Just two months ago the state was expected to end the fiscal year with an $11.2 million surplus, but according to state Comptroller Kevin Lembo that surplus is up to $273.3 million.
In his monthly letter to Gov. Dannel P. Malloy, Lembo said the $273.3 million surplus is $137.4 million more than last month’s estimate.
Most of the increase is related to the additional revenue the state received from its tax amnesty program. The state had budgeted $35 million for the program, but it received more than $175 million from delinquent taxpayers looking to settle their debts.
But the good news didn’t end there.
“While the largest portion of this excess revenue is the result of the tax amnesty program, there are also generally positive trends developing in overall state revenue,” Lembo wrote. “Improvements in the state’s employment numbers, continued strength in the housing market, and strong equity markets are contributing to a more favorable revenue outlook as we enter 2014.”
Revenue is expected to exceed initial budget projections by about $201.7 million, while spending is close to initial budget targets, Lembo said.
“This growing surplus is a great sign for Connecticut’s economic recovery,” Lembo said. “However, in the next biennium — and beyond — we face new and greater challenges that require action today.”
Lembo noted that while the state’s outlook for the current fiscal year has been improving month after month, more than $300 million from last year is included in this year’s budget.
Nonpartisan fiscal analysts and Malloy’s own budget office predicted that the budget will be back to running deficits of $1.1 billion to $1.4 billion over the next three years if the state legislature does nothing. Addressing those deficits will be even more difficult if the state doesn’t put the surplus in the rainy day fund.
Because of the state’s continued slow recovery — and many future long-term liabilities — Lembo said it is imperative to re-build the state’s rainy day fund and prepare for future obligations and uncertainties.
“Both OFA (Office of Fiscal Analysis) and OPM (Office of Policy and Management) have estimated budget shortfalls beginning in Fiscal Year 2016 if current policies and trends remain unchanged,” Lembo said. “Therefore, 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.”
The reserve balance at the end of fiscal year 2013 was $270.7 million, which is 1.6 percent of planned spending. Lembo has called for a reserve level of 15 percent of spending, but the legislature would need to change the law in order to make that happen. Currently, the rainy day fund is capped at 10 percent of spending.