HARTFORD, CT — It’s still unclear exactly how much of an impact the global pandemic will have on Connecticut’s state budget, but the nonpartisan Office of Fiscal Analysis anticipates it will “negatively impact multiple fiscal years.”
Connecticut’s fiscal picture had turned around over the past two years as the state focused on building up its Rainy Day Fund, but COVID-19’s impact on the economy could wipe it out.
“The scale of the public health crisis triggered by the global pandemic and the resulting economic impact is extraordinary and will negatively impact multiple fiscal years, although federal fiscal policies may provide near-term state fiscal relief,” analysts wrote in their monthly budget report.
Moody’s Analytics says the United States is already in a recession which will intensify over the next three months.
What does that mean for Connecticut’s state budget?
The Office of Fiscal Analysis predicted back in November that Connecticut would need $3 billion to cover lost revenue over two fiscal years in a typical recession. Additionally, they estimated that forgone revenue growth in a typical recession would be $1.5 billion. That means Connecticut’s general fund could face a structural deficit of $1.5 billion after a typical recession has run its course.
Connecticut’s revenues will likely continue to fall over the next few months as unemployment claims exceed 100,000 and consumer spending slows.
In 2009, during the last recession, part of Connecticut’s income tax revenue fell by $904.4 million. Those collections fell an additional $475.4 million in 2010, for a total two-year decline of approximately $1.4 billion, or 44.5% from the 2008 peak.
An October 2019 report by Moody’s Analytics regarding state preparedness to withstand fiscal stress found Connecticut would need reserve balances totaling at least 10.1% of general fund revenues to withstand a moderate recession scenario and 14.8% in a severe recession.
Connecticut’s Rainy Day Fund balance is expected to be about $2.5 billion or about 13% of general fund spending.
Connecticut Comptroller Kevin Lembo is expected to release his monthly budget report on April 1, but the state won’t really know more until it estimates revenues on April 30.
At the same time Connecticut decided to move its personal income tax reporting deadline to July 15, along with the federal government so the April revenue figures may not be as clear as it may have been in previous years.
In a typical April, the legislature is looking at adjusting the two-year budget, but that body may need to get creative about how they gather to vote on it. There are 151 members of the House and 36 members of the Senate.
Senate President Martin Looney, D-New Haven, said no decisions have been made about whether the legislature will return to adjust the budget. He said they are waiting for the revenue estimates on April 30 to evaluate the state’s fiscal picture.
The state Capitol will remain closed until at least April 20.