The coronavirus.

The first sign that the coronavirus has infected the state budget appeared Wednesday, with nonpartisan analysts warning that a $178 million deficit, almost double what it was a month ago, is just the beginning of a more serious problem.

Before the next recession is over, they say, Connecticut’s record-setting $2.5 billion rainy day fund could fall well short of its needs.

And because Gov. Ned Lamont and the federal government already have waived numerous personal and business tax filing deadlines — which business leaders and economists have hailed as necessary relief — Connecticut’s ability to map the impending fiscal crisis will be limited for many months.

In other words, how can state officials tell how much tax revenue Connecticut is losing when income and corporation tax returns aren’t coming in on time?

“We expect future estimates to include major downward revisions to state revenue projections for FY 21 and beyond,” OFA analysts wrote in their monthly budget forecast.

“The public health crisis we are currently facing increases the unpredictability and uncertainty; as economic impact, job losses and increased demand for services could create a unique budget environment and planning on the status quo is simply unrealistic and irresponsible,” said Chris McClure, spokesman for Lamont’s budget office. “We will continue to monitor events to determine how the state budget will be affected coupled with the proposed stimulus funding from the federal government.”

Over the past week alone, Connecticut has watched a staggering 100,000 new unemployment claims filed here. Businesses of all kinds shut down entirely while others watch their supplies and clientele disappear.

The new, $178 million deficit represents slightly less than 1% of the budget’s General Fund. It takes into account the recently approved Medicaid expansion by Congress, which is projected to boost Connecticut’s funding in this area by $100 million between now and June 30.

More importantly, almost all of the extra red ink involves eroding state income and sales tax receipts. 

OFA: Recession is underway

And while Connecticut has $2.5 billion in its emergency budget reserve — and technically projects this to reach $2.64 billion by the fall — it may not be enough.

While the $178 million shortfall is relatively small right now, nonpartisan analysts’ last estimates held that Connecticut will need at least $3 billion to get through the next recession. And even once that is over, annual revenues will have shrunk by at least $1.5 billion.

Further complicating matters, those projections were assembled before the coronavirus pandemic hit. And since then, the economy has eroded at an unprecedented rate. The only question now, economists say, is how long  the plunge will last.

Moody’s Analytics, the Wall Street firm that provides economic models for Connecticut’s legislative analysts, already has reported the U.S. economy is assured of a recession “which is anticipated to intensify in the next three months,” OFA analysts wrote.

A recession is classified as two consecutive quarters of economic decline and the first quarter drop is all but in the books.

Earlier this week, economists for Morgan Stanley and Goldman Sachs projected April through June would deliver the single-largest contraction on record, with gross domestic product dropping as much as 30% and national unemployment approaching 13%.

Keith has spent most of his 31 years as a reporter specializing in state government finances, analyzing such topics as income tax equity, waste in government and the complex funding systems behind Connecticut’s transportation and social services networks. He has been the state finances reporter at CT Mirror since it launched in 2010. Prior to joining CT Mirror Keith was State Capitol bureau chief for The Journal Inquirer of Manchester, a reporter for the Day of New London, and a former contributing writer to The New York Times. Keith is a graduate of and a former journalism instructor at the University of Connecticut.

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  1. Keith – think about what is happening to the Retirement funds investments! They could be tanking big time – it could be a double whammy – a one-two punch that will rock CT to the core. The day of financial reckoning is coming- talk about an “existential” threat state revenues sink and unfunded debt explodes because of a shock to the investment portfolios. Oh, BTW, the Petroleum Gross Earnings tax also will drop precipitously because of the sinking price of gas.

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