A relief, but not a reversal

Connecticut finally had some good news on the tax collection front Monday as the governor announced a December-January windfall of more than $900 million.

The bad news is, this is most likely not a sign of a real turnaround.

Let’s start with the raw, upbeat fact: The $900 million-plus in extra state income tax receipt represents 10 percent of the entire income tax collection for the whole year. And the figure might be over $1 billion.

Gov. Dannel P. Malloy cited two factors: First, business owners making sure to book income and pay higher taxes ahead of President Donald Trump’s tax reform that sets a $10,000 limit on deductibility of state and local taxes. Second, a federal tax law passed in 2008 that required hedge funds to bring certain overseas profits back by 2017.

A third possibility, from Kevin B. Sullivan, the state revenue services chief: Stock market investors might have taken profits at the end of 2017, though the markets continued to rise.

Sullivan said the windfall might be as high as $1 billion. About one-third of it is likely to erode as tax collections in the rest of the fiscal year level off — and twothirds is a “real” windfall.

So we’ll have between $600 million and $700 million more than we expected. All but about $10 million of it must be applied to

the state’s depleted rainy-day fund under a new reform adopted by the Legislature and signed by Malloy.

That reform is known as the “volatility cap,” which says, basically, unexpected revenue over a certain amount — a common occurrence in a state tied to Wall Street — must be set aside rather than spent on regular operations.

“This is very promising news for the state,” Malloy said in a written statement, even though the windfall can’t be used to plug a state budget gap of more than $200 million for the current fiscal year. Restocking the rainy day fund “will give Connecticut residents and businesses the fiscal responsibility they have been demanding.”

It’s promising, but not the really good news we’d like to see — that the state’s long slump in tax collection has hit bottom and started to come back. Windfall aside, the income tax for this year has deteriorated by more than $1 billion compared with the predictions made two years ago.

“It’s important not to confuse bubbles with trends,” Sullivan told a group working on the state’s fiscal crisis as Malloy released the news. “All of it, all of it, is one-time.”

Sullivan spent Monday giving options on tax reforms for Connecticut to the Commission on Fiscal Stability and Economic Growth, a panel of CEOs and other power brokers charged with helping right the listing state economy. Considering that giant task, Sullivan appeared to view the windfall news with less ebullience than Malloy’s office.

“It shouldn’t change your thinking about much of anything right now,” Sullivan told me.

State officials would not say how much of the added collection came from which tax, and how many hedge funds participated in the repatriation that led to higher receipts.

Bloomberg News reported Monday that other states with high income taxes also saw windfalls in December collections. California hauled in $16 billion in December, 32 percent more than expected, Bloomberg said.

Bottom line: It’s better to have an extra $600 or $700 million than not, even if it doesn’t represent an economic turnaround. If we have this much good news every Monday, it will start to look a lot like that elusive rebound.