Connecticut Says Financial Market Losses Widening Budget Deficit

  • Estimated shortfall surged from $7.1 million a month ago
  • Comptroller says market's declines mean less capital-gains tax

Connecticut faces a $220 million budget deficit for the year that ends June 30 as equity-market fluctuations increase the likelihood that the state will collect lower-than-anticipated tax revenue.

State Comptroller Kevin Lembo said in a letter to Governor Dannel Malloy that the shortfall, which is more than 1 percent of Connecticut’s overall budget, has grown from the $7.1 million estimate a month ago. The portion of income taxes that’s largely influenced by the stock market is down 4 percent from a year earlier, Lembo said.

“Recent market developments that impact estimated and final income tax payments have increased the probability of negative year-over-year collections in these income tax components,” Lembo said. “The market-driven decline in wealth has had a dampening effect on all states that rely on capital-gains driven tax receipts.”

Connecticut is the wealthiest U.S. state as measured by per capita income, with a budget that tends to fluctuate more than others because it receives outsized revenue from taxes on investment gains. The Standard & Poor’s 500 index has declined about 6 percent since the current fiscal year began on July 1.

The state’s Office of Fiscal Analysis last week released its own deficit projection of $266 million. The general fund faces a $339 million shortfall in the next fiscal year, according to the presentation.

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