Comptroller Forecasts $178 Million Fiscal Surplus

by Christine Stuart

In the fifth month of the fiscal year, Connecticut’s Comptroller Sean Scanlon is projecting a budget surplus of $178 million, which is $24.1 million higher than last month, but $221.7 million less than was budgeted. 
At the same time net expenditures are currently projected to exceed budgeted levels in several state agencies, the largest of which is the Department of Social Services Medicaid account and the fringe benefits in the higher education Alternative Retirement account. 
However, revenue projections are unchanged from last month. 

“2023 was another positive year when it came to Connecticut’s continued fiscal momentum,” Scanlon said. “We ended the year with a surplus for the sixth consecutive year, once again had a full Rainy Day Fund and had paid off another $1 billion in pension debt.”
Revenues are still surpassing the growth in fixed costs, according to the Office of Fiscal Analysis. However, budget analysts, including Jeffrey Beckham, Gov. Ned Lamont’s budget chief, cautioned that increased non-fixed cost spending could disrupt this equilibrium.
Although the years during and after the pandemic yielded substantial surpluses for Connecticut, which were used to reduce pension debt, these surpluses are now dwindling. Nevertheless, OFA predicts that Connecticut will continue to experience budget surpluses for the next four years, albeit smaller than those of the previous three years.

Connecticut’s fiscal safeguards, coupled with rising tax revenue in recent years, allowed Lamont and the General Assembly to enact the first reduction in the state’s income tax since its inception.
“These tax cuts are achievable thanks to the fiscal responsibility we’ve exercised over the past five years, which has stabilized the state’s financial situation and put an end to years of deficits and uncertainty,” Lamont has said. 
Scanlon echoed that sentiment. 

“As we begin 2024 and as the largest tax cut in state history takes effect, we are projecting a modest increase in our surplus. So long as we stay true to our fiscal discipline and guardrails, 2024 will be another year of progress for Connecticut’s fiscal turnaround,” Scanlon said. 
Scanlon noted that the country’s economy is on track to end the year with vigorous growth driven by stronger than expected consumer spending, robust and steady job growth, as well as growing wages. 
Consumer confidence continued its upward trend in December, marking the second consecutive month of improvement. This boost in confidence stems from positive outlooks on future business conditions, job opportunities, and income prospects. Furthermore, there’s optimism that the Federal Reserve may initiate rate cuts in the second quarter of 2024.

Analysts anticipate the Federal Reserve to maintain rates at a target range of 5.25% to 5.5% during its upcoming January 31st meeting, with potential rate reductions expected around May 2024. The central bank has executed a series of aggressive rate hikes, raising the benchmark interest rate from near-zero in early 2022 to 5.5%, a level unseen since the early 1980s. While year-on-year headline inflation decreased from 3.2% in October to 3.1% in November, it remains above the Fed’s 2% target.
Despite signs of a cooling labor market, November’s job report from the Bureau of Labor Statistics indicated a more robust job growth than anticipated, with 199,000 jobs added in the U.S. Connecticut also contributed positively, reporting the addition of 500 jobs in November and a gain of 24,300 over the past year, though its unemployment rate inched up to 3.6%.
In the housing market, interest rates and elevated home prices are creating challenges. 

Mortgage rates have reached levels not seen in over two decades, leading to a drop in sales of existing homes while prices remain high. In Connecticut, single-family home sales declined by 15.5% year-over-year in November, with new listings down 1.4%, according to Berkshire Hathaway HomeServices. However, the median sales price increased by 9.6%, and houses were typically selling above the list price, at 102.6%. 
In his monthly letter to Lamont, Scanlon said these higher housing costs are a significant concern, particularly for low- and moderate-income families who are more inclined to rent than own.