HARTFORD, CT — For the first time in decades the state of Connecticut saw sales and income taxes increase 5% and help wipe out part of the state’s budget deficit.
The good fiscal news might make it easier for Gov. Ned Lamont to balance the budget without large tax hikes.
New state revenue estimates released Friday show sales tax and income tax revenue growing at 5%. That means that overnight Connecticut went from having a $854 million projected deficit to a surplus of $70 million. It also cut the deficits for the next two fiscal years in half.
“Mid-year consensus revenues are certainly not the final numbers upon which we craft a budget, but this is an important snapshot of where the state is heading. I also expect these numbers to improve even more as the full impact of the federal stimulus bill and any future federal stimulus bills are felt here in Connecticut,” House Speaker Matt Ritter, D-Hartford, said.
The increased revenue projections also mean the state bond cap will increase to around $2 billion allowing the state to bond a few hundred million more than before.
“Interest rates are at historic lows. During a pandemic, where unemployment numbers are high; it makes sense to bond for infrastructure improvements and help people get back to work,” Ritter said.
Office of Policy and Management Secretary Melissa McCaw said the numbers are encouraging but warned that Connecticut isn’t out of the fiscal woods just yet.
“Let’s be clear, while the $743 million improvement from our December 21 estimate will erase our projected shortfall for the current fiscal year, and the more than $800 million dollar estimated increases in each year of the upcoming biennium will narrow the gap that we must close in the next budget, there are sizeable challenges ahead as the projected shortfalls for FY22 and FY23 remain well above $1 billion in each year that will still require difficult decisions,” McCaw said.
Republican lawmakers said the revenue estimates shouldn’t allow lawmakers to let down their guard.
“The reality is that we have a tremendous amount of work to do in order to turn around our economy that’s been propped up by federal dollars, particularly when it comes to reviving industries hit hardest during the pandemic,” House Minority Leader Vincent Candelora, R-North Branford, said. “We can take a step toward achieving that by doing everything we can to continue to stabilize our budget situation while giving employers and workers the confidence that state government has a good handle on managing the most critical issues associated with the response to this virus, such as the vaccine rollout and ensuring all Connecticut children have their educational needs met.”
Senate Republican Leader Kevin Kelly echoed those sentiments.
“Small businesses are shutting their doors, unemployment remains high and we still have billion-dollar out-year deficits,” Kelly said. “We must resist the urge to raise taxes and continue to reduce the cost and size of government. We must make Connecticut more affordable for middle class families.”
Lamont will unveil his two-year budget proposal in February using these revenue estimates knowing it’s likely they will change before April.