More Red News, $365 Million Hole

From Keith M. Phaneuf and Arielle Levin Becke, www.ctmirror.org

This year’s state budget is $365 million in the red, nearly double the level needed to compel Gov. Dannel P. Malloy to prepare a deficit-mitigation plan, according to written testimony from Malloy’s budget chief.

Office of Policy and Management Secretary Benjamin Barnes also confirmed in his written testimony filed this afternoon with the legislature’s Appropriations Committee that huge cost-overruns in the state’s Medicaid program, coupled with declining revenues, are driving the shortfall.

“All told, these changes result in a projected deficit of $365 million” in the current fiscal year, wrote Barnes, whose next official budget estimates are due to Comptroller Kevin P. Lembo Nov. 20. “Assuming they are certified by the comptroller on Dec. 1, (they) will require that the governor submit a deficit-mitigation plan to the General Assembly before the end of the calendar year.”

Whenever the comptroller certifies a deficit larger than 1 percent of the general fund, state law requires the governor to submit a plan to lower the deficit to lawmakers. In this year’s $20.54 billion total budget, the general fund–which covers most operating expenses–totals $19.14 billion, putting the 1 percent threshold at $191.4 million.

Barnes’ testimony came as the legislature’s budget-writing panel began a review of cost overruns in the state budget.

The first indications that state finances had worsened significantly came Friday when the administration and the legislature’s nonpartisan Office of Fiscal Analysis issued a joint report that lowered revenue expectations $128 million below the level assumed when the legislature adopted this year’s budget in late June.

That report, which dealt only with revenues, would have expanded the deficit for the current year beyond $200 million.

But because it also showed that federal payments to assist Connecticut’s Medicaid program were growing, it also indicated that the cost of state programs to provide medical services to the poor also were surging well beyond budgeted levels.

That picture became much clearer Wednesday when legislative analysts reported $220.5 million in projected cost overruns throughout the entire general fund, including $190.9 million in the Medicaid program.

Medicaid costs surging

In his testimony, Barnes attributed the Medicaid shortfall largely to increased use of medical services, particularly hospitals, and increased enrollment. He singled out the program Medicaid for Low Income Adults, which covers poor adults without minor children, as having grown to 83,827 people, a level it hadn’t been expected to reach until next August. Enrollment in the program–commonly known as LIA–has grown more than 12 percent since January.

In addition, Barnes said, fewer people than anticipated had moved out of nursing homes as part of the state’s Money Follows the Person program, leading to higher-than-expected spending on nursing home care.

The budget figures presented Wednesday still count on the state saving $50 million before next July by tightening eligibility for the LIA program. But the federal government hasn’t granted the state the permission it needs to make the changes, narrowing the window the state has to make up the savings.

And federal approval might not come anytime soon, according to a court filing by attorneys for the Department of Social Services. DSS still has to answer questions posed by the federal government about its application to waive certain Medicaid rules so it can make eligibility changes, and doing so is expected to take “considerable time,” they wrote last week. After that, it will take more time for the federal agency to review the application, they said. The filing was in response to a request by legal aid attorneys for an injunction to stop the state from pursuing the eligibility changes.

Social Services Commissioner Roderick L. Bremby also submitted written testimony to the committee, warning that his department could might need up to $8 million extra because of additional staff and overtime being used to meet “record levels” of demand for programs including Medicaid and the Supplemental Nutrition Assistance Program, formerly known as food stamps. The department is facing class action lawsuits over delays in processing applications for both programs, and has been under threat of federal sanctions because of delays and errors in processing food stamp applications. The department has been hiring workers to handle applications.

Malloy said this week that he is optimistic that state income tax receipts will climb next spring as many of Connecticut’s wealthier residents sell their stocks and report capital gains now before federal income tax rates potentially rise.

Malloy added, “We should really have this (deficit) discussion in greater detail in January and February, but we’re going to do whatever it takes to balance the budget.”