State faces ‘sobering’ budget holes

2021 fiscal year to start with $2.3 billion deficit

Robust emergency reserves will carry Connecticut through the last two months of the fiscal year, Gov. Ned Lamont said on Friday, but with sharp declines in revenue from the coronavirus pandemic, the budget that starts July 1 will face a $2.3 billion deficit.

“The numbers are sobering,” Lamont said during his daily briefing for reporters in the state Capitol, along with Melissa McCaw, secretary of the state’s Office of Policy and Management. “I’ve got to tell you that COVID has been tough on our physical health, it’s been tough on our mental health and it has also been tough on our fiscal health.”

Lamont, in a morning news conference, said he would ask unionized state employees for help facing the tsunami of red ink, but declined to announce specifics.

He said one of the few financial bright spots in the pandemic appears to be a boost in statewide real estate sales.

Later Friday, the state Department of Public Health announced 89 new COVID-19 fatalities, bringing the total in the state pandemic to 2,339. But the net downward trend in hospitalizations continues to keep Connecticut on track for a slow reopening of closed businesses. The net decline of 58 patients brought the total hospitalized to 1,592.

Friday marked the ninth straight day of declines in the number of people being treated in hospitals for COVID-19.

Lamont said that the current $2.5 billion emergency reserves called the rainy day fund — about 13 percent of the annual state budget — is a saving grace in a quickly ballooning deficit during the pandemic. The reserves will help solve the projected $934 million shortfall in the $21 billion budget that runs through June 30.

By June of 2021, the state will need about $100 million in revenue increases and $450 million in spending cuts, to help mitigate the projected deficit, but the action would require negotiations between Lamont and the General Assembly.

In response, Gian-Carl Casa, president and CEO of the CT Community Nonprofit Alliance, warned that many of the dozens of member organization have suffered serious financial setbacks in the pandemic and warned that reductions in state support next year could spell doom for agencies including group homes and halfway houses.

“Put simply, further cuts of any type would mean providers will not be there when this COVID pandemic ends, or when the next crisis comes,” Casa said in a statement.

The legislature has abandoned its budget-adjustment session, set to end on midnight next Wednesday. State law allows Lamont to cut most agency budgets by up to five percent. McCaw expects to use $1.9 billion in the reserves to complete the 2020-21 fiscal year, but the picture will become clearer in November.

The current deficit is driven by a $570 million decline in lower personal income taxes in the deluge of unemployment claims. Businesses suspended in the pandemic represent about 35 percent of state sales and use taxes.

“It’s a deficit that really didn’t exist until very recently with COVID,” Lamont said, adding that $370 million in anticipated federal support will get bumped into the next year’s budget. He doesn’t want to raise taxes or reduce support for nonprofit service providers, but McCaw hinted that a 10 percent corporate surcharge could be extended another year, pending a special session of the General Assembly sometime in June.

Lamont warned that the collapse of gasoline prices, exacerbated by the stay-athome orders keeping many off the highways, threatens an expedited insolvency of the state’s fund for transportation infrastructure projects, which may now run out of money by July 1, 2021, rather than the hoped for three or four years.

Lamont declined to say whether the stark financial numbers will prompt him to rekindle efforts to persuade the General Assembly to adopt trucks-only highway tolls. “I’d love to work with you in terms of other ideas in terms of shoring this up,” he said.

The governor anticipates some sort of additional support from the federal government, above and beyond the $1.4 billion for coronavirus-related expenses, including testing and state and local-level health

expenses. State hospitals have gotten about $150 million, about one third of the federal allocation that has been supplemented by another $75 billion nationally.

McCaw said that economists belief the state can start turning around during the 2021-22 fiscal year. “Obviously that’s reflective of the timing it takes for individuals to become re-employed, the timing of the recovery and businesses reopening, as well as the extent to which consumers feel comfortable spending at prior levels,” she said. “Historically, there is a little bit of delay in the recovery to see spending increased to prior levels.”

In other pandemic developments, Lamont announced that the Federal Emergency Management Agency approved another portion of disaster assistance including money for crisis counseling for those affected by the coronavirus.

“This pandemic is having an impact on nearly every segment of our society and daily lives, and that includes mental health services,” Lamont said in an afternoon statement. “Approval in this category of aid will mean a lot to so many people living in our state, and I appreciate FEMA’s approval.”

Shortly after 6 p.m., the governor released his latest executive order, suspended annual town meetings and budget referendums. “This clarifies that going forward, the relevant elected body or bodies in each municipality must adopt a budget for 2020-2021 without an inperson vote by residents,” the order said. “It also validates any budget referendum or annual town meeting that has already been conducted.”

The order also authorizes so-called common-interest communities, including condominium associations, to hold meetings and conduct business remotely.

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