Last month Malloy claimed Connecticut would have a surplus, now we have a deficit —- why?

From Connecticut State Comptroller Kevin Lembo;

COMPTROLLER LEMBO REPORTS $393.4-MILLION DEFICIT AFTER CONTINUED INCOME TAX EROSION

Comptroller Kevin Lembo today announced that continued erosion of the state income tax – likely due to a combination of investors relying more on tax-friendly investment funds, an economic trend towards lower-paying jobs and population loss – has increased the current fiscal year deficit to $393.4 million.

The Budget Reserve Fund has a current balance of $235.58 million, which is insufficient to cover the current General Fund deficit.

In a letter to Gov. Dannel P. Malloy, Lembo said his deficit projection is approximately $3.6 million higher than the deficit reported by the Office of Policy and Management (OPM) because Lembo believes the state will spend more than initially planned on ongoing settlement payments related to the SEBAC vs. Rowland case.

“Connecticut’s budget performance is a reflection of our national and state economies,” Lembo said. “Over at least the past two months, I have expressed concern regarding final income tax collections.

“History demonstrates that final April collections typically move in the same direction as the quarterly estimated income tax payments collected earlier in the fiscal year. For the first two quarterly deposits of the fiscal year, estimated payments were running more than 8 percent below last year. This raised significant concerns – now proven true – about final payment collections. It now appears that final payments will be approximately 10 percent below last fiscal year’s level.”

Connecticut joins nearly 20 other states facing eroding income tax revenue – however, Lembo said that Connecticut also faces its own unique structural problems, including unfunded pension liabilities and retiree health costs.

Lembo said the most significant deterioration in the General Fund’s fiscal outlook occurred in the projection for income tax receipts, which are now $450.7 million below last month’s estimate and $532.2 million off from the original budget plan.

Gov. Malloy’s administration had an optimistic view regarding the potential for gains due to a significant run-up in the stock market at the end of 2016, Lembo said.

“Those gains have not materialized,” Lembo said, pointing to increasing popularity of “tax efficient” investments such as Exchange Traded Funds (ETFs). “These funds are designed, in part, to minimize capital gains taxes.”In the United States, ETF assets increased from $157 billion in 2003 to $2.8 trillion by March 2017.

In addition to the drop in estimated and final income tax payments, there has been a significant downturn in the withholding portion of the income tax, which is responsible for over 60 percent of total income tax revenue. 

“A general shift in the composition of employment by sector to lower paying jobs may be a contributing factor,” Lembo said. “In addition to greater use of tax advantaged investments, the state’s population loss may also have played a role in the disappointing final payment results.”

Lembo said U.S. census data shows that Connecticut experienced a decline in population of 8,278 residents between July 1, 2015 and July 1, 2016. Connecticut was one of only eight states to experience a decline in population during this period – and has now posted three consecutive years of population decline.

 

Malloy says NO oversight of his administration is allowed – Comptroller Kevin Lembo says what the ____!

 

Yesterday – June 9, 2016 – Governor Dannel Malloy, who once pledged to run the most transparent administration in history, vetoed an extremely important piece of legislation that would have ensured that there was proper oversight over Malloy’s outrageous corporate welfare and economic development programs.

As the CT Mirror Reported,

“State Comptroller Kevin P. Lembo called the veto “deeply troubling” and a blow against transparency. “

According to the news story;

“Malloy also wrote that transferring the analysis of tax credits from DECD to Program Review was “unnecessary and unwarranted.”

That drew a rebuke from Lembo, a fellow Democrat who testified at a public hearing in March favor of giving the job to Program Review, a bipartisan committee with a staff of non-partisan researchers and analysts.

“If objectivity really matters, we always want an independent third party to evaluate our work,” Lembo said Thursday in an emailed statement. “This is why teachers grade tests and students don’t just assign their own grades. Furthermore, this is a terrible loss of transparency where we need it most.”

Lembo said the veto, following a decision to provide $22 million in state bond funds to a rich hedge fund over his objection, is “deeply troubling.”

“The state owes it to businesses and all taxpayers to fully analyze the return on investment that these sizable and important programs actually deliver in order to assess whether such resources are fulfilling their intended purpose or, if not, whether state funds would be better deployed to other economic development or infrastructure investment,” Lembo said.

Malloy’s latest effort to keep Connecticut’s citizens in the dark about how badly government is managed comes on the heels of an incredible move by Malloy (and the Democrats in the legislature) to literally prohibit the “Independent” Office of Fiscal Analysis from warning elected officials and the public about upcoming budget deficits.

As a May 12, 2016 Wait, What? article reported;

Meanwhile, the same outrageous implementation budget bill includes unprecedented language that allows cities and towns to simply cut their local public school budgets by the amount of any reduction in state aid to those schools.

This means that while a number of cities and towns will be getting a major pot of cash dumped on the non-education side of the budget, they won’t even have to maintain their efforts to fund their schools.

And if those two sections weren’t telling enough, any member of the Connecticut State Senate and State House of Representatives who votes in favor of this bill will be taking the truly unprecedented step of adopting a law that would literally PROHIBIT the non-partisan office of Fiscal Analysis from reporting on future budget expenditures and possible deficits that are the result of the annual increases that go with maintaining current services.

THIS IS EXTREMELY IMPORTANT!

With no public hearing, no public input and no public notice, Malloy and the Democratic leaders of the General Assembly have included language in this year’s budget implementation bill that intentionally prevents the media and the public from knowing the true ongoing costs of state government.

The CT Mirror’s Keith Phaneuf explains this incredible development in his latest article;

Future state deficit forecasts are likely to shrink significantly under a method imposed in the new state budget plan that disregards billions of dollars in annual expenditures not fixed by contract or federal mandate.

The language, proposed by Gov. Dannel P. Malloy, is included in an omnibus policy bill to help implement the proposed $19.76 billion budget for the fiscal year beginning July 1.

House Minority Leader Themis Klarides, R-Derby, blasted the measure — which was released only a few hours before the Senate was expected to debate it Wednesday morning — as a means to hide Connecticut’s fiscal woes from the public.

Malloy and his budget director, Benjamin Barnes, have been critical for several years of the deficit-forecasting methodology used by the legislature’s nonpartisan Office of Fiscal Analysis.

OFA generally tries to assess both the current and future costs of all programs, staffing, grants and other expenditures, whether fixed by contract or federal requirement, or simply set by state law.

The new methodology would disregard cost increases in most state programs, excepting debt service, retirement benefits and federal entitlement programs.

“Moving away from ‘current services’ will help us ensure that government does not continue to increase spending on autopilot,” the governor said Wednesday.  “As part the budget agreement, the state will change how it does business, and give residents and businesses the predictability they seek as government works to live within its means.”

The language is nothing but a blatant effort by Malloy and the Democratic legislature to hide the true costs of maintaining state services and preventing voters from understanding the ramifications of taxes and spending.

Dismissing the most fundamental notions of open government and democracy, Malloy and the Democratic leaders are engaged in a new political strategy based on keeping the citizens ignorant about how their government functions and how it spends their money.

No real Democrat would vote for such a measure.

But Democrat Malloy and Democratic legislators voted for Malloy’s maneuver and now Malloy has added salt to the wound by making sure no one outside of his own administration reviews the corporate give-away-program that is costing Connecticut taxpayers hundreds of millions of dollars.

Malloy, Budget Deficits and the failure to follow State Law

In the real world, a budget deficit occurs when a government’s expenditures exceed the revenue that it generates.

According to Connecticut state law, if the State Comptroller projects that the budget deficit exceeds 1 percent of the state budget ($174.6 million), the Governor MUST immediately develop a Budget Mitigation Plan and submit it to the Connecticut General Assembly for review and approval.

As Wait, What? readers will recall the one true constant during the 2014 gubernatorial campaign was Governor Dannel Malloy’s claim that there was no state budget deficit this year, nor would there be one.  Period, end of story.

State law also requires the Office of Policy and Management to provide the State Comptroller, on the 20th of each month, a letter outlining any projected revenue shortfalls or areas where the executive branch is spending more than what was budgeted for a given line-item or program.

During the entire campaign, Malloy repeatedly said that there was no state budget deficit and ten days before Election Day, Malloy’s Budget Director, Ben Barnes, made the incredulous claim that the Malloy administration was not overspending on a single line- item or program.  Barnes reiterated that the State of Connecticut did not have, nor would it have a budget deficit.

At the time, a CT Mirror story written by Connecticut’s leading budget reporter, Keith Phaneuf, led with the headline, “Malloy boldly projects perfection in last budget update before election.”

As Phaneuf reported at the time,

It’s came as no surprise this week when Gov. Dannel P. Malloy’s administration reported the state budget was in balance.

What was far more surprising, though, was the added assertion there are no signs of cost overruns in any of the dozens of agencies supported by this year’s $19 billion budget.

For the first time in at least nine years, an administration reported no “deficiencies” that need to be tracked thus far into the fiscal year – a claim that Malloy’s critics attacked as extreme political spin in the final days of the campaign.

Within days, Connecticut’s independent, non-partisan Office of Fiscal Analysis identified a series of areas where the state was overspending, but with the Democrat’s Get-Out-The-Vote operation already underway, the Malloy administration dismissed the information and continued to claim that there was no state budget deficit.

Then, just ten days after Election Day, the state deficit “began to appear.”

However, the Malloy administration continued to downplay the situation in an effort to persuade the State Comptroller to say that the projected state deficit did not exceed the 1 percent trigger, which would have required Governor Malloy to develop and submit a comprehensive Deficit Mitigation Plan.

Now, ninety days after Election Day, the information provided by the independent, non-partisan Office of Fiscal Analysis reveals that the real State Budget deficit was more than $225 million, well in excess of the $174.6 million Deficit Mitigation Level.

And yet Governor Malloy and his administration never submitted a Deficit Mitigation Plan because the State Comptroller never determined that the trigger level had been met.

The scheme allowed the Malloy administration to continue their ongoing effort to mislead the General Assembly, the citizens of Connecticut and the media.

How did this happen?

Over the last three months, the Office of Policy and Management submitted their legally required letter to the State Comptroller on the state of Connecticut’s financial situation, but each month the Malloy administration provided misleading or false information.

Despite reports issued on November 20, 2014, December 20, 2014 and January 20, 2015, Malloy’s budget directer refused to come clean and properly identify where spending had exceeded budgeted levels.

And this week, the fiscal and political situation surrounding Connecticut’s growing budget crisis went from bad to worse.

In an article this past Monday entitled, Lembo backs Malloy’s assessment of smaller CT deficit, the CT Mirror’s Keith Phaneuf reported;

State Comptroller Kevin P. Lembo gave Gov. Dannel P. Malloy a big vote of fiscal confidence Monday, agreeing that Connecticut’s budget deficit is well below the emergency level.

The $89.4 million shortfall Lembo reported not only represents roughly half the amount that would compel Malloy to issue a deficit-mitigation plan, but also falls at least $80 million below the deficit projection of the legislature’s nonpartisan analysts.

State Comptroller Kevin Lembo based his decision on the belief that the Malloy administration could achieve the full savings from the first two rounds of emergency recessions (budget cuts) that had already been announced, but as Phaneuf noted in his article, the Malloy administration’s track record on actually achieving savings during the appropriate fiscal year is dismal.

Of even greater concern is the fact that the Malloy administration is still failing to admit that there are key budget areas where the state is dramatically overspending the amount that was actually budgeted for those activities.

As Phaneuf fully explains in his piece,

“the prospect of a deficit-mitigation plan loomed larger one week ago when the legislature’s nonpartisan Office of Fiscal Analysis pegged this year’s shortfall much larger, at $202.5 million.

Even after applying the full effects of the governor’s emergency cuts, the deficit – according to OFA – would have stood at just under $171 million.”

But Governor Malloy was, once again, allowed to duck his legal responsibility to develop a Deficit Mitigation Plan for Connecticut when the State Comptroller decided to accept the Malloy administration’s inaccurate reports about overspending, while disregarding the Office of Fiscal Analysis’ observation that Malloy would not be able to achieve all of the savings that he claimed from the first two rounds of emergency cuts.

In particular, as Phaneuf noted, “According to nonpartisan analysts, cost-overruns involving Medicaid and magnet schools are worse than the administration estimates. And a potential surplus in the debt service account is not as large as Malloy’s staff projects.”

Although Lembo’s latest action saves Malloy from having to develop a comprehensive Deficit Mitigation Plan, Lembo used his most recent report to observe that, “No one should see this as an all-clear sign…We need to continue to watch spending, to continue to watch revenue as it comes in.”

However, those remarks were hardly enough to keep Republican legislators from charging that the Democrats had circled the wagons in order to protect Malloy’s political strategy of refusing to tell the truth about Connecticut’s fiscal problems.

In a follow up story in yesterday’s CT Mirror entitled, “GOP says Lembo ignored deficit to shield Malloy,” Keith Phaneuf reported that,

“Republican legislators were surprised Monday when Lembo not only accepted the administration’s $121 million deficit projection, but also assumed the $31.6 million in emergency cuts would involve no duplication.

Lembo, who reported a deficit projection of $89.4 million, did not reject the concerns raised by legislative analysts, but noted that the administration has a strong track record of meeting savings targets built into past budgets.

But legislative analysts, who finished their review of the governor’s latest cuts, concluded they only effectively saved the state about $20 million.

More importantly, OFA said the deficit actually stands at $182.3 million. That’s $7.7 million above the level that triggers a formal gubernatorial plan to balance the books, and $92 million worse than Lembo’s estimate.”

While Malloy, Lembo and the Republicans spar over the particular numbers, one thing is absolutely clear.

In the days leading up to Election Day, Governor Malloy and his budget director consistently claimed that there was not budget deficit, that there would be no budget deficit and that the Malloy administration was not overspending on a single line-item in a nearly $18 billion General Fund Budget.

Three months later, we now know that they knew, or should have known, that the real state budget deficit had exceeded $225 million and Connecticut’s state government was careening toward a budget deficit of more than a quarter of a billion dollars….

Along with a projected budget deficit for next year in excess of $1.4 billion.

And despite this undeniable truth, Governor Malloy managed to duck his legal obligation to provide the Connecticut General Assembly and the people of Connecticut with a comprehensive Deficit Mitigation plan.

For more background on these latest issues go to Keith Phaneuf’s most recent articles at Lembo backs Malloy’s assessment of smaller CT deficit and GOP says Lembo ignored deficit to shield Malloy

CTNewsjunkie: “Malloy Not Convinced Deficit Is Higher”

Just when you thought it couldn’t get more bizarre…

On Monday, State Comptroller Kevin Lembo, whose office was created in 1786 “to provide accounting and financial services, to administer employee and retiree benefits, to develop accounting policy and exercise accounting oversight, and to prepare financial reports for state, federal and municipal governments and the public” performed his monthly legal duty by releasing what is called his Letter of the First.

The Letter of the First is the legal document that serves as “a monthly analysis of the state’s budget condition that contains the financial statements for the latest month and projections for the budget position to year’s end.”

In that letter, Comptroller Lembo determined that this year’s projected state deficit is $415 million, not the $365 million that the Office of Policy and Management had previously announced.

As required by law, if the State Comptroller determines that there will be a projected deficit of greater than 1 percent of the state budget, the Governor MUST develop and propose a Deficit Mitigation Plan and the Connecticut General Assembly must meet to consider that plan.

According to CTNewsjunkie’ s coverage of developments, “Gov. Dannel P. Malloy wasn’t concerned that state Comptroller Kevin Lembo certified a deficit that was $50 million higher than the one his budget office estimated last month.”

Malloy told reporters, “These numbers are going to go up and down…We’re moving forward with our package, which addresses a set of numbers.”

But of course, under the law, it is totally irrelevant what Malloy and his budget office think.  If the State Comptroller certifies that there will be deficit of greater than 1 percent,  the Governor has the legal obligation to propose a solution to address that deficit.

According to CTNewsjunkie, Governor Malloy then went on to say, “The comptroller thinks we will spend more money than we did — he may be right…I was told similar predictions were made last year and they didn’t turn out to be right, so we’re dealing with the numbers we believe currently represent that challenge.”

Malloy’s suggestion that Lembo has been wrong in the past is off-base, but even more importantly, as was just noted, IF the individual who is legally responsible for being the state’s fiscal watchdog says the projected deficit is $415 million, then the “correct” number is $415 million…not “the numbers we believe currently represent the challenge”.

Finally, the Governor summarized the situation by saying, “We’re going to continue going down the path of dealing with it in a forthright, fair, and transparent manner.”

Ah, okay…

So just so we all have the same set of facts…

In the days leading up to this year’s election, the Malloy administration maintained their claim that the budget deficit was not more than $60 million.

Then in the course of two weeks it jumped to $128 million and then $365 million.

And just last week, when Malloy announced his $160 million in “budget cuts,” it turned out that he was double counting more than $40 million of those cuts and his action really reduced state spending by $123 million.

One can say a lot of things about the way the Malloy administration are handling the ongoing budget crisis, but “forthright, fair, and transparent” sure isn’t one of them.

You can find CTNewsjunkie’s story here: http://www.ctnewsjunkie.com/ctnj.php/archives/entry/malloy_not_concerned_about_higher_deficit/

 

Breaking the Budget Deficit Down – Department of Social Services (DSS) – $190.9 million

When Governor Malloy proposed this year’s budget, the General Assembly passed it, and the Governor signed it into law, it was widely understood that the Malloy Administration had purposely underestimated the true costs of funding various programs, especially within the Department of Social Services.

Almost immediately, State Comptroller Kevin Lembo started warning the Malloy Administration that spending on social services would exceed what was authorized in the state budget.

Eventually, Ben Barnes, the Secretary of the Office of Policy and Management, admitted that the state might spend as much as $100 million more than authorized on these programs.

When the truth finally came out last week, the projected spending level is at least $191 million more than budgeted, although the federal government will reimburse the state for 50 percent of that amount.

This week, details about the $191 million in excess Medicaid spending were finally provided.  The overspending includes;

$62.5 million in Acute Care Services (hospitalization)

$46.1 million in Professional Medical Care (doctors)

$25.9 million in Other Medical Services (lab work, treatment, medical supplies and equipment)

$13.0 million in Home and Community Based Services

$39.6 million in Nursing Home Facilities

$2.8 million in other Long Term Care

$1.0 million in Administration and Adjustments

In addition to the “optimistic assumptions,” there has been an increase in caseload, although the Malloy Administration’s attempt to blame the problem on increasing caseload is more than a bit disingenuous.

According to estimates from the independent Office of Fiscal Analysis,  the number of Low Income Adults seeking services has grown by about 4,000 clients since the beginning of the fiscal year in July, a 5.0% increase.  These additional clients represent an additional cost to the state of about $30.0 million.

In addition, the Malloy Administration had proposed a number of initiatives to reduce spending on Medicaid this year, most of which have yet to be implemented.

As part of Governor Malloy’s $132 million in cuts that he proposed yesterday, the Department of Social Services was hit for about $32 million.  These cuts will force significant reductions in a variety of vital services starting in December and January.

Some of the more significant program cuts include the following;

Children’s Trust Fund $657,000

Husky B Insurance Program $1.5 million

Old Age Assistance $1.5 million

Aid to the Disabled $964,000

Temporary Assistance to Family (TANF) $5.3 million

Connecticut Home Care Program $2.3 million

Child Care Services (which is the child care subsidy for low-income WORKING PARENTS) $2.3 million *

*So, the cut could actually cost the state money if parents are forced to quit to take care of children

Housing/Homeless Services $2.9 million

Furthermore, the largest cut to the Department of Social Services is being made to the grant program to Connecticut hospitals to help them cover their uncompensated care.  Malloy’s cut to these hospitals is for $13.4 million, which will certainly lead to health insurance premiums going up as hospitals try to stay in business by shifting even more costs to self-pay patients and those who are insured.