Connecticut is only one month into the 2021 fiscal year and already state Comptroller Kevin Lembo is predicting a $2.1 billion budget deficit at the same time as the Rainy Day Fund reached an important milestone.
Last week, Connecticut maxed out the amount of money that it is allowed to put away in the Rainy Day Fund at $3.035 billion. That’s 15.1% of general fund appropriations.
“The ongoing crisis, and its economic impact on Connecticut families and businesses, shows the importance of budgetary preparedness,” Lembo said. “This record-high balance in the Rainy Day Fund will likely be short-lived, but that’s entirely the point. By building reserves, our state is in a much stronger position to provide critical services to those in need and to weather this fiscal crisis.”
The Rainy Day Fund will help Connecticut “not do what Connecticut has done traditionally—that is, A to cut programs, and B to raise taxes at a time when people can least afford it,” Lembo said.
However, Gov. Ned Lamont doesn’t necessarily want to do that just yet. The administration has not decided to use the funding to plug the projected budget shortfall.
“If things continue to improve, if the vaccine’s in sight, if employment returns to normal levels, then we’ll be able to weather this storm without as much of a bump as some other states,” Lembo said Tuesday during a press briefing.
But there’s been nothing predictable about the coronavirus.
Lembo said everyone is expecting and planning for an increase in COVID-19 infections in the fall as kids go back to school.
“For months now, I have been warning that it was only a matter of time until we started to see the impact of COVID-19 on state revenues. This is the rainy day we’ve been preparing for,” Lembo said. “Connecticut is fortunate to have built its reserve, leaving us more prepared than many states, but the federal government must step up to replace lost revenues and protect families, small businesses and municipalities from tax increases and devastating service cuts. It is unacceptable that Congress cannot come together to do the right thing.”
At the same time, a $2.1 billion deficit will not be easy to overcome without budget cuts or tax increases.
Lamont’s budget office predicted a $2.07 billion budget deficit in fiscal year 2022 “due primarily to pandemic-influenced revenues that are well below budgeted levels,” according to Office of Policy and Management Secretary Melissa McCaw. “The projected shortfall represents 10.3 percent of the General Fund. Our estimates include anticipated state costs for the state’s current pandemic response.”
The expectation is that revenues will be down over the next 12 months because many thousands of people will still be unemployed.
Last month, McCaw revised the revenue numbers down by about $2.2 billion with the expectation that spending will exceed what was budgeted by about $40.9 million.
The rate of unemployment in Connecticut was around 15% by mid-June and mid-July. Also the Bureau of Economic Analysis estimates the Gross Domestic Product decreased at an annual rate of 31.7% in the second quarter of 2020.
“The historical levels of unemployment and GDP results illustrate the depth of the hole from which the nation is attempting to emerge,” Lembo wrote in his monthly letter to Lamont. “Numerous economists, including Federal Reserve Chairman Jerome Powell, are urging Congress to provide more relief to prevent further damage to the economy and avoid prolonging the recovery, which is stalling amid high levels of coronavirus cases. Despite the unevenness of earlier pandemic relief efforts, they have provided a lifeline to help families and businesses avoid financial disaster, at least temporarily.”