Governor M. Jodi Rell announced Friday that her budget office now estimates the shortfall in the current year’s state budget at about $944 million, up about $22 million from its estimate last month. Governor Rell on Thursday delivered a deficit mitigation plan to the Legislature that would cut $1.1 billion in state spending, more than closing that gap without resorting to layoffs or new taxes.
“This letter underscores the urgency of the message I sent Thursday: The time to act is now,” Governor Rell said. “Attacking the shortfall in bits and pieces simply has not worked – instead, the gap has continued to grow. We must not only eliminate it altogether but begin the process of restructuring state government so that we can benefit from ongoing savings. For example, my deficit mitigation proposal includes a retirement incentive plan that will trim state payroll costs both now and in the future.
“Connecticut’s taxpayers and our state’s employers have made many difficult decisions already,” the Governor said. “Cutting spending is never easy or fun – but in times such as this it is the only sensible approach. We know that state government has to remake itself to deal effectively with the current economic crisis and to help our state take wing when the economy begins to pick up again.”
The estimate today from the Office of Policy and Management is the latest of several projections of the current budget year shortfall. The Governor’s $1.1 billion plan would leave $103 million in additional savings to deal with any additional fallout from the continuing economic crisis or be carried over into the next two budget years.
The Office of the State Comptroller has estimated the current deficit at $1.1 billion, while the Legislature’s budget office has put the deficit at about $1.3 billion. Governor Rell said Thursday in announcing her mitigation plan that she developed a $1.1 billion plan because the Comptroller’s number was halfway between the previous estimate from her budget office and that of the Legislature.
The monthly letter from OPM to the Comptroller pointed to an overall drop in tax collections of more than $73 million as the main reason for the increase in the deficit. The declines in sales tax revenue (down by $54 million) and real estate conveyance taxes (down $19.1 million) were partially offset by a $40.1 million increase in Medicaid revenue from the federal government.
Additional cost-cutting and an increase in the amount of money agencies expect to have left over when this fiscal year ends on June 30 also helped offset the decline in tax collections.
The fall-off in sales tax and real estate conveyance taxes have implications for the next two budget years. At current rates, the decline would likely reduce state revenues by about $150 million over the two-year period.
However, Governor Rell said her budget office is also following several other key dates, including the March 15 deadline for certain business tax returns and the April 15 deadline for personal income tax returns.



In addition, the Governor has directed OPM to carefully track the economic effects of the federal stimulus package President Obama signed into law this week. As that money – intended to spur economic development and job creation – begins to flow into the state, it could have a positive effect on income, sales and other taxes.