Tax windfall not a cure-all

In the years-long effort to Make Connecticut Great Again, the message was clear Monday for anyone who was pumped up by the state’s $1.2 billion excess in tax collection for this year.

That extra moolah that came in over the winter and early spring, even without raising state tax rates, was real. And yes, the state gets to keep it — for emergencies only. In fact, it’s a little bigger than we had thought, according to a joint report of the budget czars in the Legislature, the governor’s office and the state Comptroller.

But no, sadly, the windfall did not signal what we had hoped to see: An increase in tax collections, without raising rates, for the fiscal year that starts July 1 and beyond. In other words, it does not mean a strengthening of the state’s economy.

How could that be? Well, there is some growth, about 2.2 percent, or $350 million, which isn’t terrible; it’s slightly below last year’s gains.

But the big-picture answer, in part, is that figuring out future tax collections based on the money that pours in month-to-month is more art than science.

And in part, the windfall was the result of a complicated set of market dynamics and federal tax policy changes that affected how people and companies booked profits at the end of 2017 and early this year.

Human nature being what it is, lawmakers and others who study the state budget beast had their hopes up.

“Good news doesn’t come very often so I think when we see it we grasp onto it and see what we want to see,” said Kevin B. Sullivan, commissioner of the state Department of Revenue Services.”

Back in a previous downturn, Sullivan recounted, “I can remember a time when a certain Senate president looked at the numbers and said, ‘This is not going to happen next year.’ ” That Senate president was Sullivan, and the decline in growth did in fact happen the following year.

This time around, at the end of 2017, a handful of hedge funds were required to bring money back from overseas and take it as profits, as a result of a 2007 IRS rule. That boosted state income tax collection by $734 million, Sullivan said Monday.

And there was more one-time revenue in the form of stock market gyrations. When the markets swooned over the winter, that was thousands of investors — in Connecticut as much as anyplace — selling off shares, taking gains that had built up for years on

One mistaken payment helps explain the story. A corporation — which Sullivan can’t name — sent in a $25 million check not long ago, when it actually owed $250. Two hundred and fifty dollars.

paper in the bull market.

Those one-time profits led to hundreds of millions of dollars in state tax collections but Monday’s report says we won’t see it year after year.

“A photograph is not a motion picture,” Sullivan said, “and we need to keep looking at that motion picture.”

One mistaken payment helps explain the story. A corporation — which Sullivan can’t name — sent in a $25 million check not long ago, when it actually owed $250. Two hundred and fifty dollars.

“People make mistakes,” Sullivan said. And it was booked into the state system as revenue, under the law. That corporation will get the money back, of course, but it took some time — and as an aside, might have cost an assistant controller his or her job.

Meanwhile, it looked like real money to the state, at least temporarily.

That’s an extreme example but it illustrates the point. “It is very hard, we don’t do a very good job of unpacking these revenue streams,” Sullivan said. There’s no obligation to identify why you’re sending us the check. We’re left to speculate along with everybody else.”

When the mavens turned all that speculation into science on Monday, the result was a decline for next year in the corporate earnings tax, a flat sales tax and slight increases in the personal income tax, translating to that $350 million in extra cash for lawmakers and Gov. Dannel P. Malloy to spend.

All of it, and then some, will go toward higher payments for pensions, general debt and health care. That extra $1.2 billion will help but we still face huge shortfalls starting in 2020.

Happy days are not here again — at least not based on that modest windfall.