HARTFORD, CT – State Comptroller Kevin Lembo said Connecticut’s economy is beginning to show signs of recovering but it will need more help from the federal government.
“It’s decision time,” Lembo said Monday. “Our state economy is showing signs of recovery from the devastating effects of the COVID-19 pandemic, but without a significant investment from the federal government, those gains may slip away, and Connecticut families and businesses will suffer.”
In his monthly letter to Gov. Ned Lamont, Lembo projected that Connecticut would end the fiscal year with a $128.1 million deficit. Any deficit will be covered by Connecticut’s Rainy Day Fund, which is projected to end the year with $2.8 billion.
Lembo said the data shows that prior federal aid has helped people stay in their homes and, unlike in the prior recession, led to a decrease in personal bankruptcy filings. In a recent analysis, Moody’s Analytics cited Connecticut as one of few states with the necessary reserves to withstand a modest recession but noted that significant federal intervention is required to guard against the most severe scenarios.
“I am urging Congress to consider the human cost of delaying further financial assistance,” said Lembo. “Without sufficient support, Connecticut and nearly every state across the country, will see spikes in evictions, foreclosures and bankruptcies, and the jobs we’ve yet to recover may be lost permanently. State and local governments will be forced into impossible budgetary choices.”
Connecticut has recovered over 100,000 jobs lost at the beginning of the pandemic, but unemployment levels are still near record highs and employment is still down 172,700 jobs from a year ago.
Lower-wage workers continue to face the greatest burden. The Federal Reserve reported 40% of households earning less than $40,000 a year had already lost at least one job by May.
Lembo called on Congress to extend the $600 supplemental weekly unemployment benefits that lapsed on July 31, to provide financial assistance to low-wage workers who have been harmed by contractions in the service industry, and to replace revenues lost by states and municipalities to avoid catastrophic cuts to social service programs as the pandemic continues to rage across the country.
“The sluggish recovery from the Great Recession shows that reacting to crisis by going too small, or moving too slowly, is insufficient to combat its effects,” Lembo said. “This is the biggest economic disaster in generations and the response must match that scale. Without it, Americans will suffer and every dollar we’ve spent so far will go to waste.”
U.S. Senate Majority Leader Mitch McConnell wants to slash the extra $600 being paid to 25 million unemployed Americans to $200. Republicans argue the bonus weekly payment is a disincentive to people who might otherwise return to work.
In his monthly letter to Lamont, Lembo detailed the state’s current financial standing, noting a net improvement in tax receipts as more filing data becomes available.
Lembo’s office raised its estimate for the withholding portion of the income tax by $50 million and the sales and use tax by $60 million. These gains were partially offset by reductions of $40 million in the corporation tax and $45 million in the health provider tax, both of which have been underperforming their budget targets.
Lembo also increased the forecast for the estimated and final income tax payments by $100 million and the Pass-Through Entity Tax by $50 million due to strong collections in July. The increase in those estimates increased the volatility cap transfer to the Rainy Day Fund.
Lembo won’t close the books on fiscal year 2020 until September 30.
