Following one of the most disruptive economic periods in history with the onset of the COVID-19 pandemic, state tax revenue for most of the country has surged, outpacing pre-pandemic trends, according to an analysis by Pew Charitable Trusts.

That includes Connecticut, where tax revenue growth has exceeded pre-pandemic trends by .7 percent. Most states in the New England region have seen higher revenue trends, except for New Hampshire, which remains in the negative.

Pew compared state revenue growth over the last nine quarters starting in January of 2020 to the previous five years’ average growth rate to examine how the pandemic affected state tax trends. While Connecticut’s tax growth was slightly elevated, other states like New York and Maine have seen large increases of 10.1 percent and 6.3 percent respectively.

According to the data, Connecticut’s revenue growth throughout 2021 and into 2022 surged, with the first quarter of 2022 coming in 11.8 percent over pre-pandemic growth trends. 

That has boded well for the state, which had already been propped up by a significant federal cash infusion. Lawmakers paid down nearly $6 billion in pension debt, passed a wage increase package for state employees, sent money to municipalities for various projects and passed a package of tax cuts, some temporary, some permanent.

That increased revenue trend may not continue, according to the analysis by Pew, as economic uncertainty, high inflation and the loss of federal aid means lawmakers may have to contend with lower expectations in the future.

“State and economic experts project a potential end to this brief but extraordinary chapter in state finances,” Pew analysts Justin Theal and Alexandre Fall, wrote. “Although higher-than-expected tax revenue growth, abundant federal aid, and record financial reserves have buttressed states’ fiscal positions, states must reckon with several looming challenges, including weaking economic growth and tightening monetary policy and historically high inflation, and tapering of federal aid.”

Connecticut’s General Fund revenue is projected to grow 4 percent this year, according to consensus revenue estimates, followed by a decline of 5.9 percent in fiscal year 2023, with revenue decreases from investment earnings, businesses and federal grants. The state does not expect to see revenue numbers matching 2022 until 2026.

The state’s surging tax revenue has become a political issue in the run up to November elections, with Republicans wanting to use surpluses to increase tax cuts to help families cope with high inflation. Despite a decline in gasoline prices over the past several months, the latest inflation numbers came in high again due to increasing food costs, housing and vehicles. 

Connecticut also remains behind the national average growth trend, according to Pew, with the 50-state average coming in at 3 percent higher than the pre-pandemic growth trend, compared to Connecticut’s .7 percent. 

Connecticut is also lagging in terms of job growth; while the country has regained all the jobs lost during the pandemic, Connecticut is not projected to regain those jobs until late 2023, part of a decade-long trend of lower job growth compared to the rest of the country since the 2008 recession.

Roughly one-third of states, however, are seeing negative growth trends compared to pre-pandemic levels, the most notable among energy-producing states like Alaska and North Dakota, and tourism-heavy states like Hawaii and Nevada, according to Pew.

“Policymakers in most states are navigating an unusual mix of temporarily strong financial conditions and growing uncertainty,” the Pew analysts wrote.

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Marc worked as an investigative reporter for Yankee Institute and was a 2014 Robert Novak Journalism Fellow. He previously worked in the field of mental health is the author of several books and novels,...

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