Connecticut Comptroller Sean Scanlon said Connecticut is looking at a $1.35 billion budget surplus for fiscal year 2023, which will end June 30.
The latest projection is another $10 million over January’s estimate as revenue continues to roll into state coffers. Scanlon notes it would have been $22.5 million, but the estimate accounts for the $12 million used to fund free school lunches through the end of the year.
The majority of the surplus will go to paydown Connecticut’s substantial pension debt that has plagued state budgets for ten years. The latest projections show Connecticut is poised to pay down $3.2 billion in state employee and teacher pension debt at the end of the year, which in turn saves money by reducing the required annual payments.
Under the state’s volatility cap, passed as part of the 2017 budget, surplus revenues from volatile sources like Wall Street earnings, go into the budget reserve fund and since the reserve fund is full, the money is then used to pay down pension debt.
Scanlon indicated that maintaining the fiscal guardrails established in 2017 is crucial if and when an economic downturn occurs.
“The economic indicators show both pros and cons this month,” Scanlon said in a press release. “We continue to see positive job growth and record-low unemployment at the national level but inflation, while gradually easing, is still having an impact on people and families in Connecticut. Fortunately, thanks to our Rainy Day Fund’s historic balance and the 2017 fiscal guardrails recently extended by the legislature, our state is prepared if and when a downturn occurs as a result of the Federal Reserve increasing interest rates to combat inflation.”
While job growth has remained steady and unemployment low, plunges on Wall Street amid interest rate hikes, continuing supply chain issues and inflation have continued worries about the United States entering a period of recession.
Connecticut has not fared well during recessions in the past. The 2008 recession plunged Connecticut into a difficult time. The state did not have the budget reserves necessary to supplement lost revenue and the state’s pension debt payments began to balloon, requiring three tax hikes in 2009, 2011, and 2015.
Connecticut’s surplus, however, led to calls for tax decreases by Republicans. Lamont has obliged some of their asks, proposing to lower the income tax rate for families making less than $150,000 per year. Republicans have been pushing for increasing the property tax credit and elimination of the tax on restaurant meals to help ease inflationary pressures and help restaurants struggling to keep the doors open in the wake of the pandemic.
The surplus also extends to Connecticut’s Special Transportation Fund, which will see a $234 million surplus by the end of the year. Republicans have also called for the elimination of the highway use tax on trucks, which is projected to bring in between $90 and $100 million per year when fully implemented.
House Republicans petitioned to force a public hearing to do away with the tax they say only increases costs for consumers.
During fiscal year 2022, Connecticut paid down $2.8 billion in pension debt for state employee and teachers, following payments of $1.6 billion in 2021 and $61 million in 2020. The payments are expected to save billions over the next 25 years in reduced annual payments.
