The state’s rainy day fund has exceeded the legal limit for the first time in 19 years, approaching $3.1 billion and forcing Gov. Ned Lamont’s administration to release some of that bounty to pay down debt.
New numbers from the administration show the reserve is enough to cover a huge budget deficit for the fiscal year that began in July — and still leave nearly $1 billion in the bank next summer.
The projections, much rosier than the administration offered two months ago, sparked renewed calls Tuesday from key lawmakers for more state spending to combat the coronavirus pandemic.
Lamont’s budget director, Office of Policy and Management Secretary Melissa McCaw, continued to urge caution, however.
“An unprecedented COVID pandemic and the impact on CT’s economy and budget will require continuous monitoring, adaptation and agility,” she said. “We will have to be spry on our fiscal feet.”
Back on May 1, McCaw and Lamont anticipated a much gloomier scenario. They warned then that Connecticut’s record-setting, $2.5 billion reserve was shrinking and would be exhausted by next June — and that the state might also face $500 million in operating debt by then.
But since then reserves have grown by nearly $600 million. Federal aid arriving earlier than anticipated helped the numbers. But the administration also saved hundreds of millions more than anticipated this fiscal year, and income tax receipts came in much stronger than expected this summer.
State law caps the reserve at 15% of General Fund spending, which currently pegs the limit at just over $3 billion. The fund currently holds $76 million too much, which must be transferred into Connecticut’s cash-starved pension programs for state employees and teachers.
Connecticut, which amassed most of the current reserve over the past three fiscal years, spent most of the prior decade with a relatively modest rainy day fund as the state’s economy struggled to recover from The Great Recession.
The state last maxed out its reserve in 2001 under then-Gov. John G. Rowland. But that accomplishment was much easier to achieve given that the rainy day fund then was capped at just 5% of the General Fund, or a little less than $600 million.
But despite the latest numbers, McCaw cautioned Tuesday against too much optimism.
While state income tax receipts surged this summer, most involved earnings in 2019 before the pandemic struck, McCaw said.
And even though Connecticut now expects to have $942 million in its reserves entering next summer, the administrations anticipates a $3.5 billion hole in the 2021-22 fiscal year — with much of that gap driven by the coronavirus-induced recession.
A third wave of federal pandemic relief for states might help close that gap further, but Congress has yet to reach consensus on another package.
Still, leaders of the General Assembly’s Appropriations Committee noted that Connecticut has pressing needs now in social services, health care providers, municipalities and schools.
“I’m glad that our economic tables have turned drastically from what we thought was going to happen,” said Rep. Toni Walker, D-New Haven, co-chairwoman of the Appropriations Committee. “It’s time that we take care of those that we have sort of pushed to the side.”
And while stock markets have rebounded since the pandemic’s worst days in March and April, Walker noted, other aspects of the economy have not.
Connecticut had been paying weekly unemployment benefits to as many as 300,000 people early this summer, and about 250,000 continue to receive payments.
“It’s important that we balance this,” Walker said. “We’ve still got people on the edge of being evicted from their homes, either for rental or mortgage issues.”
State legislators, who met in special session in July to adopt police accountability and absentee ballot measures, have talked about possibly returning to the Capitol in September for another special session,
Sen. Cathy Osten, D-Sprague, the Appropriations Committee’s other co-chairwoman, said she would be open to legislators amending the current state budget at that time.
The swelling budget reserve “gives us an opportunity to address other issues that are apparent,” Osten said, calling for more aid for community-based nonprofits that provide the bulk of state-sponsored social services.
Nonprofits say the pandemic has been a double-whammy, costing them millions of dollars in lost revenue as some programs are curtailed or eliminated. And at the same time, expenses tied to protective gear, testing and other safety measures have skyrocketed.