Calls for Tax Relief as Budget Surplus Jumps Again

Connecticut’s current fiscal year budget surplus jumped $400 million last month to almost $900 million, as the state continues to benefit from a strong stock market and federal coronavirus aid.

The Office of Policy and Management’s latest fiscal report now projects an $894.7 million surplus for fiscal 2022, well ahead of the originally budgeted $274.9 million surplus.

The latest projected surplus includes $802.7 million of excess revenues and $92 million of net expenditures below the budget approved by the legislature earlier this year.

Connecticut’s rainy day fund is also forecast to reach nearly $5 billion by June 30, and the balance of the once-troubled Special Transportation Fund will hit a surplus of more than $251 million.

The state’s reserve fund had a zero balance in 2011 and is now one of the country’s strongest, with a current balance of $3.1 billion—the statutory maximum.

By law, excess funds must be used to pay down unfunded liabilities in the State Employees Retirement System and Teachers’ Retirements System.

Calls for Tax Relief

Bipartisan fiscal reforms adopted in 2017 created the platform for the turnaround in fiscal fortunes, with a surge in positive news over the past year.

​​Connecticut’s bond credit rating was upgraded by four major credit rating agencies in May, with the state moving up 11 spots to 24th in CNBC’s latest America’s Top States for Business study.

CBIA president and CEO Chris DiPentima sees the surplus as an opportunity to “do much more than hold the line on taxes and pay down long term liabilities,” and believes the funds could be used to avoid future deficits. 

“We have a tremendous opportunity in front of us to grow Connecticut’s economy,” DiPentima said.

As @CTHouseBlueDogs' @RepPatBoyd says, the state's current fiscal position represents "a perfect storm." I agree with @KerryAWood that the growing surplus should be used to pay down debt—it also presents a great opportunity for #tax relief. #RebuildCThttps://t.co/aFpvu8vCav

— Chris DiPentima (@ChrisDipentima) November 23, 2021

“With a comprehensive tax relief policy that reaches both businesses and individuals, we can make Connecticut a business hub, while also attracting the jobs to employ that workforce.”

The latest budget report also renewed calls for an increased focus on workforce development to help address the state’s labor shortage.

“As Connecticut continues to expand and grow, especially in STEM-related sectors, our tax policy should reflect the value we place on these high paying jobs,” said CBIA government affairs associate Ashley Zane.

“Not only does this mean restoring or expanding tax programs like the R&D tax credit and apprenticeship credit, but also creating an environment for employees to succeed on a personal level by not increasing broad based taxes.”

Deficits Loom

The report also provided a warning for the state’s economic future: a sizable portion of the surplus relied on one-time federal funding from the American Rescue Plan Act.

Without that funding, the surplus for fiscal year 2022 would be a “modestly positive” $185 million, and fiscal year 2023 would have a “sizable operating deficit.”

The OPM report noted Connecticut must experience “significant revenue growth this biennium to prevent a large budgetary gap in FY 2024 and beyond.”

The legislature’s nonpartisan Office of Fiscal Analysis projects a $931.9 million deficit for fiscal 2024, with a $670.3 million shortfall the following year.

Connecticut must experience “significant revenue growth to prevent a large budgetary gap in FY 2024 and beyond.”

“An encouraging note in the out-years is that revenue growth outpaces fixed cost growth, creating a positive structural balance,” the OFA report, also released Nov. 19, noted.

OPM’s Fiscal Accountability Report for fiscal years 2022-2026 shows the state’s long-term debt at $95.4 billion, up 4.1% over the past year.

Connecticut’s per capita debt is one of the highest of any state, with pension obligations alone accounting for about 14% of annual state spending.

Total fixed costs—pension payments, retiree healthcare benefits, and debt service—account for about one-third of Connecticut’s annual budget, drawing much needed resources from education, workforce development, healthcare and transportation.

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For more information, contact CBIA’s Ashley Zane (860.244.1169) | @AshleyZane9.