State Budget Deficit Grows, Rainy Day Fund Strong
CT News Junkie, April 2, 2020
By Christine Stuart
Connecticut’s budget revenues are expected to continue to decline over the next few months, but where they will bottom out is anyone’s guess.
State Comptroller Kevin Lembo estimated the state budget to end the fiscal year with a $170 million deficit on June 30.
“The speed and scale of the pandemic’s economic disruptions are unprecedented for Connecticut,” Lembo said. “As a result, the full extent of the impact is not yet clear and may take weeks, if not months, to determine. The current year deficit could, and likely will, grow larger. My office will continue to monitor the situation closely and update these projections in future reports.”
Lembo’s deficit projection is $111.4 million higher than the state Office of Policy and Management’s last report and reflects an updated analysis and estimate based on the withholding portion of the income tax. Lembo is projecting a $130 million reduction in withholding revenue, as well as a reduction in sales tax revenue by $30 million.
“My office is already seeing a drop-off in withholding receipts from the large number of layoffs and furloughs resulting from non-essential business closures related to the state’s response to the COVID-19 pandemic,” Lembo said. “In addition, we are reducing the sales tax estimate by $30 million, again due to coronavirus-related business closures and shelter-at-home directives.”
On the spending side, Lembo said his office is largely in agreement with the Office of Policy and Management projections at this point – although he acknowledged that the state’s response measures related to the coronavirus is an evolving situation.
Rainy day back to top
The state does have a $2.5 billion Rainy Day Fund, which it has built over the past few years.
“Now, as the state faces an unexpected public health and economic crisis, Connecticut is better positioned to meet the challenge,” Lembo said.
Connecticut’s budget results are ultimately dependent upon the performance of the national and state economies, and virtually all economic measures look back at past periods. Therefore in the present situation, Lembo said some economic indicators in this report may appear inconsistent with recent developments in the rapidly changing response to the COVID-19 pandemic.
“Over the last 10 years, the U.S. economy has grown 19.5% growth, Connecticut over same period of time has declined 6%,” Donald Klepper-Smith, former chair of the Governor’s Council of Economic Advisors, said last week.
He expects the current downturn to last as long as previous recoveries with an average length of one year.
He said Connecticut is starting behind the eight-ball because Connecticut never regained all the jobs lost since the Great Recession.
In one of the last unemployment counts before the impact of the Covid-19 virus affected the tally, preliminary Connecticut job estimates showed the state gained 4,000 jobs in February and employment rose to 1.7 million jobs.
The number of the state’s unemployed residents was estimated at 72,600, seasonally adjusted, up 400 from the revised January 2020 level. That put Connecticut’s February unemployment rate at 3.8% — up one-tenth of a percent from the revised January level.
“February’s payroll job numbers revealed a healthy increase of 4,000 jobs over January 2020,” Andy Condon, director of the Office of Research at the Connecticut Department of Labor, said. “In addition this was the sixth month in a row of payroll job growth.”
“Unfortunately, with the impact of the spread of the COVID-19 virus we can expect payroll jobs to decline as a result of sharply increased layoffs and furloughs,” Condon added.
Jobless claims continued to surge as more claims poured into the Connecticut DOL, but the agency has stopped sharing daily unemployment numbers beyond the first week.
Attempts to reach the Labor Department for the latest information have been unsuccessful.