Connecticut is just one of three states that has maxed out its rainy day fund during the pandemic, according to a new report from Pew Trusts.
Connecticut joins Iowa and Oklahoma as states that are projected to have filled their rainy day funds to their maximum balances, meaning that additional dollars that would ordinarily have been directed to those fund balances were redirected to other uses.
Connecticut’s additional cash goes to the state’s unfunded pension liability.
According to the Office of Policy and Management, Connecticut will end the 2023 fiscal year with a $300 million surplus, which represents about 2.2% of the general fund. The rest of the money or about $5.6 billion, which is around 25.6% of the general fund, falls under the volatility cap and will be used to help pay down the pension debt.
However, Pew warns these surpluses, which are in 41 other states, could disappear soon.
“Higher-than-forecasted tax revenue growth, historic federal aid, and record financial reserves have buttressed states’ fiscal positions over the past two budget years,” analysts wrote recently. “However, policymakers now face an inflection point as they reckon with several looming challenges, including weakening economic growth amid tightening monetary policy and historically high inflation, and a tapering of federal aid.”
Connecticut’s Budget Secretary Jeffrey Beckham says they are optimistic about some parts of the economy, but not others.
“There are signs the State of Connecticut’s fiscal health remains strong, including an increase in payroll employment and a drop in the unemployment rate,” Beckham said. “However, there are noteworthy concerns that the global economy – caused by the war in Ukraine, OPEC+ decreasing oil production, and ongoing supply chain disruptions – could impact our state’s financial position. These factors, outside the control of state government, reinforce the need to protect our Budget Reserve Fund. As the fiscal year continues, OPM is closely monitoring changes in the economy, expenditure patterns, and other factors and will continue to revise our estimates to reflect those conditions.”
Republican gubernatorial candidate Bob Stefanowski has continued to call on the state to release some of the state surplus to help homeowners lower their heating bills this winter and for other tax relief.
“I don’t know if you know it, but we have a 6 billion — billion with a ‘B’ — budget surplus right now,” Stefanowski has said. “To me we should be looking to do something with that money.”
Most of the money is committed to the unfunded pension liability under rules created by a bipartisan group of lawmakers in 2017.
“To me, I think it’s unconscionable that our government is taking $6 billion of our tax money that they don’t need and they won’t give it back,” he added.