Record surplus braces CT against uncertainty
But Republicans warn of looming liabilities
Over the last dozen years, Connecticut has gone from massive deficits to a now record billion-dollar surplus. Cooperation from public employee unions, an influx of new residents in the pandemic and robust collections of income and sales taxes have put the state in solid financial shape, even as more than 4,300 veteran state workers retired before the end of June.
Billions of dollars in federal pandemic relief have also kept the state in positive financial shape, for the time being.
Gov. Ned Lamont and majority Democrats in the General Assembly are bragging about the state’s fiscal stability as the fall election campaigns will accelerate in a couple of months. Republicans are focusing on the July 1 rise in diesel fuel taxes and are renewing requests for further tax breaks, which are unlikely to happen since Democrats will not agree to come back in a special legislative session.
State House Minority Leader Vincent Candelora, R-North Branford, said that a lot of the
fiscal stability is the result of a 2017 bipartisan budget deal that created mandatory spending limits forcing the state to save billions of dollars.
“The governor likes to crow about this,” Candelora said of Lamont. But Republicans warn that under-funded liabilities including pensions remain major warning signs that the state’s finances are precarious, particularly after the current two-year budget ends on June 30, 2023.
Candelora said a key need in the new fiscal year that started on Friday is avoiding more longterm capital debt that is doled out in projects approved during the regular meetings of the State Bond Commission, which is controlled by Lamont and fellow Democrats.
“Going forward, we really need to restrict the bonding that we do,” he said. “That’s a subtle
battle we’re in right now.”
Candelora, in a phone interview last week, warned of the state’s continual cycle of deficits and surpluses that go back much further than the 2006 election that brought him to the legislature. The next fiscal crisis, the next economic downturn, or recession, is seemingly just around the corner, even with more than $3 billion in the state’s emergency reserves.
In April, with less than a month to go in the legislative session, Republicans proposed $1.2 billion in tax relief, almost double what the Democrats eventually pushed through in the $22.4 billion budget that started on July 1.
On Friday Comptroller Natalie Braswell noted the nation’s volatile inflationary spiral, but called the state’s budget outlook “comparatively strong.” She stressed that Lamont will soon make another multibillion payment to reduce the state’s long-term pension debt. “If the nation does slip into a recession, as a number of economists warn is possible, the state is well-positioned to weather that downturn and protect Connecticut taxpayers,” she said.
In a statement on Friday, Braswell estimated that $3.7 billion will be available to invest in state employee and public school teacher pension plans, on top of $1.6 billion extra - above the annual $2.9-billion investment - put into the funds last year, around the time that the nonpartisan Pew Trusts reported that Connecticut had a $40 billion pension liability.
Noting that the state’s minimum wage rose to $14-per-hour on Friday, Braswell said the state labor market remains strong, with 1,600 new jobs added in May, indicating that 83-percent of the jobs lost during the pandemic have been regained. In particular, Braswell said, jobs in construction, professional services, trade, transportation and utilities are back to pre-pandemic levels, and the per-capita income of $82,918 is thirdhighest in the nation.
But consumer confidence is flagging because of higher prices for housing, travel and food and with the bump in mortgage interest, the average monthly payment costs for homeowners is 45-percent more than last year, when it was still easy to get a 3-percent mortgage. Now, mortgage rates have reached 5.9 percent and higher.
On Friday, Candelora and Senate Minority Leader Kevin Kelly, R-Stratford, again called for a special legislative session. “Today Connecticut grows even more unaffordable,” Kelly and Candelora said in a statement marking the new fiscal year. “The diesel tax is increasing by 23 percent. New energy rate hikes take effect. The prices of goods, groceries, services, and energy are all going up, and Connecticut Democrats are doing nothing to stop the pain from worsening.”
But Senate President Pro Tempore Martin Looney, D-New Haven, emphasized that the surplus allowed Democrats to increase social spending, particularly in areas of mental health programming for children that were major goals for both the House and Senate.
“We were very pleased both to increase spending in areas where we had to cut in the past, and to be able to reduce taxes by $650 million,” Looney said. “We think the prospects going forward are good because of the extra amounts we were able to put into the pension plans.”