A miscalculation announced by state budget chief Ben Barnes this week has pushed over the state's spending cap by $54.5 million, putting the proposed budget in the red only a few days after it was announced by Governor Dannel Malloy.
From The Hartford Courant:
Budget director Ben Barnes said the problem arose from a miscalculation in the growth of personal income, a key figure used to calculate the size of the statutory spending cap each year.
During recessions and slow-growth years, growth in personal income is normally low, thus lowering the spending cap.
“Every time it’s a bad budget year, budgets are riddled with gimmicks, large and small. Every trick in the book is played to make the thing balance on paper. It looks like they missed this time, ” said Pazniokas.
Pazniokas said that although former governor Jodi Rell once proposed a budget that fell short by almost $1 billion, Malloy’s budget is still problematic.
“The bottom line is it’s a mess. The legislature, I think, is probably going to take one of the closest looks at a governor’s budget in a long long time,” Pazniokas said.
Susan Bigelow, columnist for CT News Junkie, said on the show that many critics claim that proposed budget cuts would heavily impact people who don’t have a lot of power.
“[The budget is] falling on the intellectually disabled; it’s falling on students who have to pay their loans; it’s falling on people who are getting kicked off Medicaid. It does seem like a lot of this pain is falling on people who really really can’t afford it,” Bigelow said.
And with social services facing cuts even without factoring in the new $54 million deficit, what options does Malloy have?
Hartford Courant reporter Dan Haar told WNPR the “smartest” way to decrease the deficit would be to increase the income tax from 6.7 percent to 6.8 percent for families making over $500,000.
Bigelow agreed. She said legislators often oppose this idea because they think wealthy residents will leave the state if taxes are raised. “There’s a strange idea out there that if we raise taxes on the wealthy, they’re going to flee for other states or they’re going to take their money somewhere else.. But that’s just not true, that just doesn’t happen,” she said.
Bigelow said the greater reality is that legislators don’t want to annoy major contributors to political parties.
But Pazniokas said the greater problem is that Malloy already passed the second-biggest tax increase in his first year.
“He put himself in a box there. He gambled that the big tax increase would take care of all the state’s problems. And of course, that didn’t happen. It’s really a political box Malloy is in, not a fiscal one. You ratchet the income tax up a little bit on wealthier people and you can resolve the problem,” Pazniokas said.
Read Barnes's full statement below.
Statement by OPM Secretary Ben Barnes, February 24, 2015
OPM has informed the legislature’s Office of Fiscal Analysis of a potential discrepancy in its calculation of the expenditure cap growth rate for FY 2016. The growth rate that was included in the Governor’s budget proposal, 2.98%, was inadvertently calculated using personal income data beginning with the fourth calendar quarter of 2008 and ending with the third calendar quarter of 2014. The usual practice of OFA in calculating these growth rates is to use a range beginning with the third quarter personal income data in the relevant years. The statute is silent as to the exact data to use.
The discrepancy occurred when data was pulled from an outside vendor in January, 2015. A feature of this new vendor’s reporting system resulted in a one-quarter shift which was not recognized by OPM until after the Governor’s budget had been prepared and submitted.
Calculation of the expenditure cap using the 3rd quarter data would result in an expenditure cap growth rate of 2.58%, which would then result in a spending cap approximately $60 million lower than the cap presented in the Governor’s budget for FY 2016. The magnitude of this change is due in part to the fact that the quarters in question occurred in the midst of the the Great Recession, thereby leading to a lower rate of growth than in the period shifted one quarter later. Using the revised data, the Governor’s budget would be below the cap by $80 million in FY 2017.
On behalf of the agency, I personally apologize for this discrepancy, and commit to working with OFA and the legislature to identify the adjustments necessary to ensure compliance with the expenditure cap.
Secretary of the Office of Policy and Management
Ryan King is an intern at WNPR. Heather Brandon contributed to this post.