Connecticut is operating with a $93.9 million deficit two months into the fiscal year, state budget officials said.
The state still lacks a budget. Gov. Dannel Malloy has been operating by executive order since July 1.
State budget director Benjamin Barnes reported the latest numbers Monday in a letter to state Comptroller Kevin Lembo.
To offset the shortfall, the state could transfer $94.5 million remaining unspent in a municipal revenue sharing account. A half percent of the state sales tax funds that account. The legislature must approve such a move if the budget impasse lingers.
“It is our hope that a budget for the FY 2018 and FY 2019 biennium will be enacted soon,” said Barnes, the secretary of the Office of Policy and Management. Connecticut operates under a biennial budget, the deficit for which could reach up to $5 billion.
Lawmakers and Gov. Dannel Malloy are deadlocked over a spending plan. Democratic and Republican leaders are scheduled to meet again Tuesday. The Senate is split 18-18, while Democrats hold a 79-72 advantage in the House of Representatives.
Fixed costs inhibit Malloy's ability to curb spending, even with a $1.6 billion concession package to which state employees unions agreed along with Malloy and the legislature.
Connecticut, facing growing fixed expenses for debt, pensions, and other retirement benefits, will likely push some of its fiscal problems downstream to local governments in the form of diminished aid and increased local contributions to the teachers' pension plan, said Alan Schankel, a managing director at Janney Capital Markets.
The special transportation fund will end the year with an operating surplus of $32.4 million, said Barnes, with a projected fund balance of $135.3 million as of June 30, 2018. Malloy redirected $61.5 million under Malloy’s executive order resource allocation.
Malloy last Friday revised his executive-order budget, slashing educational aid to 139 school districts while protecting some of the state’s neediest, the so-called 30 “alliance” school districts.
The governor restored and redirected $40 million to private, nonprofit health and human service providers, and restored a further $60 million overall to help the state meet its obligations.
Connecticut received three downgrades in May and six over a 12-month period straddling the last two years, with bond rating agencies citing budget imbalance.
Moody’s Investors Service rates Connecticut general obligation bonds A1, while S&P Global Ratings and Fitch Ratings assign A-plus ratings. Kroll Bond Rating Agency rates them AA-minus.
Connecticut’s $22.8 billion of downgraded debt ranks it second behind Illinois’ $31.5 billion for the second quarter of 2017, according to Moody’s. Puerto Rico ($9.9 billion), Chicago Transit Authority ($3.7 billion) and the Regional Transportation Authority in Illinois ($2.2 billion) rounded out the top five.
S&P last month revised its assessment of Connecticut's institutional framework to strong from very strong, citing “a less predictable environment” regarding forecasts of state revenues.
Lawmakers rejected Malloy’s proposed three-month, $318 million mini-budget in late June.