When times were better: Gov. Ned Lamont painted a much rosier financial picture in early February during his State of the State address to the legislature. Joe Amon / Connecticut Public Radio

The coronavirus-induced recession would rip an unprecedented $7 billion from Connecticut’s coffers by 2023, fiscal analysts warned Thursday, quickly consuming a record-setting rainy day fund and triggering another major debate over tax hikes.

The economic chaos also would shrivel gasoline tax revenues and accelerate the transportation program’s march toward insolvency, approaching the brink in 2022, according to the consensus report from Gov. Ned Lamont’s administration and the legislature’s Office of Fiscal Analysis.

The grim report prompted a few lawmakers, including the House chairman of the General Assembly’s tax panel, to press Lamont to immediately include legislators on his committee planning the reopening of Connecticut businesses, schools and other government services.

“If there was ever a time for the legislature to have a more active role in the situation, it’s right now,” said Rep. Jason Rojas, D-East Hartford, co-chairman of the Finance, Revenue and Bonding Committee. “And this report is the reason.”

Rep. Jason Rojas: “If there was ever a time for the legislature to have a more active role in the situation, it’s right now.” Monica Jorge
Rep. Jason Rojas: “If there was ever a time for the legislature to have a more active role in the situation, it’s right now.” Monica Jorge

Deputy House Minority Leader Vincent J. Candelora, R-North Branford, echoed Rojas’ call for greater legislative involvement in Connecticut’s reopening.

“We should not be turned into spectators in this process,” Candelora said, referring to the governor’s Reopen Connecticut Advisory Group, which contains 48 state officials, and leaders of business, labor, education and other civic groups — but no lawmakers.

“It should not be lost on anyone that we have the highest unemployment rate in the country and this report just demonstrates Connecticut’s fragile economy,” he added. “We [legislators] are the boots on the ground. We each represent 23,000 people, as opposed to corporate talking heads” who do not.

Office of Policy and Management Secretary Melissa McCaw, Lamont’s budget director, released a statement saying the report shows the necessity of acting to mitigate the damage.

“Our state will continue to experience revenue declines into the next fiscal year that are either direct or indirect results of the pandemic’s impact on the economy,” McCaw said. “We must now focus on necessary measures to ensure Connecticut  financially weathers this storm and is positioned to generate a positive economic future.”

But both administration officials and legislators said the projections have limited value. With most spring tax-filing deadlines deferred to mid-July, analysts had extremely small amounts of data to test economic assumptions.

Still, the numbers are staggering.

Revenues for the budget’s General Fund, which covers the bulk of operating costs, should come in almost $1 billion under budget when the fiscal year ends on June 30. Just two months ago, no erosion was projected.

At first glance that contradicts the $530 million shortfall Lamont projected just two weeks ago.

But most of the bad news involves accounting. About $370 million in federal Medicaid payments expected before June 30 now won’t arrive until November.

But that $530 million-to-$1 billion problem is small to what Connecticut faces next.

Simply put, from 2021 through 2023, the state’s revenue craters.

Analysts project shortfalls ranging from $2 billion to $2.33 billion in each of those three fiscal years. And the gaps would be even larger were one type of revenue — additional federal aid — not offsetting some of the massive erosion in tax receipts.

Budget director Melissa McCaw presenting the governor’s budget on Feb. 5. mark Pazniokas / ctmirror.org
Budget director Melissa McCaw presenting the governor’s budget on Feb. 5. mark Pazniokas / ctmirror.org

Analysts say tax revenues in 2022 should come in under $14.6 billion, down $2.5 billion, or 14%, from pre-pandemic levels.

General Fund revenues plunged slightly less — by $1.6 billion, or 13% — between 2008 and 2010 as Connecticut grappled with The Great Recession.

Gov. Dannel P. Malloy and the 2011 General Assembly’s primary fix for that problem was a nearly $1.9 billion package of state tax hikes, with about half coming from income tax rate hikes on most moderate- and high-income households.

And if 2022 and 2023 look far away, they’re not — at least on the state’s calendar.

Lamont must propose a new biennial budget to cover those fiscal year next February, one month after the regular 2021 General Assembly session begins.

If these revenue projections hold, Rojas said, another major tax debate is all but a certainty.

“The next legislature is going to have to face that reality,” he added. “That is something we’re going to have to struggle with.”

CT’s rainy day fund would be consumed quickly

And when that tax debate comes, Lamont and legislators won’t have their record-setting $2.5 billion reserve available to help balance the books.

The pandemic would wash that away quickly, with projections in Thursday’s report showing the reserve consumed by the summer of 2021.

Lamont and top lawmakers from both parties often touted the rainy day fund Connecticut amassed over the last two years, through improved savings habits — and a temporary explosion of investment-related income tax receipts.

Senate President Pro Tem Martin Looney and Majority Leader Bob Duff CTMirror File Photo / CtMirror.org

Still, Senate President Pro Tem Martin M. Looney, D-New Haven, and Senate Majority Leader Bob Duff, D-Norwalk, urged taxpayers to view the soon-to-be-gone reserve as a fiscal glass that’s half-full.

“We still face many difficult months ahead as the tendrils of the COVID-19 pandemic will continue to infect our economy and our recovery,” Looney and Duff wrote in a statement. “But for the time being, Connecticut is in a stronger position than most states thanks to our fiscal prudence and the safeguarding of our budget reserve.”

Transportation program collapse is just two or three years away

But the disappearing reserve and huge General Fund deficits are not the only challenges outlined Thursday.

Analysts also warned the budget’s Special Transportation Fund — which pays the debt on borrowing for highway, bridge and rail improvements — is in dire straits.

Lamont spent his first 14 months in office warning the program was headed for collapse by 2025 or 2026.

Even though projections showed the fund would stay solvent, those forecasts were conditional upon Connecticut continuing a meager rebuilding program that wasn’t maintaining a state of good repair. 

Once the state got serious about its aging infrastructure, Lamont said, the fund would run out of money quickly.

Still, legislators rebuffed the governor’s 2019 proposal to toll cars and trucks, and this year a trucks-only plan collapsed in February.

Now analysts say the transportation fund can expect its tax revenues to be diminished by about 10% annually in the coming years.

The transportation fund, which is projected to run $157 million in the red this fiscal year, would eat through its modest $363 million reserve by 2021 and collapse — absent some intervention — in the 2022-23 fiscal year.

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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