CT finances projected to stay flush — even after COVID aid expires

Having just wrapped its third-successive fiscal year on pace for a budget surplus that tops $1 billion, Connecticut can expect another three years above or near the $1 billion mark — even as federal COVID relief expires.

Thanks to those windfalls and projections, state government’s preparations for the next recession far exceed those of the last one, which left Connecticut in debt and contributed to two of the largest tax hikes in state history.

The legislature’s Office of Fiscal Analysis recently projected the $51.1 billion biennial budget approved by legislators and Gov. Ned Lamont should finish about $1.1 billion in the black this fiscal year, while 2024-25 should end about $995 million on the positive side.

And while global economic factors could change this picture, analysts also say current spending and revenue trends should leave a $1.6 billion cushion between 2025 and 2027, the first two years following the new biennial budget.

That last projection is huge given that by 2027 state government will have exhausted the $2.8 billion in direct relief Congress provided it two years ago through the American Rescue Plan Act, or ARPA.

“Many of us anticipated that when the emergency ARPA money ended we would be looking at a cliff,” said state Senate President Martin M. Looney, D-New Haven. “On the fiscal responsibility side, we’ve done everything we could reasonably do” to prepare for that phase-down and any future economic downturn.

CT budget surpluses projected through 2027

The good news for the latest budget cycle comes in two parts:

Projected General Fund surpluses of $405 million for 2023-24 and $294 million for 2024-25;

A forecast that Connecticut will capture an average of $702 million per year across the coming biennium from a special program that forces Connecticut to save a portion of quarterly income and business tax receipts.

While state income tax receipts, which boomed in recent years, have begun to slow down, analysts say sales tax revenues, driven in part by inflation, continue to grow. That, coupled with spending controls, are driving much of the new surplus projections.

Connecticut set a record last summer when it closed the 2021-22 fiscal year with an unprecedented $4.3 billion windfall, equal to nearly one-fifth of the entire General Fund.

Two years ago, the state finished $1.7 billion in the black and the just-completed fiscal year’s cushion is projected at $2 billion. The comptroller’s office won’t official audit those numbers until early September.

Most of those windfalls have been or will be used to whittle down the state’s long-term debt, which remains considerable.

Connecticut entered this year with more than $88 billion in bonded debt and unfunded pension and retiree health care program obligations, making it one of the most indebted states, per capita, in the nation.

But now there’s a chance the state can continue to take big bites out of that debt for years to come, provided another recession doesn’t arrive soon.

Analysts also say spending and revenue trends should leave the state with a $1.1 billion cushion in 2025-26 — the first year after the new biennial budget. That projection includes a $413 million General Fund surplus and $721 million in saved quarterly tax receipts.

And the outlook for 2026-27 includes a $521 million General Fund surplus. Analysts haven’t projected results for the savings program that far into the future.

Democratic and Republican state lawmakers cooperatively created that savings program in 2017, along with stringent new spending and borrowing caps. Those reforms, coupled with a largely robust stock market between 2018 and early 2022, helped end a string of state budget deficits that marked the 2010s and enabled Connecticut to strengthen its short-term fiscal position considerably.

“I think that the caps that were put in place really insulate us against the recession,” said House Minority Leader Vincent J. Candelora, R-North Branford.

That insulation doesn’t get all of the attention it deserves, said House Speaker Matt Ritter, D-Hartford.

While the new state budget expands investments in education, child care and social services, some advocates for those core programs accused legislators and Gov. Ned Lamont of doing too little given government’s recent budgetary windfalls.

Bu Ritter predicted budget critics will be relieved when the next recession arrives, at least in one sense.

The state’s emergency budget reserve — commonly known as the rainy day fund — holds $3.3 billion, equal to 15% of the General Fund, the maximum currently allowed.

That reserve — which lawmakers decided this year can grow to 18% of the General Fund or almost $4 billion by 2025 — will shield programs from cuts when other states are slashing, leaders argued.

“Everybody looks at what we’re not funding,” Ritter added.. “It’s also what we’re not cutting, what we’re not reducing.”

The Journal occasionally will offer articles from CTMirror.org, a source of nonprofit journalism and a partner with The Lakeville Journal.