The Middletown Press (Middletown, CT)
A glimpse of fiscal glory in the teeth of recession
Two weeks ago we heard the bombshell that Connecticut stands at the edge of a $7 billion cliff over the next three years, that being the amount of revenue the state could lose in the coronavirus recession.
Then Sen. Mitch McConnell, the Trump enabler-in-chief and majority leader in the U.S. Senate, declared that he’ll ski naked down Whistler Mountain before he allows the feds to bail out those irresponsible states that find themselves in a hole.
So it looked bad for the home team on the budget front until now, when we open up a report from Moody’s Analystics to find — hold on tight — Connecticut has landed in the top tier of states able to withstand the aforementioned recession.
Make no mistake, all states face a fiscal hell over the next 14 months unless McConnell’s feds agree to loosen the reins, which may happen. More on that in a minute.
Connecticut, for example, would see $2.35 billion in vaporized tax receipts, or 12 percent of the fiscal 2019 total, plus the state would need to spend $300 million more on health care for the newly poor — and that’s in a moderate recession scenario.
But everything is relative in the world of finance and economics, and those numbers, bad as they seem, place Connecticut tied with Wisconsin for No. 15, with No. 1 being good and No. 50 being bad.
Then we have the emergency reserve, or rainy-day fund, which, at $2.5 billion, is among the largest reserves of any state as a percentage of the total budget.
Kick that in, and Connecticut comes out at No. 6 among states least hard hit by the coronavirus in the rest of fiscal 2020 and through fiscal 2021, which ends in 14 months.
I had to clean my glasses and lean into the screen when I saw our ranking plant Connecticut in the green band — not red, not yellow — among states in the Moody’s COVID-19 “stress test.” When it comes to budget health, we just don’t think of ourselves as green in any way except with envy for those highgrowth, anti-union states that have so far owned the 21st century.
New York, New Jersey and Illinois, our fellow residents in the nursing home of fiscal life, find themselves on the bottom of the Moody’s stress test. But guess what? Texas, Oklahoma, Florida, South Carolina and lots of other red- and high-growth states are down there too — along with McConnell’s Kentucky.
That led Gov. Ned Lamont
to quip on Wednesday, when he mentioned the impending Moody’s report, “I think it’s hopeful that we’ll get some kind of a supplemental through.”
Supplemental, as in federal aid in one of the addon coronavirus stimulus packages.
McConnell is up for reelection, hint, hint.
So, which scenario is right? The 3-year, $7 billion hole that Connectiut’s official state revenue forecaster predicted on April 30, or the status as one of the fiscally healthiest states heading into a Grand Economic Reopening that might lead to recovery?
The answer is a little bit of both.
First of all, the Moody’s report only extends out for 14 months, not the full three years. And in the “severe recession” scenario, Moody’s predicts Connecticut will fall short by $3.1 billion — almost exactly what the Connecticut forecasters said will happen.
It’s possible we’ll be okay for that first 14 months and then revert back to our old spit in the red band, with an unsustainable set of long-term liabilities for pensions and heath care.
But I’m more optimistic than the state forecasters, whose job is to be ultracautious, in order to avoid what happened so many times in recent years: a downward surprise. Connecticut’s mix of industries — heavy on defense manufacturing, insurance, health care and education — is somewhat stronger in this recession than, say, the energy or tourism sectors.
“This gives us a fair amount of stability compared to some of our peers,” Lamont said.
Beyond that, that $2.5 billion surplus we built up, which will briefly grow to $2.8 billion this summer, is based mostly on stock market and dividend gains. We’ll take a hit there in 2020, but with the Federal Reserve basically printing $3 trillion, the markets will recover faster than the real economy, according to UConn economist Fred V. Carstensen.
And even beyond that, much of the $7 billion in shortfalls can be vaporized with a few policy changes, such as postponing $350 million-a-year in extra cash for cities and towns, and a similar-sized transfer of money to the transporation fund.
Did I mention tolls? If we need to raise taxes as a resut of a federal failure to bail out states, not launching broad highway tolls won’t just be stupid, it will be criminal.
Sen. Cathy Osten, DSprague, one of the upper chamber’s budget experts, is less optimistic. She’s worried about consumer confidence remaining in the dumps until we have a widely available vaccine, and she’s worried that this time around, the middle class — especially in her Eastern Connecticut region — is harder hit than normal.
The unemployment map indeed shows deep red in her part of the state, much of it driven by furloughs and layoffs at the tribal casinos.
“I don’t think it’s going to start picking up until ‘23,” Osten said, referring to the state revenue picture, not necessarily the casinos in her district.
Even that would be better than the dour, $7 billion scenario.
For now, even in a split decision, we bask in a moment of fiscal glory the likes of which Connecticut hasn’t seen in a generation. Enjoy the relative bliss and wait a few days before thinking of the decline that will inflict real pain and force hard choices.