Governor Rell: Deficit Dips Slightly, But

Revenue Picture Continues to Darken

Sharp Declines in Income, Sales, Other Taxes

Highlight Pitfalls of Additional Tax Increases

            Governor M. Jodi Rell today announced that the most recent estimate by her budget office of the deficit for the current fiscal year – which ends June 30 – remains essentially unchanged from May, and said she is deeply troubled by the effect that the continuing erosion of state revenues from income taxes, sales taxes and other sources will have on the budget for the next two fiscal years.

            The Office of Policy and Management (OPM) said in its monthly letter to the Comptroller that it now estimates the deficit at $967.6 million, down from $968.2 million in May. The letter reflected precipitous declines in revenues from the state income tax, sales and use tax, inheritance and estate tax, real estate conveyance tax and cigarette tax.

            “Nothing in this report bodes well for the next two fiscal years,” Governor Rell said. “The current deficit is troubling enough – but what concerns me even more are the dismal figures we continue to see for state revenues. In May alone, income tax withholding fell $26 million below expectations – and for the current year, OPM expects income tax revenues to miss the target by a total of $60 million.

            “Sales tax collections are now running $10 million below already lowered projections while estate taxes are an additional $10 million under previously reduced expectations,” the Governor said. “Real estate conveyance taxes are down by $5 million and cigarette taxes are off by another $2 million. To put it bluntly, the revenue picture is getting worse instead of better.

            “The national economic downturn has dealt a devastating blow to Connecticut’s economy. It is painfully clear that the taxes already on the books are not generating the revenue we had anticipated. Families and employers are struggling mightily. Increased taxes will only deepen the misery,” said Governor Rell, who has insisted that the state bureaucracy be diminished and state spending be sharply reduced.

            The Governor and Democrats who control the General Assembly are at odds over the state budget for the next two fiscal years.

            “The continued deterioration of the economy and our tax collections offer clear and convincing proof that we need to reduce spending, not impose additional burdens on our taxpayers,” Governor Rell said.

            In addition to submitting four deficit mitigation plans to the Legislature and making five rounds of agency budget cuts, Governor Rell has negotiated a long-term savings agreement with state employee unions that is now expected to reap more than $700 million in savings, including about $75 million in the current fiscal year. The Governor announced last week that nearly 3,500 state employees – about 500 more than originally projected – have indicated they plan to use a retirement incentive program that will reduce the state work force.

            The Governor has also ordered a ban on out-of-state travel, a hiring freeze, a ban on nonessential purchasing and directed state agency heads to cancel state purchasing cards, known as “P-Cards.” She has also directed agencies to idle state fleet vehicles two days a week, except when absolutely essential to agency missions or needed for public safety.