Projections erase state’s $854M deficit
Higher sales and personal income taxes and a resurgent real estate market have erased the Connecticut’s feared $854-million deficit for this fiscal year and turned it into a projected surplus, state officials announced Friday.
Gov. Ned Lamont’s budget office and the nonpartisan Office of Fiscal Analysis agreed that sales and income tax-revenue growth of five percent, which hasn’t occurred in more than 10 years, plus a hot real-estate market have helped turn the deficit into a modest $70-million surplus for the budget year that ends June 30.
The new forecasts also show a reduction in projected shortfalls in the two fiscal years that start July 1 — reducing the 2022 shortfall from $2.1 billion to $1.25 billion and the 2023 shortfall from $2.2 billion to $1.4 billion.
In addition, the state would sock away $1 billion in its rainy day fund over the next 2 1/2 years — a fund that now contains $3 billion, some or all of which the state was planning to use to fill the deficit holes over the next three years.
Lamont said it is testament to the state’s ability to cope with the coronavirus pandemic.
“In this unique paradigm, portions of our state’s economy have continued to perform thanks to the resilience of our residents, robust federal support, and smart and strategic state investment,” Lamont said in a Friday night statement. “This forecast allows the state to continue essential services and support for our partners without forcing us to tap our historic savings in the current
year.”
Melissa McCaw, secretary of the Office of Policy and Management, credited “bold and swift actions” that stabilized markets and allowed 40,000 business start-ups in 2020, while increasing taxes on investment income.
“We have also seen stronger than anticipated performance in our withholding and sales tax, as some businesses have been able to stay open and keep their employees working, which has allowed for more consumer spending than we projected in April,” she said. “By combining state and federal resources, we have been able to successfully maintain in-person public education, reopen substantial portions of the state economy, and help shoulder much of the costs associated with combating this pandemic for our nonprofits and municipalities.”
But she warned of “sizable” projected deficits of more than a billion dollars in each of the next two fiscal years. Lamont is scheduled to propose his next two-year budget on Feb. 10.
“This is incredibly positive news,” said Speaker of the House Matt Ritter, D-Hartford, after a Friday briefing. “Mid-year consensus revenues are certainly not the final numbers upon which we craft a budget, but this is an important snapshot of where the state is heading. I also expect these numbers to improve even more as the full impact of the federal stimulus bill and any future federal stimulus bills are felt here in Connecticut.”
He said that the extra revenue will give the state flexibility to borrow for infrastructure improvement at current low interest rates. The projections also suggest that the state’s emergency reserves may grow to $3.4 billion by the end of June.
“It's incredibly encouraging to see that despite the challenging times we're living in, Connecticut's fiscal outlook appears to be getting stronger,” said Rep. Sean Scanlon, D-Guilford, the new co-chairman of the tax-writing Finance, Revenue and Bonding Committee. “Make no mistake: we are not out of the woods yet and we still face big challenges but today's news is a very welcome step in the direction of progress when it comes to Connecticut's economic recovery from the COVID-19 pandemic.”
Senate Minority Leader Kevin Kelly, R-Stratford, warned state leaders to remain cautious.
“Small businesses are shutting their doors, unemployment remains high and we still have billiondollar out-year deficits,” Kelly said in a statement. “We must resist the urge to raise taxes and continue to reduce the cost and size of government. We must make Connecticut more affordable for middle class families.”