Less than three months after the state closed the 2021-22 fiscal year with a staggering $4.3 billion surplus, Connecticut again is piling up the black ink in huge numbers.
Gov. Ned Lamont’s budget office reported Tuesday that the General Fund — which covers the bulk of operating costs in the current, $24.2 billion budget — is on pace for a $445 million surplus. That’s up $146 million from the $299 million cushion Lamont and lawmakers built into the latest budget when they approved it last May.
In addition, the special savings program that restricts officials’ ability to spend tax receipts tied to investment earnings and quarterly business tax returns is expected to capture another $1.85 billion.
And though the fiscal year still has more than nine months to go, the potential total surplus of almost $2.3 billion would be the second-largest — in terms of dollars — in state history, topped only by last fiscal year.
Still, the Lamont administration advised caution.
“As the year progresses, these estimates, which are coming early in the fiscal year, will continue to be revised to reflect the impact of changes in the economy, expenditure patterns, and other factors,” Lamont’s budget director, Office of Policy and Management Secretary Jeffrey Beckham, wrote in his monthly fiscal report to Comptroller Natalie Braswell.
State finances have been exceeding expectations for much of the past four years.
Budget surpluses have enabled governors and legislators to amass a $3.3 billion rainy day fund, which — at 15% of annual operating costs — is the maximum allowed by law. Those surpluses also have allowed Connecticut to dedicate close to $5.8 billion in supplemental payments to reduce the state’s massive pension debt.
Connecticut had reported more than $41 billion in combined debt among its pensions for state employees and for teachers following the 2019 fiscal year. Lamont’s budget office is expected to provide an updated assessment of pension debt to the legislature as part of a fiscal accountability report in mid-November.
A surging stock market between 2018 and early 2022 drove much of the budget surpluses. But even as the market has cooled, other factors have helped the state.
According to Beckham’s report, rising interest rates have improved the state’s cash position by $95 million over the past month, while the federal government’s extended public health emergency has bumped Medicaid payments to Connecticut up by $30 million.
Lamont, who is seeking a second term as governor this fall, has campaigned heavily on the strong fiscal position the state has achieved and maintained since he took office in 2019.
Republicans counter that the Democratic governor largely is taking credit for circumstances he inherited. Lamont’s predecessor, Dannel P. Malloy — also a Democrat — approved major tax hikes in 2011 and 2015 that have enabled the state to maximize income tax revenues during the post-2017 stock market surge.
And both parties created the savings program that has restricted governors’ and legislators’ ability to spend certain tax receipts during flush times.
Lamont and the legislature’s Democratic majority ordered one of the largest tax cuts in state history this past May, worth about $660 million.
GOP lawmakers, who wanted to nearly double that level, say the relief is too modest, especially given the 40-year high in inflation the nation’s consumers have faced over the past year.
Republican gubernatorial candidate Bob Stefanowski, who unveiled a $2 billion tax relief plan on Tuesday, said the latest surplus projection is just more evidence that the government is holding on to too much cash while many low- and middle-income households and small businesses are struggling.
“Ned Lamont’s voracious appetite for taking our tax dollars knows no bounds,” Stefanowski said. “Ned either doesn’t know or doesn’t care how much residents are struggling.”
Democrats countered Tuesday that Stefanowski’s tax relief plan would weaken the state’s rainy day fund at a very dangerous time, as the national economy flirts with recession.
‘Bob Stefanowski’s promise to gut the Rainy-Day fund — especially at a time when the Governor has helped bring it to its highest level ever — would only create financial storm clouds and economic uncertainty for middle class families,” said Sen. Gary Winfield, D-New Haven. “The global economic disruption caused by the pandemic has shown exactly why we must guard against any turbulence and protect taxpayers.”