After a year of keeping the same income tax revenue estimates for Connecticut’s volatile estimates and finals taxes, the latest consensus revenue projections show a sharp downturn of 16 percent for fiscal years 2023 and 2024, shaving nearly a billion dollars from estimated revenue over the next two years.
The change comes following a rocky year on Wall Street. Connecticut receives ample revenue from earnings tied to the market, but those swings in past years have left the state facing larger than expected budget deficits.
That, however, is not the case for Connecticut this time around as the state is still projected to maintain a $1.58 billion surplus, according to Connecticut Comptroller Sean Scanlon. That surplus is $200 million higher than the previous projection in March of $1.3 billion.
Scanlon said in a press statement that the increased surplus comes largely from taxes on businesses and corporations as well as the sales and use tax. And although revenue projections tied to Wall Street have decreased, the state is still projected to bring in enough to make a $2.9 billion payment toward its pension debt under Connecticut’s volatility cap, about $300 million less than the pay down anticipated in March.
In separate statements both Scanlon and Gov. Ned Lamont reiterated the need to maintain fiscal guardrails, like the volatility cap, that were passed under the 2017 bipartisan budget, which has led to a maxed out Rainy Day Fund and the ability to pay down billions in pension debt, freeing up hundreds of millions in annual payments toward those pensions.
“This consensus revenue forecast is good news for the state’s general fund, shows the importance of adhering to the fiscal guardrails that are protecting our state budget from wild swings of the stock market, and is yet another reminder that Connecticut cannot responsibly commit one-time revenues to ongoing expenses but should instead deposit surplus revenue into our rainy day and pension funds while the sun shines,” Lamont said in a press release.
“This month’s report, combined with today’s positive consensus revenue estimate, demonstrates that Connecticut’s budget continues to be in a secure position despite an uncertain national economic climate,” Scanlon said. “Thanks to our recently-extended fiscal guardrails and economic and revenue growth, Connecticut’s outlook continues to get stronger.”
Lamont also warned against budget “gimmicks” proposed by lawmakers meant to skirt around Connecticut’s spending cap by forwarding certain revenue streams directly into programs instead of the General Fund, something the governor chided lawmakers for when the Appropriations Committee released their budget two weeks ago.
“We need to pass a budget that avoids the gimmicks and mistakes of the past by adhering to our spending and revenue caps,” Lamont said.
Lamont has been pushing for a tax cut package that would largely benefit those making less the $100,000 per year, but lawmakers on the Appropriations Committee trimmed back some of that cut and also rolled back the governor’s proposal to lower the tax burden on businesses through the pass-through entity tax – one of the state’s taxes that has seen growth.
The governor and legislators are under pressure from a number of groups and agencies who received additional funding during the COVID years when Connecticut was flooded with federal money but is now ending. Connecticut’s higher education agencies and institutions have decried the loss of that extra funding, particularly in light of salary increases for staff passed in 2022 under the $1.9 billion agreement between Lamont and the State Employees Bargaining Agent Coalition (SEBAC).
Connecticut’s fiscal guardrails have also come under fire from the more progressive wing of state Democrats who say it is restraining the state from putting resources into much needed social and education programs. However, under the most recent revenue estimates, the state will have another $200 million in surplus than previously estimated.
Connecticut Republican leaders have called for increased tax breaks for the working and middle classes and Republican Senate Leader Kevin Kelly, R-Stratford, said the latest forecast presents a “tremendous opportunity” for the state to reduce the tax burden on families.
“We must provide permanent and significant tax relief for struggling working and middle-class families who have been taking it on the chin due to inflation,” Kelly said in a press statement. “We must deliver meaningful tax relief while protecting services for our most vulnerable residents and respecting the smart fiscal guardrails that have put Connecticut in this stronger position. Those smart fiscal guardrails have led us to the cusp of the first state income tax cut in three decades: They ain’t broke, and they don’t need fixing.”
The General Assembly voted early in the session to maintain the fiscal guardrails for another five years. Gov. Lamont released his budget in early February and the Appropriations Committee released their budget proposal in April and Republicans are expected to put forward their own budget for the first time in several sessions.
Between now and the end of session in June, lawmakers and the governor will work to hammer out a compromise.
“The consensus forecast results in additional revenue for the biennium, which will ease the path to a final budget. The administration looks forward to engaging in discussions with the legislature to pass a budget that builds growth and opportunity for all of Connecticut’s residents and businesses,” said Jeffrey Beckham, secretary of the Office of Policy and Management.