The success of the tax amnesty program and increases in the sales and corporation taxes have put the state on track to end the year with a $245.9 million budget surplus, state Comptroller Kevin Lembo said Monday.
In his monthly letter to Gov. Dannel P. Malloy, Lembo predicted that the surplus would be $110 million more than the governor’s budget office predicted in late November because of the more than $175 million the state collected through the amnesty program that ended Nov. 15.
The state had only predicted that it would collect $35 million from the tax amnesty program, which allowed individuals and businesses who owed back taxes to receive a 75-percent reduction in the interest owed as part of the program.
But it’s not the only revenue source the state underestimated when putting together the budget. Sales and corporation taxes are each up by $30 million from initial budget targets, and the real estate conveyance tax is $15.6 million above initial estimates.
“Month after month the state’s financial outlook for the current fiscal year is improving,” Lembo said. “This is a great sign for Connecticut’s economic recovery — but there are also uncertainties and future liabilities that we need to brace for.”
One of those uncertainties, according to Lembo, may be “the ongoing federal budget issues.”
Office of Policy and Management Secretary Ben Barnes agreed in his Nov. 20 letter to Lembo.
“The uncertainty created in the national and state economies by the lack of long-term federal fiscal plan could affect our recovery from the recession and have a material effect on state revenues,” Barnes said.
Congress agreed to keep the federal government open until Jan. 15 after they were unable to reach an agreement and shut the government down for the first 17 days of October. A committee of lawmakers is expected to offer a more permanent budget solution by Dec. 13.
But no matter what happens in Washington, Lembo said he would like to see lawmakers put the additional money in the Rainy Day Fund.
At the end of this fiscal year there was about $270.7 million in the fund, which is about 1.6 percent of planned spending.
“I have called for a reserve level of 15 percent of spending — beyond the 10 percent statutory requirement,” Lembo said. “It is essential to the state’s long-term fiscal stability that sufficient reserves be established as soon as possible. Too often in the past, opportunities to build reserves have been missed as other perceived budget priorities were pursued.”
Lembo said if the state had heeded that advice it “would have weathered the 2009 recession far better.”
At the moment there is no plan to do anything but put the money into the Rainy Day Fund. However, achieving the 15 percent will require legislative action since it’s currently capped at 10 percent of spending.
Since 1990, the General Fund has realized almost $5 billion in revenue windfalls, but most did not go to build reserves, Lembo said.
While there’s currently a budget surplus, deficits are not that far away.
Last week, lawmakers got a look at what the future holds from budget analysts.
Both the Office of Fiscal Analysis and the Office of Policy and Management are predicting deficits in fiscal years 2016, 2017 and 2018. OFA predicted deficits between $1.1 billion and $1.4 billion over the next three fiscal years. OPM predicted smaller deficits of $612.4 million in fiscal year 2016, followed by deficits of $432.5 million in 2017 and $376.3 million in 2018.
