state budget.

Lembo’s FY21 forecast projects a deficit of slightly more than $2 billion — more than 10% of General Fund appropriations for this fiscal year. 

The deficit mitigation plan has the following elements:

  • Rescissions: The rescissions total $25.3 million with Executive Branch agencies, under the governor’s authority, totaling $17.5 million. Legislative and Judicial Branch leaders have been asked to reduce spending by $2.25 million and $5.5 million, respectively. 
  • Hiring Restrictions: State agencies have been asked to limit hiring and promotions to only those critical to essential functions for the remainder of the fiscal year. 
  • Coronavirus Relief Fund: United States Treasury guidance allows for states to cover costs of public health and safety personnel from the Coronavirus Relief Fund. It is estimated Connecticut’s General Fund can recoup $100 million for direct Covd-related work to the General Fund.
  • Policy Changes: With enacting legislation, we could generate $43.8 million toward balance in minor policy changes affecting revenue and spending. 
  • Rainy Day Fund: Arecommendation is included to use the Budget Reserve Fund to close the gap. If a $1.8 billion transfer is required at the conclusion of the fiscal year on June 30, 2021, the state would retain approximately $1.2 billion in reserves for the future.

The deficit mitigation plan, including the list of rescissions, is available here.

Fasano objects

The Senate Republican leader reacted by saying that Lamont is failing to issue a complete deficit mitigation plan, as required under state law. The plan, he said, only addresses $200 million out of the $2 billion deficit, and assumes taking over $1.8 billion from the Rainy Day Fund to close the remainder of the shortfall.

State statute requires that when the comptroller certifies a shortfall in the General Fund in excess of 1%, the governor musts present lawmakers with a deficit mitigation plan within one month “to modify such allotments to the extent necessary to prevent a deficit.”

Fasano said the Lamont administration “is failing in its responsibility and using a dangerous ‘wait-and-see’ strategy to avoid a difficult conversation. The law is clear that when faced with the current budget problems, the governor must present a true deficit mitigation plan ‘to modify such allotments to the extent necessary to prevent a deficit.’ What the governor’s administration put forward today does not meet that requirement. It is incomplete.

“By only using 4% of his rescission authority, the governor is creating a self-fulfilling prophecy that will put our state in a position where we have to take a significant amount from the Rainy Day Fund,” Fasano continued. “We may end up needing to rely on the fund in part, but we should only do that once we have taken all steps necessary to get our fiscal house in order.

“The deficit this year may only be $2 billion on paper today, but we know that number is likely far greater,” he added. “We are anticipating deficits of over $3.5 billion next fiscal year and at least another $3.5 billion shortfall the year after. Assuming this early in the fiscal year that one were to use the Rainy Day Fund to address a budget shortfall or wait for more federal funding is dangerous and shortsighted.”

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