Connecticut’s economy is slowly regaining confidence, or it’s gotten lucky with collecting one-time revenue and business taxes. Those are the two interpretations of the latest revenue projections from state budget analysts.
According to the Offices of Fiscal Analysis and the governor’s budget team, Connecticut’s revenues have increased over the past two months and are exceeding projections.
Two months ago in November, revenues were projected to fall short of estimates. But as of Tuesday they were revised upward by a net gain of $56.7 million, which could help erase 2017 budget deficit, which was pegged at $41.6 million by state Comptroller Kevin Lembo on Jan. 3.
The largest adjustment for the 2017 budget was in the corporation business tax, which saw an $80 million increase. Additionally the state last week received $31.5 million from a legal settlement with Moody’s Investors Service over its rating of mortgage-backed securities in the lead-up to the 2008 recession, and another $5 million came in from real estate conveyance taxes.
Those increases are offset by a decreases of $30.4 million in sales and use taxes, $15 million in income taxes, $10 million in special revenue, and $4.4 million in federal grants.
“This consensus reflects our cautious confidence about Connecticut’s economy,” Office of Policy and Management Secretary Ben Barnes said. “Corporate profits and equity markets appear to have ended 2016 strong, offsetting mixed results in some other revenue areas.”
He also thanked Attorney General George Jepsen for the settlement with Moody’s.
In October, the state received a $120 million legal settlement from RBS Securities Inc., a subsidiary of the Royal Bank of Scotland. The 2017 budget already estimated the state would receive $40 million in legal settlements this fiscal year, so that means it has about $111 million more than anticipated to help balance the 2017 budget.
The good news doesn’t completely erase the budget deficit Democratic Gov. Dannel P. Malloy will be asked to resolve when he gives his budget address Feb. 8. However, it makes it a little easier.
According to the numbers, the $1.5 billion budget deficit projected for 2018 was reduced by about $31 million. That brings down the 2018 deficit to about $1.469 billion.
“Our collective challenge to balance the biennial budget remains daunting, but we appreciate that growing revenues appear to be making that task a little bit less so,” Barnes said.
Republican legislative leaders said most of the improvement in revenues is from one-time sources such as legal settlements.
“While some may be tempted to take a victory lap, this is not a shining moment for our state or our budget,”Senate Republican President Len Fasano, R-North Haven, said. “This change is thanks to companies having to pay more in new taxes than originally anticipated and the state lucking out with over $172.5 million in new one-time revenues. The governor should be sending the attorney general flowers and chocolates, because without his fortunate timing the state would be facing a shortfall of nearly $200 million.”
House Minority Leader Themis Klarides, R-Derby, doesn’t believe Connecticut is out of the woods just yet based on the decreases in the income and sales taxes.
“Connecticut will continue to struggle to meet its financial obligations in the two years ahead,” Klarides said. “Today’s consensus figures underscore the very issues highlighted by the ratings agencies that have taken a dim view of Connecticut’s fiscal outlook: the volatile nature of our revenue streams. This will continue to hamstring our ability to erase perpetual deficits absent meaningful structural changes on the spending side.”