NEW YORK (Reuters) - Connecticut Governor Dannel Malloy said on Wednesday that the state would use its rainy day reserve money, spending cuts and one-time transfers from other funds to close a $390 million revenue shortfall this year after income tax collections sank.
The plan “requires actions we would all prefer to avoid,” Malloy said in a letter to legislators.
On May 1, Malloy’s budget director Benjamin Barnes warned that total revenues were $409.5 million lower than projected just 10 days before on April 20.
Personal income taxes in particular plunged by $450.7 million year to date through April because of lower than anticipated collections in the month of April, when taxpayers face their annual filing deadline.
Malloy and the state legislature are currently hashing out the state’s next two-year budget, due by the end of the fiscal year on June 30.
In February, Malloy’s biennial budget plan proposed spending cuts, big savings from negotiations with labor unions and shifting a third of teachers’ pension costs to local governments in order to close a projected fiscal hole in the coming years.
Connecticut has been daunted by slow revenue growth as fixed costs, including for public pensions hit by poor investment returns, continue to balloon.
Most of the revenues for Malloy’s plan to close the gap in the current fiscal year come from emptying the state’s nearly $236 million budget reserve fund.
Another $99 million would come from one-time revenue measures, including sweeping money into the general fund from other areas like environmental protection, judicial programs and money the state won in corporate legal settlements, according to the letter. Those transfers must be approved by lawmakers.
Reporting by Hilary Russ