Some Of Connecticut’s Deficit Woes Tied To Market

By Susan Haigh

Associated Press

HARTFORD (AP) — Budget experts from the legislature and Governor M. Jodi Rell’s office said Tuesday the state’s shrinking revenue problem may worsen if the stock market continues to underperform.

Connecticut is tied more closely to Wall Street than many other states.

Seventeen percent of the state’s workforce is employed in the financial services sector. That’s compared to 14 percent nationally.

“Connecticut will take a bigger hit,” said Robert Genuario, Rell’s budget director, who warned the legislature’s budget-writing committees.

About a third of the $7.5 billion that Connecticut collects annually in personal income taxes — the biggest revenue generator for the state’s approximately $18.4 billion annual budget — comes from mostly investment-related income and estimated income tax payments.

The Office of Policy and Management and Office of Fiscal Analysis (OFA) briefed the legislature’s two budget-writing committees on the state’s fiscal situation. Both agencies predict the state budget, over the next two fiscal years, will be approximately $6 billion in deficit.

Rell and her budget staff are working on a new two-year budget proposal, which will be presented to the legislature in February.

Meanwhile, lawmakers are scheduled to return to the Capitol on Monday to deal with the current fiscal year, which ends on June 30, 2009. It is estimated to be approximately $300 million in deficit.

Geary Maher, director of OFA, said the state experienced a significant revenue drop in 2001 and 2002, due mostly to the terrorist attacks on September 11, 2001. From 2003 to 2007 and early 2008, he said, the “state has enjoyed the fruits of a large capital gains growth.”

He predicted “significant drops” in capital gains revenue and taxes not automatically withheld from a person’s income.

“That’s a large driver in why we’re seeing such large deficits in ‘10 and ‘11,” Maher said.

Genuario warned lawmakers they can’t rely on the state’s budget reserve fund, estimated at $1.4 billion, to solve the problem. He said the state would run out of money halfway through fiscal year 2010 if lawmakers only used the Rainy Day Fund to cover the deficit and not cut any spending.

“The budget reserve fund will be of some assistance,” he said. “But it won’t be enough.”