One month after the 2022 budget was adjusted state Comptroller Natalie Braswell estimated the state would end the fiscal year with a $956.4 million surplus.
She said the budget reduces the reliance on federal funds, carries certain funds over into the next fiscal year and funds certain tax relief measures including the new Child Tax Credit.
The budget bill eliminated $559.9 million of American Rescue Plan Act (ARPA) revenue that was built into the original 2022 budget plan. The bill also transfers $125 million from 2022 to 2023 to fund the one-time Child Tax Credit and transfers $83.2 million of federal grant revenue from 2022 to 2023 for the Home and Community Based Services Medicaid program. An additional $20.8 million of transfers from 2022 is included.
A lot of the continued success of the budget will rely on the state economy. She said the state has now recovered 82.1% of the jobs lost at the onset of the pandemic.
The U.S. added 428,000 jobs in April while the unemployment rate remained at 3.6%. A record 4.5 million Americans quit their job amid a record 11.5 million job openings—there are approximately two job openings for every one unemployed person nationally. Due to increased demand for labor, nominal wages continue to rise, however due to high inflation, real earnings have declined.
“Competition for labor remains intense, creating new opportunities for workers and driving up wages,” Braswell said. “Nationally, there are about two job openings for each unemployed worker. However, persistent inflation is keeping prices high and preventing those workers from feeling the full benefits of the strong job market.”
Investors are concerned about a looming recession, inflation and shifting monetary policy. However, consumer spending increased this month, not solely due to inflation as demand for both goods and services remained strong. Households dipped into savings as the personal saving rate declined to the lowest rate since 2008.
Housing and rental prices also remain high, a concern of Braswell’s in recent months. Low inventory of single-family homes has pushed prices up and rental costs have followed.
In a letter to Gov. Ned Lamont, Braswell noted that several revenue categories continue to perform well including income tax withholdings which are up 9.6% from the same period last year.
Another large deposit into the state’s Rainy Day Fund is also anticipated. The fund has already reached its statutory maximum of 15% of General Fund appropriations. If current projections hold, that will leave approximately $3.6 billion available to pay down pension debt and other liabilities.
“Connecticut’s big picture economic position remains strong,” Braswell said. “Our substantial reserves, and the additional funding to pay down debt, will be a tremendous advantage to our state should the nation suffer another economic downturn. However, there is still a need to help residents overcome high prices and navigate the lingering volatility from the pandemic.”
By statute, the state treasurer decides what is in the best interest of the state, whether to transfer the excess balance as an additional contribution to the State Employee Retirement Fund or to the Teachers’ Retirement Fund.
Connecticut’s budget results are ultimately dependent upon the performance of the national and state economies.