| NEW YORK
NEW YORK May 2 Connecticut lawmakers scrambled
to rework the state budget on Friday after revenue projections
fell well below expectations, all but eroding a forecast surplus
and scuppering plans to boost the state's depleted rainy day
fund, beef up the underfunded pension system, and provide tax
News of the revenue shortfall on Thursday, which was mainly
due to lower than forecast income tax collections in April, was
a setback for a state that has lagged the recovery after the
financial crisis and struggled to put its fiscal house in order.
State lawmakers agreed a new $19 billion spending plan for
the 2014-15 fiscal year on Friday that strips out $40 million
from the previously enacted 2015 budget and keeps spending
growth at 2.3 percent, governor Dannel Malloy said. State
lawmakers are still working out the details of the plan and are
expected to vote on it in the coming days.
"Like any legislative session, this one wasn't without its
surprises and challenges," said Malloy in a statement. "But the
bottom line is that this budget is balanced, puts the surplus
into the rainy day fund and makes real, necessary investments in
the future of Connecticut families."
The new spending plan modestly boosts the state's rainy day
fund by $40 million, or 1.8 percent, to $314.1 million.
Connecticut depleted its rain day fund in 2010 and 2011 to
offset the effects of the recession.
Income tax revenues have fallen below forecasts in many
states due to expected changes to tax rules last year that
pulled tax revenue into 2012, but Connecticut's issues run
deeper. Connecticut's economy may have grown at around just 1
percent in 2013, below the national rate of 1.9 percent, and
well below the state's own forecast of 2.5 percent.
"The big miss was to an extent on the economy," said Michael
Dolega, an economist at TD Economics, who forecasts growth of
1.25 percent for the state last year. "There will be an
acceleration but what is happening on the ground is not very
encouraging at this point."
The state is heavily exposed to the financial sector and has
defense and aerospace industries that rely on federal orders and
exports to Europe, both of which have suffered from spending
Malloy proposed in January to use the surplus in the state's
budget - then projected to be $505 million - to boost the rainy
day fund by $250 million and pay $100 million into the depleted
state pension fund, which is one of the worst funded in the
nation with assets worth only 42 percent of obligations.
"It would have been very beneficial for the state to be able
to put in what it had expected to put in a few months ago or a
few weeks ago even," said Douglas Offerman, an analyst at Fitch
Rating. Fitch rates Connecticut double A with a negative outlook
and has said it may downgrade the state if it cannot meet budget
Connecticut borrowing costs are among the highest of any
state. The state pays over a quarter of a percentage point more
than the highest rated states to borrow money for 10 years.
(Reporting by Edward Krudy; Editing by Chizu Nomiyama)