HARTFORD, CT — The 2019 budget is off to a good start, but it’s a long way to June 30th.
Secretary of the Office of Policy and Management Ben Barnes reported Monday that state is on track to end the fiscal years in the black.
After the first month of the 2019 fiscal year, the state is running a $138 million surplus.
The biggest change is an increase in the withholding portion of the personal income tax, which is up $97 million. The estimates and finals portion of the personal income tax has also been revised upward by $85 million, but that portion will be placed in the rainy day fund pursuant to the new volatility cap. Sales taxes are up $58.3 million.
Barnes said the total amount of money expected to be transferred to the rainy day fund in 2019 is around $448 million, which will increase the fund to $1.6 billion — that’s more than 6.1 percent of the general fund.
However, it’s still not quite half of what state Comptroller Kevin Lembo recommends as a healthy level, which is 15 percent.
The increase in the estimates and finals portion of the income tax also means the next governor and legislature can’t use any of the $448 million to help close the projected $2 billion deficit because the money falls under the volatility cap. They won’t be able to touch that money until 2023 when the cap expires because they promised investors as part of a bond covenant that they wouldn’t — unless it’s overridden by the governor and three-fifths of the legislature.
The credit rating agencies have expressed cautious optimism over the decision to institute the volatility cap.
In its recent summary on Connecticut to investors, S&P Global analyst David Hitchcock said, “By using bond covenants, the ability to change these procedures is taken out of the hands of future legislatures. This could help credit quality to the extent structural balances were enhanced and reserve balances were preserved during good economic times, but could potentially squeeze discretionary spending if fixed costs continue to escalate.”
Hitchcock add: “Overall, we see the restrictions as likely beneficial to credit quality, assuming budget economic forecasting is accurate.”
And despite the continued negativity espoused by some in the state, Hitchcock pointed out in the July report that Connecticut still ranks first in per capita income at 139 percent of that of the U.S. in 2017, although down from 144 percent in 2013.
“The economy continues to grow, despite population declines during 2014-2016, and a slow 0.3 percent increase in 2017,” he wrote.
“Should we conclude that substantial income tax revenue above the state’s volatility cap will be available on an ongoing basis to help Connecticut regain budget flexibility and maintain good reserves during periods of economic recovery, we could potentially raise our rating or revise our outlook on the state,” Hitchcock concluded.
Meanwhile, the revenue gains the state experienced in the first month of the 2019 fiscal year are tempered somewhat by $35.5 million in unanticipated spending increases, mostly in the Department of Correction and the Department of Children and Families.
Lembo is expected to certify the 2019 budget numbers at the beginning of September, the same month he closes the books on 2018.