Connecticut’s budget surplus has grown by $231 million due mostly to increased tax collections, according to the latest monthly report from state Comptroller Natalie Braswell.
Connecticut’s tax collections and other revenue grew by $157.8 million driven by a strong labor market, and a $73.3 million reduction in budgeted net expenditures.
But that doesn’t mean there’s any clear indication about where the state is headed.
A strong labor market amid high inflation has slowed growth and sent mixed messages about what the next economic downturn will look like, Braswell said.
“Our state’s financial outlook continues to excel – but a strong labor market, negative GDP and low consumer confidence are blurring economic predictions,” Braswell said. “Connecticut learned hard lessons when our state was caught flat footed by the Great Recession with depleted financial reserves, skyrocketing unfunded liabilities and debt that forced hiring freezes, program cuts and tax increases at the worst possible time for families.”
Braswell said that – if current projections hold – approximately $4.1 billion will be used to further reduce the state’s unfunded pension liabilities. This means a better financial position for the state, and more opportunities for Connecticut to focus on much-needed relief and investments that benefit everyone.
Republicans have called on Democratic lawmakers and Democratic Gov. Ned Lamont to give taxpayers more relief now.
Republicans want to direct the influx in tax revenue back to residents and provide relief from the crushing impact of 40-year high inflation.
The state’s revenue volatility cap requires that certain overperforming revenue categories be immediately transferred to the Budget Reserve Fund. However, now that the state’s reserves are fully funded – reaching their statutory maximum of 15% of General Fund appropriations – the excess revenue can be used to pay down debt.
Braswell said the reserves and lower debt will position Connecticut for the future.
“A strong labor market coexists alongside declining growth and high inflation,” Braswell said. “Even if the signs are unclear, consumers are concerned a recession is here.”
Republicans argue they could still lower debt and have enough money to help taxpayers now.
In her letter to Lamont, Braswell said “While the labor market is not signaling recession, other parts of the economy are. Inflation came in at an annual rate of 9.1% in June and GDP shrank 0.9% in the second quarter which marks two months of consecutive decline. Consumer confidence dropped for the third month in a row after the Federal Reserve raised interest rates by another 75 basis points.”