Connecticut is on track to make next year the sixth consecutive year that it will reduce its pension debt because of rules put in place that require it to use any additional surplus to pay down that debt.
State Comptroller Natalie Braswell said Thursday that the state is on track to use about $2.8 billion to pay down its pension debt due to a projected $1 billion surplus following this week’s special session and recent revenue forecast. That’s an increase of $506 million from last month’s projection.
“State revenues continue to perform well thanks to the overall strength of the labor market and robust consumer spending,” Braswell said. “While it’s still early in the fiscal year, we are on track to record another significant surplus and make another sizable contribution to pay down pension debt.”
Increased sales tax and investment income have contributed to the surplus at a time when job growth has begun to moderate and unemployment is ticking up.
The Sales and Use Tax was revised upwards by $280 million due to collections exceeding the target, and Investment Income was revised upwards by $85 million due to rising interest rates.
Inflation, which is at 7.7%, continues to punish American families, with costs of essentials like housing, food, gasoline, and utilities remaining high. While there are signs that recent interest rate increases will be successful in lowering costs over the long-term, the short-term effects are increasing household debt (particularly in credit cards) and growing mortgage payments.
The U.S. labor and housing markets may be slowing down, but GDP and consumer spending remain resilient, Braswell explained in her monthly letter to Gov. Ned Lamont. U.S. GDP grew 2.9% in the third quarter and consumer spending increased 0.8% from last month. That’s at the same time consumer confidence declined in November mostly due to high gas and food prices and many remain concerned about a possible recession.
Rising mortgage rates, which are 6.49% for a 30-year fixed, according to Freddie Mac, high home prices, and a consistent lack of inventory, have cooled the national housing market.
The median existing home sales price dropped for the fourth month in a row but remains much higher than before the pandemic. However, the National Association of Realtors reports that the annual rate of first-time homeownership has now reached its lowest point in history.
“Housing affordability is a critical component to economic growth, and a key tool in combating chronic racial, ethnic, and geographical inequities,” said Braswell. “While many national conditions are outside of our control, policymakers in Connecticut should prioritize increasing housing inventory and look for ways to help young people purchase their first home.”