As the state’s budget picture improves, Gov. Dannel P. Malloy’s Budget Director Ben Barnes said in a letter Friday that the state will set aside about $102 million for its rainy day fund.
It’s the first time that the state has sought to begin replenishing the fund which was depleted at the beginning of the recession.
Even though the state still technically has a deficit of about $120 million, revenues have improved by about $72 million, according to Barnes. At the same time in order to balance this year’s budget, the General Assembly agreed to postpone using $220 million in funds earmarked to pay the borrowing it did in 2009. The additional money it saved by not paying down the borrowing it did in 2009 is what will be used to re-open a rainy day fund.
“This is an important step toward rebuilding reserves as a contingency against the next economic downturn,” Barnes wrote in his monthly letter to state Comptroller Kevin Lembo.
Over the past month, Barnes said the revenues have been revised upward by $56.3 million, including $16 million in personal income tax, $15.2 million in inheritance and estate taxes, and $13.5 million in licenses, permits, and fees. Spending has also decreased by about $15.7 million since last month, but is still running about $6.8 million over initial projections.
Republicans have been critical of the decision to use money earmarked to pay down borrowing the state did in 2009. Calling it a “gimmick” they said it will harm the state’s Wall Street credit rating.
“The diversion of these funds to finance operational expenses is fiscally irresponsible and will lead to another downgrade by the agencies and ultimately higher interest rates on future bond issuances,” Senate Minority Leader John McKinney and House Minority Leader Lawrence Cafero wrote in a letter to the governor in May.
But Barnes disagreed.
“Our efforts to pre-pay the Economic Recovery Notes didn’t carry much weight with the rating agencies,” Barnes said.
Moody’s Investor Services downgraded Connecticut’s rating from Aa2 to Aa3 in January noting “Connecticut’s high combined fixed costs for debt service and post employment benefits relative to the state’s budget; pension funded ratios that are among the lowest in the country and likely to remain well below average; and depleted reserves with slim prospects for near-term replenishment.”
The administration has maintained that establishing a rainy day fund will help ready the state for the next economic downturn and will be looked at favorably by the three credit rating agencies.
Republican legislative leaders were not immediately available for comment on the latest budget figures.