Well, that’s better
Despite
dealing with a pandemic, the state is healthier than expected, fiscally speaking. Back in May, with much of state commerce shut down to discourage the spread of COVID-19, the Lamont administration projected that losses in tax revenues would eat up the then $2.5 billion “rainy day” budget reserve and leave Connecticut $500 million in the hole by the time the fiscal year ended June 30, 2021.
Instead, the budget reserve has increased to about $3.1 billion, the legal limit, allowing the state to deposit $60 million in the State Employees Retirement Fund.
Updated administration projections this week trim the expected deficit to $1.3 billion, around 6% of the overall budget, but easily covered by the $3.1 billion budget reserve, which would leave the reserve at $1.8 billion going into the next fiscal year.
What happened? Gov. Ned Lamont has sought to hold down spending where possible through employee attrition and asking agencies to limit expenditures where possible, leading to projected savings of $334 million. Some in his own Democratic party have said the governor has overdone it, to the detriment of state programs, but the governor’s instincts were the right ones to nurse the state through this crisis.
Give credit also to the 2017 state legislative budget compromise — when Republicans had a stronger hand with an 18-18 Senate — that created various fiscal caps that helped build the budget surplus rather than squander it.
Tax revenues are much higher than anticipated, with the state boosting its income tax estimates $260 million, sales tax $91 million, and business tax collections $80 million. A red-hot real estate market led the administration to boost real estate conveyance tax receipts by $45 million.
The continued rise in U.S. stocks despite the pandemic headwinds, and the resultant taxable investment earnings, play a big role in the brighter outlook, but so too did the administration’s and the public’s success in keeping the virus in check and allowing the economy to gradually reopen.
The challenge now is to avoid backsliding that would allow another viral spike, endangering both our collective health and the economic recovery.
If the budget outlook remains positive, Connecticut will need to direct more aid to its private, nonprofit social services network that the state uses to provide services for the developmentally challenged, those suffering from substance abuse, the mentally ill and others with special needs. The programs have stretched thin, the dollars too short. Help will be needed.