State forecasters sliced almost $1.6 billion from the state’s projected tax revenues over the next 20 months, blowing a hole in the budget for the coming fiscal year and foreshadowing another session focused on slicing hundreds of millions of dollars from the spending plan.
The reduction was not entirely unexpected. State economists had been warning for weeks that the stronger growth numbers they had projected earlier were unlikely to be met following deterioration in the economy in August.
It starts to fill in the details of the scope of the problems lawmakers face, with the budget gap for the fiscal year that begins July 1 expected to hit at least $1.3 billion.
Appearing to be off the table is immediate action on this year’s shortfall, given that lawmakers set aside $1 billion as a cushion for the current year’s spending plan, which weighed in at around $69 billion.
“We’re not in any danger of a deficit this year or a special session this year, unlike other states,” said Amy Baker, executive director of the Legislature’s Office of Economic and Demographic Research.
“But it does make their job going into session, crafting the budget for next year much, much more difficult,” she said.
In a three-year outlook issued shortly after this year’s legislative session ended, forecasters had said the state could have $274 million in extra money to make next year’s budget work. The downgrade Tuesday wiped out that funding.
More bad news for the budget could be on the way. Baker said the state’s main formula for funding education will already add almost $325 million to the shortfall, and economists still have to estimate how much the state will spend on Medicaid next year, a prediction likely to deepen the hole.
That could push the final figure to $2 billion or more, if lawmakers decide to once again set aside $1 billion in reserves.
Baker said that, for now, the numbers don’t anticipate a second recession and do picture the eurozone nations coming up with a solution to the continent’s debt crisis. A change in either situation could tip the balance further toward negative.