HARTFORD, CT — The state is on track to end the 2019 fiscal year with a $770.9 million surplus, according to state Comptroller Kevin Lembo.
However, Lembo warns about $540.9 million of that is accounted for to cover funding for a new capital reserve fund for the Teachers’ Retirement System and the tax settlement with the hospitals. Both were part of the 2020 and 2021 budget agreement signed into law last week.
In his monthly letter to Gov. Ned Lamont, Lembo said he agrees with the Office of Policy and Management that revenue categories are performing above what was projected in the April consensus forecast. Sales tax revenue is $39.9 million ahead of projections, the corporation tax is $25 million ahead of projections, the inheritance and estate tax by $16.5 million, and public service corporations tax by $17.5 million.
“These over-performing revenue categories are positive signs – however, in order to help protect against future economic downturns, Connecticut must maintain financial discipline and continue building the Budget Reserve Fund balance to the statutory target of 15 percent,” Lembo said.
Revenue projections are about $129 million more than they were in May.
The Rainy Day Fund, according to Lembo, is also expected to balloon to $2.24 billion. That’s largely due to the volatility cap transfer of about $895.5 million into the Rainy Day Fund.
That means if all projections hold by September the Rainy Day Fund will represent 11.6 percent of the net General Fund appropriations. The goal is 15 percent, Lembo said.
Lembo said Lamont must maintain this fiscal discipline to get through the fiscal year because “Connecticut’s budget results are ultimately dependent upon the performance of the national and state economies.”
He pointed out that with the May job losses Connecticut “employment growth has slipped back into negative territory.”
At the same time withholding of personal income taxes has grown 7.8 percent.
“This is especially significant because the withholding portion of the income tax is the largest single General Fund revenue source,” Lembo noted.
Lembo also noted that on June 25, the Bureau of Economic Analysis (BEA) reported that Connecticut’s personal income grew by a 1.5 percent annual rate for the first quarter of 2019. Based on this result, Connecticut ranked 48th in the nation.
This growth rate was below both the national average of 3.4 percent and the New England region’s average rate of 2.6 percent. The percent change in personal income across all states ranged from 5.6 percent in West Virginia to -0.6 percent in South Dakota.
The estimates and finals portion of the personal income tax was revised downward by about $100 million. This is the portion of the income tax paid on a quarterly basis by self-employed or wealthy individuals who don’t have income taxes withheld as part of a paycheck.
Citing a Berkshire Hathaway HomeServices report, Lembo said sales of single-family homes grew 2.27 percent and the median sales price increased 7.69 percent. New listings were essentially flat and the median list price was up 9.06 percent to $289,000 compared with $265,000 a year ago.