By Keith M. Phaneuf
State government may close the fiscal year with a small surplus, but Gov. Dannel P. Malloy made it clear Friday that lawmakers should make no plans to spend what's left over.
The administration notified the Legislature this week that it wants any surplus dollars deposited into the emergency reserve, commonly known as The Rainy Day Fund.
After forecasting deficits for most of this fiscal year, the governor's budget office on April 20 issued a razor-thin surplus projection of $2.8 million. That represents about 1/60th of 1 percent of the state's annual operating budget.
Comptroller Kevin P. Lembo had projected a $91.3 million deficit in his last monthly report on April 1. His next assessment, which also is expected to reflect modestly improved revenue projections, is due out next week.
The improvement in the administration's forecast is due largely to modest growth in state gift and income tax collections, the latter tied particularly to earnings from capital gains and dividends.
Since November, when voters re-elected President Obama, Malloy predicted the expiration of the President-Bush era federal income tax breaks would spur a December surge of stock sales. The wealthy would take capital gains while they could still pay taxes at the lower rate, and Connecticut would enjoy a surge -- at least for now -- in state income tax revenues.
The state's chief municipal lobby, the Connecticut Conference of Municipalities, wrote to legislative leaders earlier this week asking that any last-minute surge in revenues be used to enhance aid to cities and towns in the next state budget.
Advocates of Connecticut's 29 acute-care hospitals also have been pressing to reverse at least a portion of the $550 million cut in hospital funding Malloy has proposed over the next two fiscal year's combined.
But the governor, whose budget chief wrote lawmakers this week to convey the administration's stand, said any surplus has to go into the bank.
"The answer is 'No. Don't go out and spend that,'" Malloy told Capitol reporters following Friday's regular meeting of the State Bond Commission in the Legislative Office Building.
But the governor said Friday that this surge can't be expected to recur year-after-year, meaning legislators can't spend any surplus dollars on ongoing programs.
"We have to recognize the reality of the situation," Malloy said.
Both the administration and nonpartisan legislative analysts have projected a large shortfall -- about $1.2 billion or 6 percent of annual operating costs -- in the next state budget based on current spending and revenue trends.
Malloy is seeking to close that gap with a combination of spending cuts, borrowing, and the extension of soon-to-expire tax hikes on businesses and power plants.