Officials with the Connecticut Office of Policy and Management say the deficit in the state”™s general fund for fiscal year 2015 will be $59.7 million less than previously predicted.
In a letter to state Comptroller Kevin Lembo, Office of Policy and Management Director Benjamin Barnes predicted a general fund deficit of $61.2 million for the fiscal year, $59.7 million less than the amount Barnes”™ office predicted last month. The deficit projection was revised to reflect additional state revenue from a legal settlement and an expected growth in personal income tax receipts.
The deficit forecasts came shortly after the announcement of Gov. Dannel Malloy”™s proposed two-year, $37 billion budget that includes a focus on fixing transportation infrastructure in the southwestern part of the state, including upgrades to Interstate 95 and the Metro-North Railroad”™s New Haven Line.
Lembo said the state expects to collect $36 million from the settlement of a class-action lawsuit filed in 2010 by state Attorney General Richard Blumenthal, now a U.S. senator from Connecticut, against bond rating agency Standard and Poor”™s for publishing misleading ratings of certain mortgage-backed securities in the years leading up to the 2008 financial crisis. The case was joined by 18 states and the U.S. Department of Justice and was settled for $1.375 billion.
“We alleged that S&P’s ratings of structured finance securities, including risky mortgage-backed securities, were directly influenced by the demands of the powerful investment banking clients who issued the securities and paid S&P to rate them,” state Attorney General George Jepsen said in a Feb. 3 statement announcing the settlement. “In effect, S&P considered its own business interests, contrary to its public statements that its ratings were objective. These actions had a very direct and serious impact on our national economy that is still being felt in communities and households in Connecticut and across our country.”
The Office of Policy and Management additionally forecasted a 25 percent growth in the amount of personal income taxes collected, though Barnes in the letter conceded that volatility in the amounts of income taxes collected make forecasting difficult.
“In April 2013, a sizable windfall was realized when income tax collections rose by 20 percent,” Barnes wrote in his letter to Lembo. “This was followed by a major decline in April 2014, when income tax collections fell by 20 percent.”
Meanwhile, Barnes also reported that several state agencies would face budget shortfalls, the most significant being for the state”™s Department of Social Services, which faces a $108 million net Medicaid shortfall.
Elsewhere, the comptroller”™s office faces a $15 million shortfall in the retired employee health service, where claim costs are trending above budgeted levels, and an $8 million deficiency in the adjudicated claims account, in part due to a proposed settlement in a wrongful conviction case.
The Department of Emergency Services and Public Protection is expected to face a $5 million shortfall, while the Department of Correction is forecast to be $3 million short as a result of increased utility, food and maintenance costs.
Meanwhile, the state”™s special transportation fund, which is kept separate from the general fund and is used to finance investment in the state”™s transportation networks as well as pay the state Department of Transportation”™s day-to-day operations, is expected to have a $5.7 million shortfall, including a $20 million gap in the DOT”™s rail operations account from Metro-North Railroad operational costs.
