Connecticut’s budget surplus nears $900M; thank federal aid, booming stock market
With more federal money than expected, Connecticut’s budget surplus has grown by more than $400 million over the past month to nearly $900 million.
The once-troubled Special Transportation Fund is now projecting a surplus of $183 million for the current fiscal year, and the state’s Rainy Day Fund for fiscal emergencies could hit $5 billion by June 30, according to the latest statistics from Gov. Ned Lamont’s budget office.
“The markets have done well, and the federal money certainly made a difference as well,’’ said Rep. Patrick Boyd, a Pomfret Democrat who serves as co-chairman of the House Moderate Caucus. “So it’s kind of a perfect storm of a lot of different things happening at once. It’s a much better position.’’
While the federal money will eventually run out, state legislators are pleased with the surpluses as they head into the election year of 2022. As the money poured in last year, both Lamont and some lawmakers said there is no reason to talk about tax increases when the money is flowing in.
By comparison, the rainy day fund in 2011 was zero, and the state sustained through operating deficits in the ensuing years as lawmakers tried to wrestle with the state’s unfunded pension liability. But the federal money and the long run of record-breaking increases on Wall Street has surprised many legislators.
“We are going to look back at this time when we are flush with cash as the good old days,’' said Rep. Kerry Wood, a Rocky Hill Democrat who co-chairs the House Moderate Caucus. “This is a huge opportunity to pay down debt.’'
The recent consensus revenue estimates showed that federal funding of $2.2 billion in the current fiscal year is expected to drop by $500 million next year to the more normal level of $1.7 billion. But the overall improvement has allowed the state to increase its bond rating this year after long-running problems of slow job and personal income growth. A midyear projection of a surplus nearing $900 million would have been unthinkable in earlier times.
“It’s unbelievable given where we were only a couple of years ago,’' Boyd said. “In my first term in 2017, we didn’t think that a time like this would be on the near horizon.’'
Boyd credited the legislature’s bipartisan budget agreement in 2017 when Republicans and Democrats enacted major fiscal reforms of a spending cap, bonding cap, and volatility cap that prevented the legislature from spending increased capital gains taxes on Wall Street above a certain threshold. Now, the extra money must be placed into the rainy day fund, and if the fund exceeds certain levels, the money goes directly toward paying down the state’s debts.
“We certainly can’t let our guard down because the federal money is a one-time thing, and the market is volatile, Boyd said. “While times are good, we need to continue to be fiscally responsible and spend money wisely and still prepare for a rainy day in the future because it might get worse. We don’t know.’'
While the initial numbers are still small, Lamont’s budget office noted that online sports betting and gambling started in October.
“Thus far, the state has collected approximately $1.7 million in revenue of the projected fiscal year target of $30.5 million of new revenue from the CT Lottery Corporation and both casinos,’' state budget director Melissa McCaw said in her monthly letter with the latest numbers.
McCaw noted that the state will not be able to roll up surpluses as easily into the future.
“The adopted budget for the biennium was balanced with more than $1.75 billion in one-time federal funds from the American Rescue Plan Act being used for general revenue replacement,’' she said. “In order to offset the expiration of that one-time funding, the state will need to experience significant revenue growth this biennium to prevent a large budgetary gap in FY 2024 and beyond.’'
Rep. Holly Cheeseman, the ranking House Republican on the tax-writing committee, recently said, “Connecticut needs to maintain its fiscal discipline and not double down on detrimental tax policy that would hurt working class families or push high-income earners out of state.’'
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