Gov. Ned Lamont will have a stable pool of revenues on which to build his next state budget plan.
New projections issued late Wednesday by analysts for the governor and legislature showed revenues for the upcoming fiscal year have remained largely stable and the record emergency budget reserve should continue to grow.
The consensus report from the legislature’s nonpartisan Office of Fiscal Analysis and from Lamont’s Office of Policy and Management also showed this fiscal year’s budget deficit has grown — but still remains a tiny fraction of the General Fund.
Lamont and the legislature crafted a $22.1 billion, preliminary spending-and-revenue plan for the 2020-21 fiscal year as part of the two-year biennial budget they adopted last June. But the governor must recommend adjustments to that plan to the legislature on Feb. 5.
Technically, the latest revenue projections show Connecticut can expect $169 million more in resources than the governor and legislators originally anticipated.
But about two-thirds of that growth already is committed. That’s because it represents federal Medicaid payments Connecticut will receive by increasing its payments to hospitals — all part of a legal settlement legislators ratified earlier this winter.
Still, the latest report is good news compared with Connecticut’s experiences over much of the past decade, which often was marked by eroding revenue forecasts. Lamont’s predecessor, Gov. Dannel P. Malloy, frequently had to make major adjustments to preliminary budgets as tax and fee projections were downgraded.
The new latest forecast did downgrade revenues for the current fiscal year by $32 million from the last monthly estimate from Lamont’s budget office, issued on Dec. 20. This was due chiefly to larger-than-anticipated refunds from various tax programs.
Comptroller Kevin P. Lembo had reported a deficit of $28 million back on Jan. 1. This new erosion potentially grows the shortfall to $60 million, which still represents a small fraction — less than 1/3rd of 1% — of the General Fund.
State analysts also are projecting that Connecticut will continue to grow its emergency reserves.
Despite the growing deficit, analysts say the state should save a much larger number, about $318 million, through another program that sets aside a portion of income tax receipts tied to investment earnings.
Connecticut currently has $2.5 billion in its rainy day fund. Paying off a potential deficit of $60 million and then adding $318 million in bonus income tax receipts would push the reserve beyond $2.76 billion.
Analysts also project this savings program, dubbed a “volatility adjustment” because investment-related tax receipts can fluctuate greatly from year to year, should add another $275 million to the reserve at the conclusion of the 2020-21 fiscal year.
At that point, about $3 billion, Connecticut’s reserve would be at or just beyond the legal limit of 15% of annual operating costs. Any funds over that limit would have to be used to reduce the state’s considerable pension debt.