The other shoe fell last week on the CT state budget surplus projection for the fiscal year ending June 30, 2008. What was thought to be a modest but healthy $260 million cushion just a couple or months ago has now been pegged at $16 million. Given a budget of $17.6 billion, we’re essentially talking zero at this point. The balance may even go negative when all is said and done. And while no one appears ready to conjure up a dire forecast for next year at this point, I don’t see much light when I look down the tunnel.

The surplus news has heightened the possibility that the spending plan already on the book for 2008/09—the second year of the biennium—may be allowed to stand. This would mean that some midterm changes that had gained support in recent weeks, like restoring funding for the Early Ready Program, would fall by the wayside. There are two big N’s at play here. One is Necessity. With revenues falling and the surplus gone, the wiggle room necessary for adding to the spending side has evaporated. The other is November. The fall elections are a clear disincentive to any measure that would raise additional revenue through any kind of tax increase. The only other option—reopening the budget and seeking agreement on some combination of pluses and minuses within the bottom line would be very difficult—even if the legislature went into extended session. Not a very promising scenario.

Meanwhile on the local front, some towns face double digit property tax increases just to meet the rising costs of current operations. Dwindling real estate revenues and weakening tax bases are pushing municipalities to the limit—maybe beyond the limit in some cases. We’ll find out as local budgets struggle through the final approval process in the weeks ahead. For example, in a story aired on WFSB last Friday, Middlebury taxpayers are looking at a 13% property tax increase for town services and its share of the Regional District 15 school budget. Based on an incomplete sample, several other towns have been dealing with proposed budgets—combined school and municipal services—that would mean tax increases of 8-11%.

So I have a question for you. Last I heard CT’s rainy day fund was just under $1.4 billion. At what point would you recommend that the state begin to tap into this resource to help weather the current economic situation? $1.4 billion sounds like a lot of money, but it’s only about 8% of the total state budget—about half of the percentage often recommended as a safe reserve. It’s likely the fiscal climate will be as bad or maybe worse next year. If that ends up being the case—will that be rainy enough for the rules of access to the fund to be invoked—or should we just wait it out and let local taxpayers or local services take the hits? I admit I don’t know that much about restrictions on the rainy day fund being used. If you do I would love to hear from you.