Slightly old news, but the budget situation is getting worse as the legislature prepares for a special session next week.
A chief reason for the gloomy outlook is the sharp downturn on Wall Street that began in September with the federal bailouts of Fannie Mae and Freddie Mac and the bankruptcy of the Lehman Brothers investment bank. Those collapses, along with the sale of Merrill Lynch and the bailout of insurance giant AIG, set off a cascade of collapsing stocks. Those events will result in diminished capital gains for investors and reduced taxes on those gains collected by the state.
Capital gains could drop by 40 percent, translating into hundreds of millions of dollars in deficits in the future. (Keating)
The thing is, it could be a long time before those numbers come back to the level they were at in 2007 and 2006.
Also, as the Journal Inquirer notes, even if the legislature enacts all the proposed spending cuts, the state will still be in the red at the end of the year. More is going to be required. The budget deficit is growing faster than it can be cut right now, which is a very bad sign.
Keating, Christopher. “New Gloomy Forecast On State Deficits.” Hartford Courant 19 November, 2008.