by Christine Stuart
New numbers released Tuesday by Connecticut budget analysts show the state’s financial position improving slightly, but modestly. Revenues have increased about $52 million, however, the budget totals about $26 billion and growth is primarily attributed to income tax receipts, which offset declines in sales and cigarette taxes.
On its face it looks like Connecticut has a relatively healthy fiscal outlook, especially compared to other states, but a deeper looks shows a number of challenges for lawmakers.
The state’s spending cap, designed to ensure that annual spending remains aligned with either the growth in personal income, limits additional spending to just $30 million above the $26 billion already approved for the fiscal year beginning on July 1.
To make things more difficult state agencies have overspent their budgets this year by hundreds of millions of dollars. What this means is that lawmakers will need to consider reducing state funding for some state agencies, which will prove unpopular.
During past administrations access to what state agencies were requesting as part of their budget adjustments were made public, but those haven’t been made public during Gov. Ned Lamont’s administration. Requests for the documents have gone unanaswered.
“Connecticut remains on solid financial footing, particularly when you look at other states, several of which are facing deficits,” Lamont said in a statement.
The state’s fiscal health and projected $650 million surplus is largely attributed to the fiscal guardrails adopted in 2017.
These guardrails anticipate cost overruns and require lawmakers to build a healthy surplus into the budget when it is adopted. Additionally, another guardrail intercepts and saves hundreds of millions of dollars in revenue before it can be applied to the budget.
These fiscal guardrails, in combination with income tax rate increases in 2011 and 2015 and a robust stock market, have generated substantial state surpluses. That in addition to federal COVID funds have made it easy for lawmakers to budget and cut taxes.
“Our state’s fiscal guardrails have been essential to protecting core state services while paying down our unfunded liabilities and delivering the largest income tax cut in state history, which took effect two weeks ago,” Lamont said. “We continue to carefully monitor higher-than-anticipated expenditures and the expiration of federal COVID relief funding. Any midterm budget adjustments I present will protect both that tax reduction and the recent increase in the Earned Income Tax Credit.”
Republican lawmakers reiterated the need to uphold those fiscal guardrails.
“It remains clear that the caps and savings programs that Republicans effectively pushed for seven years ago are working,” Senate Republican LEader Kevin Kelly said in a statement. “They are working so well that last year, Senate Republicans called for the largest income and property tax cuts in state history: $1.5 billion in relief. We have now passed the first state income tax rate cut since the mid-1990s, and those smart fiscal guardrails have brought us to this point. The guardrails clearly work, so they don’t need fixing.”
However, Democratic lawmakers are likely to look for more flexibility from Lamont in some areas, but have maintained the need to find common ground.
Last year, they complained about the fiscal guardrails and the impact it had on constitutents, but ultimately voted in favor of the two-year budget.