State budget revenues surged by nearly half a billion dollars Thursday — the second major improvement in less than a month, Gov. Ned Lamont announced.
And while the administration didn’t comment on whether it expects this latest good news to continue, one key lawmaker said this year’s improvement can only help legislative leaders and the governor reach a deal soon on the next two-year state budget.
Thursday’s report — which came just three days after the state income tax filing deadline — also follows an April 30 forecast that upgraded revenues by $205 million for the current fiscal year and by a whopping $1.6 billion for the next biennial cycle.
“That doesn’t happen very often in the state,” Lamont said during a late afternoon, live-streamed briefing. “People are beginning to pay attention.”
Wall Street credit rating agencies have improved Connecticut’s bond ranking twice this spring as the state — which amassed a record-setting budget reserve last fiscal year — has built upon it in 2021.
Connecticut now is poised to accelerate reduction of its massive pension debt by hundreds of millions of dollars. Even with that, though, unfunded pension obligations will remain a huge challenge for Connecticut for decades to come.
Budget surplus is on the rise
Lamont’s budget office projected a $470 million surplus Thursday — a little over 2% of the General Fund — for the fiscal year that ends June 30, up $220 million from its forecast one month ago.
And 80% of that improvement, $176 million, involves revenue, with sales, corporation and estate tax receipts all on the rise, as well as income tax payments related to paycheck withholding.
But the rest of the latest surge, about $300 million, is technically outside of the General Fund.
It largely involves income tax payments tied to capital gains and other investment earnings. Because these sources can fluctuate greatly from year to year, the state created a “volatility adjustment” program in 2017 that captures a portion of these revenues when they clear a certain threshold, holds them outside of normal finances and transfers them after the fiscal year ends directly into the rainy day fund or to the cash-starved pensions.
Lamont said Connecticut’s volatility adjustment program now holds just over $1 billion, about $300 million more than his budget office projected one month ago.
Lamont did not address, though, whether his administration projects these revenue improvements to continue in the 2021-22 and 2022-23 fiscal years. His budget staff began closed-door negotiations Thursday with top lawmakers to craft a new biennial spending-and-revenue plan.
Leaders: More confident that a new budget deal will be struck soon
Both House Speaker Matt Ritter, D-Hartford, and Senate President Martin M. Looney, D-New Haven, predicted the latest revenue jump earlier this week.
Connecticut normally sets an April 15 state income tax filing deadline — to match the federal government. Both deferred it to May 17 this year because of the coronavirus pandemic, meaning state analysts had to begin their revenue projections to assist the budget negotiations based upon incomplete tax filing data.
But legislative leaders and Lamont have been hinting all spring that early tax returns showed promising numbers.
Ritter and Looney said Wednesday they expect to reach a deal with Lamont before the regular legislative session closes on June 9, and Thursday’s forecast, they added, only helps.
But both leaders cautioned that despite improving forecasts, legislators and the governor must be prepared to compromise to reach a deal on time.
Lamont, a fiscally moderate Democrat, opposes any tax hikes at this time, while progressive legislators support income tax surcharges on the rich and a new digital media ads tax aimed at online giants like Google and Facebook.
Liberal Democrats want to use these funds to provide state income tax cuts for low- and middle-income households, a $50 million bailout for restaurants, hundreds of millions of dollars in increased aid to cities and towns, added funds for social services and health care, and to finance long-term investments in poor urban centers.
“There’s going to have to be some understanding that there’s going to have to be some more investments” in communities and businesses harmed by the pandemic, Ritter said.