HARTFORD, CT — The longest time between recessions, historically, is about 10 years.
“We are now nine years and counting since the last time we had a recession,” Neil Ayers, director of the Office of Fiscal Analysis, told lawmakers this week. “If we make it through this current year without a recession it matches the all-time record. If we make it through the biennium, it would exceed the all-time record by 20 percent.”
That’s just one more thing, aside from the $1.5 billion deficit in next year’s budget, for the new legislature and Governor-elect Ned Lamont to worry about.
Ayers said historically there’s a large revenue loss at the beginning of a recession.
In 2009, the state borrowed $950 million to help get through the downturn. It took nine years to pay that off.
“Completing payment on the Economic Recovery Notes closes a regrettable chapter in Connecticut’s financial history,” Malloy said in January. “Surely, reasonable minds agree that we must avoid repeating this costly decision. It is my sincere hope that present and future state leaders learn from this experience and take the necessary steps to keep the budget in balance during the course of the fiscal year.”
The final payment on the debt was completed on Jan. 1, 2018.
During the last recession, which started in 2008, there was also federal money Connecticut received. However, Ayers said “we don’t know to what extent we could rely on additional federal money in light of a downturn.”
Connecticut also has the ability to use the Rainy Day Fund to help get it through a recession, but there are new restrictions on that given the new bond covenant and volatility cap. In order to access the money that’s transferred to the Rainy Day Fund under the volatility cap, the governor must sign a declaration of fiscal exigency and 60 percent of the House and the Senate must agree.
That means, 91 members in the 151 member House and 22 members in the 36 member Senate must vote in favor of using the funds. Democrats recently expanded their majorities in both chambers to 92 members and in the Senate to 23 members.
But Lamont has rejected the idea of using the Rainy Day Fund to get out of the fiscal mess.
“I want us to make the tough decisions,” Lamont said Tuesday. “I don’t want kick the can down the road by using the Rainy Day Fund.”
Assuming no money is transferred out of the Rainy Day Fund it’s expected to grow to about $2.9 billion by the end of fiscal year 2022. The volatility cap requires the estimates and finals portion of the personal income tax over $3.1 billion a year to be automatically deposited into the Rainy Day Fund.
Office of Policy and Management Secretary Ben Barnes said fixed costs continue to drive the budget and will continue to drive the budget for the next six to eight years.
Connecticut’s unfunded pension liability and the decision for decades not to properly fund it will continue to drive state budget decisions into the near future, Barnes said.
Barnes said he hopes that if “we maintain fidelity to the current funding approach with SERS [State Employees Retirement System] and we do something similar with the Teachers Retirement System in the coming years that we will eventually get to a point, a decade or so from now, when the growth in fixed costs is no longer the dominant feature of our budget discussions every year.”
Barnes said they need to consider the likelihood of a recession over the next few years as they make budgetary decisions this year.
“I think it’s extraordinarily unlikely that you get to 2022 without a recession,” Barnes said.