HARTFORD, CT — State revenue projections were holding steady for the first few months of the fiscal year, but according to a report Tuesday from budget analysts they have dipped nearly $85 million over the past month.
Part of the reason for the drop is a dramatic shortfall in expected revenue from the 10-cent fee on plastic bags.
“Our consumers and businesses have adapted to the overall environmental goals associated with the levy on single-use plastic bags far faster than anyone initially forecasted, therefore we have lowered our revenue expectations on the plastic bag tax by nearly 75%,” Office of Policy and Management Secretary Melissa McCaw said Tuesday.
In July and August, Stop & Shop and Big Y announced they would eliminate single-use plastic bags at the checkouts from their supermarket locations in Connecticut.
Projections for collection of the plastic bag tax were originally estimated at $27.7 million for the year. That number has been greatly reduced.
The rest of the reduction over the past month was driven mostly by larger-than-expected personal income tax refunds. That $100 million drop in revenue based on refunds could mean a small deficit for this fiscal year, but those numbers won’t be calculated until Nov. 20.
“At this first consensus revenue of the fiscal year, we have a much more complete sense of the personal income tax filings, as the October filing date has passed, and we are seeing larger than anticipated requests for refunds as our state’s taxpayers are growing more accustomed to the relatively new Pass Through Entity tax,” McCaw said.
She said the revenue projections for income and corporation tax collections remain strong.
“These are not signs of economic weakness and by knowing and recognizing these revenue trends now, we will be able to proactively manage the budget and state operations. Our collections for all categories of revenue remain either on budget or ahead of expectations otherwise,” McCaw said.
In October, McCaw anticipated the state would end the year with a $79.1 million surplus. If revenues are down $84.5 million then the state will be in the red by about $5.4 million.
On Nov. 1, state Comptroller Kevin Lembo agreed with McCaw that there was a $79.1 million surplus. That was down by about $62 million based on an increase in spending.
Lembo noted in his Nov. 1 letter that “Connecticut’s budget results are ultimately dependent upon the performance of the national and state economies.”
A CNBC-SurveyMonkey online poll released Monday said 65% of those surveyed expect the U.S. economy to enter a recession within the next year, despite a strong job market and steady consumer spending. Only 34% of respondents said it was unlikely the U.S. will hit a recession.
The state Department of Labor reported last month that preliminary data shows Connecticut gained 3,600 net jobs in September, representing the third consecutive month of job growth for Connecticut. The labor’s department’s job data, however, is based on a sampling process.
In his monthly letter to Gov. Ned Lamont, Lembo also noted that according to an Oct. 30 report from the Bureau of Economic Analysis (BEA), U.S. Real Gross Domestic Product grew at an annual rate of 1.9% in the third quarter of 2019, based on BEA’s advance estimate. This represents a slight slowdown from the 2% GDP growth recorded in the second quarter. However, the results were better than analysts predicted.
“Economists polled by Dow Jones had expected the economy to grow at a 1.6 percent rate,” Lembo wrote. “The third quarter GDP growth was largely the result of spending by consumers as well as by federal, state and local governments. On the downside, business investment declined in the third quarter as ongoing trade disputes added to uncertainty and continued to dampen growth.”
