Connecticut closed the fiscal year with surprise small surplus, but billions in deficits still loom
HARTFORD — After dire predictions of a huge budget shortfall due to the coronavirus pandemic, officials were surprised Thursday that Connecticut finished the recently completed fiscal year with a $39 million surplus.
After large portions of the state were shut down in mid-March and the unemployment rate skyrocketed, officials had predicted a deficit as large as $900 million for the fiscal year that ended June 30. But with more federal funds and higher tax collections than expected, a small surplus emerged. The numbers were announced Thursday as the state closed the books on the previous fiscal year and started to look ahead to the future.
With $1,200 stimulus checks being sent to many residents and an additional $600 per week in federal funds for the unemployed, the financial cushion was large enough that the state did not see a
financial nosedive as bad as predicted.
The federal government “really kept the economy going up through June 30,” Gov. Ned Lamont said, referring to the end of the fiscal year. “They handed out trillions of dollars. That meant that our revenues really did not take a severe hit.”
Looking ahead, however, the picture is not immediately bright, officials said. The state expects an operating deficit of $2.1 billion in the current fiscal year and then $3.5 billion deficits in each of the following two years. But Lamont noted that the state’s rainy day fund for fiscal emergencies is now $3.1 billion — boosted in recent years by a booming stock market and improved tax collections to the point where the fund has reached its highest point in state history.
“In the near term, Connecticut is pretty well positioned, compared to our peers,” Lamont said Thursday. “But I’ve got to tell you ... we probably have more debt and unfunded pension liabilities than any other state in the country as a percentage of GDP or per capita. So that’s why [budget director Melissa McCaw] and I have been strict when it comes to debt.”
After taking office, Lamont imposed a “debt diet” to scale back borrowing after years of huge spending under Gov. Dannel P. Malloy for bond projects. Lamont is also preparing for a potentially large number of retirements by state employees because the annual cost-of-living adjustments on pensions will decrease for those retiring after July 2022. That could lead to reductions in the state workforce and savings for the budget.
State Comptroller Kevin Lembo, the state’s fiscal watchdog, said that since the state’s rainy day fund has now exceeded 15% of the budget, any additional money would now go toward paying down debt.
“We could all use a little good news, and ending the fiscal year of 2020 with a surplus is, in fact, good news,” Lembo said at a news conference with Lamont. “The appetite to raise taxes or to cut programs into a deficit was gone. No one should want to do that, and legislators certainly do not want to do that.”
The General Assembly does not need to take any budgetary actions in the special session that is expected next week in the state Senate and the following week in the House. Legislators will also not make any major changes to the police accountability bill that was passed less than two months ago.
La mont confirmed Thursday the views of Democratic legislative leaders that the major police issues will not be debated. The bill’s most controversial provision — on the legal concept of qualified immunity that prevents officers from suffering personal financial damages in civil lawsuits — does not take effect until July 1, 2021.
“I think we’ve got until the middle of next year if we are going to make some tweaks to get it right,” Lamont told reporters.