UConn report: Don’t put federal relief funds under the mattress
Connecticut could gain an extra 30,000 jobs and $ 2.6 billion in annual household income by 2024 if it invests billions in new federal pandemic relief in its economy — and not in state and municipal budgets, the University of Connecticut’s economic thinktank warned Friday.
The latest report from the Connecticut Center of Economic Analysis challenged Gov. Ned Lamont and the General Assembly to finally tap Connecticut’s record- setting rainy day fund to keep government programs afloat, thereby freeing federal relief to maximize the recovery from the coronavirus.
“If instead recipients push those federal dollars under the mattress, it will do nothing for the economy,” wrote economist Fred Carstensen, who heads the center, and senior research fellow Peter Gunther. “It will not lead to creation of new jobs, additional household income, and that vital growth in aggregate demand.”
The federal American Rescue Plan Act is pumping close to $ 10 billion into Connecticut: about $ 6 billion for state, municipal and regional governments and local school districts and nearly $ 4 billion more for households via stimulus checks and enhanced unemployment benefits.
But the COVID- weakened economy had analysts warning in February that the next twoyear state budget, unless adjusted, would run $ 2.6 billion in deficit — a gap equal to roughly 6 percent of the General Fund. And towns say they’ve lost hundreds of millions of dollars in tax revenues.
How much of this $ 10 billion should go toward balancing their budgets? None, according to Carstensen.
“This is probably the singlemost important budget discussion we’ve had” since 1991, when Connecticut and its shrinking defense industry were mired in recession and legislators enacted the state income tax, Carstensen said.
And while he understands the political desire to follow other states and use this huge federal cash infusion to stabilize state and local budgets, Carstensen noted Connecticut already has a mass of resources — that other states don’t — to solve that problem.
Specifically, he’s referring to a $ 3 billion rainy day fund, a projected surplus for the current year that approaches $ 1 billion, and improving revenue projections that likely will reduce the two- year deficit when the next forecast is issued.
“We’re going to put this under the mattress for a rainy day?” he said. “Excuse me, this is a rainy day.”
Carstensen, who frequently notes that Connecticut lagged the nation and never fully recovered jobs or wages lost from the recession of 2007 through 2009, said this is the state’s opportunity to invest in transportation and information technology infrastructure, data processing, cutting- edge technologies, job training and education.
“We’re [ talking about] changing the future trajectory,” he said, adding that the stakes are huge and “there’s permanent penalties in the fiscally conservative approach.”
Carstensen ran two scenarios: one in which all governmental entities dedicate all $ 6 billion of their federal aid to bolster their respective budgets, and a second in which none is used.
Neither scenario is likely, Carstensen conceded, but the closer politicians get to pouring all of their dollars into the economy, the more likely Connecticut households will do the same with their stimulus checks.
In other words, get the economy running well, and shoppers — after a year of shutdowns and restrictions — will get busy.
The biggest payoff from this economic activity, Carstensen and Gunther predict, involves jobs, about 30,000 more by 2024. And given that when the pandemic began in March 2020, Connecticut still was 12,000 jobs shy of its peak from 2007, 30,000 is significant, Carstensen said.
The activity from a massive investment of stimulus dollars in the economy would trigger enough additional activity to bolster household income between now and 2024 by an average of $ 2.6 billion per year, according to the report.
That also means an extra gain of nearly $ 1.5 billion in tax revenues for state and municipal governments over the next three years combined.
Gross state product, the value of all goods and services produced here, would rise by $ 2.6 billion per year, adjusted for inflation, over the same period.
But Carstensen said much of those potential gains are at risk given the discussions going on at the state Capitol.