CT budget is poised to weather coronavirus crisis – for now
The COVID-19 coronavirus is certain to pose a series of fiscal challenges for Connecticut and its economy — but keeping the state’s books in balance in the short term isn’t one of them.
With the new fiscal year less than four months away and lawmakers uncertain how long legislative business will continue in the event of a serious outbreak of COVID-19, Connecticut nonetheless has several advantages that should keep government finances running smoothly for months to come.
Lawmakers announced Tuesday they’re pursuing an expedited process to adopt a new state budget as much as one month early.
But even without that, projections from Gov. Ned Lamont’s administration show a first draft of the 2020-21 budget, adopted last June, remains effectively in balance.
And while lawmakers concede the plunging stock market, the threat of a global recession, and the coronavirus’ potential disruption of Connecticut’s tourism, manufacturing and other sectors remain serious long-term threats, a record-setting emergency reserve and other budget controls are curbing anxiety for now.
Plans to vote on the budget early
During most legislative sessions, a new budget or budget revisions aren’t adopted until the final days of the legislative session – and sometimes not even then.
This year, however, lawmakers are vowing to be proactive.
“I think we would be irresponsible to everyone in this building — staff, the other legislators and the public — if we didn’t seriously consider an expedited process,” said Sen. John Fonfara, D-Hartford, co-chairman of the Finance, Revenue and Bonding Committee.
“I’d like to have the budget done as early as possible,” said Sen. Cathy Osten, D-Sprague, co-chairwoman of the Appropriations Committee, who added she hopes her panel can complete its work within the next two weeks.
If the appropriations and finance panels both could be done before the final week of March, Osten said it’s conceivable that final approval by the legislature and Gov. Ned Lamont could be secured in early April — roughly a month before the regular session’s May 6 adjournment date.
“I think we would be irresponsible to everyone in this building — staff, the other legislators and the public — if we didn’t seriously consider an expedited process.”
Sen. John Fonfara, D-Hartford
Co-chairman, Finance, Revenue and Bonding Committee
Lawmakers have been cautious since Connecticut’s first coronavirus case was confirmed last weekend about either projecting an early close of legislative business, or ruling one out.
Legislative leaders closed the Capitol complex to non-legislative functions Monday and scheduled a special, deep cleaning of the buildings to run from Thursday through Sunday.
But they also said conditions would be re-evaluated daily based on reports from the administration and the Department of Public Health.
State already has one new budget in place
This year’s crop of legislators can thank their 1991 counterparts for returning to a two-year budget cycle after two decades of adopting budgets one year at a time.
In odd-numbered years, lawmakers adopt a two-year spending and revenue plan. In even-numbered years, they consider revisions to the second-year of the biennial package.
Legislators and Lamont settled last June on a biennial budget that includes $22.1 billion in spending for the fiscal year that begins this coming July 1.
More importantly, the governor’s budget office recommended only $77.3 million in adjustments to the plan’s $20 billion General Fund — which covers the bulk of operating costs. Those changes represent less than one-half of 1% of the fund.
And of those $77.3 million in recommended changes, most were needed to implement new proposals from the governor. In other words, they were not necessary because the first draft budget for 2020-21 contains insufficient funds.
This should provide Connecticut residents and municipalities with peace of mind, Osten said. And while legislators also are talking about adding funding to the 2020-21 budget — for nursing homes, other care facilities, nonprofit social services, and coronavirus mitigation efforts — the bulk of the plan remains the same.
“We are talking about what I would determine to be minor revisions to the budget,” Osten said.
Rep. Toni E. Walker, D-New Haven, the other co-chairwoman of the Appropriations Committee, said she remains open to an accelerated process, but quickly added legislators cannot sacrifice disclosure rules and public access to the process.
The Finance, Revenue and Bonding Committee already has a head start toward an early conclusion of its work this session.
The legislature is scheduled to vote Wednesday on a new two-year bond package — a schedule of capital projects to be financed with state bonding that complements the budget.
Lawmakers and Lamont couldn’t agree last June on a two-year bond package, but both sides announced Monday they finally have reached a deal.
Rep. Jason Rojas, D-East Hartford, the House chair of the finance panel, said committee leaders have been prioritizing revenue bills tied to 2020-21 budget adjustments.
“There are a lot of important bills out there, but there is nothing as time sensitive as the budget,” Rojas said, adding that his committee wants to be ready to move quickly on the budget if the appropriations panel is ready as well.
Connecticut’s savings habits have improved
Another factor that could help Connecticut ride out the public health crisis involves the unprecedented reserves the state has amassed over the past 24 months.
Connecticut has $2.5 billion in its rainy day fund, which is equal to 13% of annual operating costs. And current projections call for it to to reach $2.77 billion or nearly 14% by Sept. 30.
That’s roughly 13 times the size of the fiscal cushion Connecticut enjoyed just two years ago.
But if those numbers seem daunting, here’s another way to look at it.
During the last recession, the worst economic downturn in the U.S. since the Great Depression of the 1930s, Connecticut’s annual tax revenue fell from $12.5 billion in 2008 to $10.9 billion in 2010.
It would take more than a year-and-a-half of revenue erosion at this historic rate to exhaust Connecticut’s reserves entirely — and that’s not considering any other steps state officials might take to stabilize finances.
By the time state income tax revenues — particularly those tied to capital gains — began to surge again two years ago, legislators from both parties responded by enacting new budgetary caps to restrict spending and borrowing.
And Lamont, who took office in January 2019, has been urging lawmakers since then to leave the reserve alone until the next crisis presented itself.
“Governor Lamont wants Connecticut to be in the best possible fiscal condition to weather the next, inevitable, economic storm,” Max Reiss, the governor’s communications director, told the CT Mirror in late February — a statement not related at the time on the coronavirus or any other specific crisis. “We have seen the results when the state was not well-positioned for a recession, and Governor Lamont refuses to let that happen again.”
Reiss was referring to state finances one decade ago.
In June 2009, as The Great Recession was winding down, Connecticut had exhausted a $1.4 billion reserve, rung up $1 billion in operating debt, and propped up about 15% of its municipal education aid program on expiring federal grants.
What followed in 2011 was one of the largest tax hikes in state history, and another major increase four years later.
Legislators also noted Tuesday an accelerated budget adoption process would not be unprecedented.
In 2011, Gov. Dannel P. Malloy asked lawmakers to adopt a budget early so his administration could focus on securing state employee union approval of a major concessions package. The House of Representatives gave final approval to the budget on May 3 — more than one month before the June 8 adjournment date.
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