Connecticut deficit lingers as state expands reopening
As Connecticut entered the second phase of its reopening, warning signs about the state’s deficit remain.
Comptroller Kevin Lembo forecast a $620 million fiscal 2020 deficit in his monthly update to Gov. Ned Lamont. While an improvement from last month’s $934 million gap, Lembo said extensive job losses and economic damage from the COVID-19 pandemic have made forecasting more volatile.
Connecticut’s rainy day fund holds a balance of more than $2.5 billion, which Lembo said will help close budget deficits related to the coronavirus. That fund alone, however, cannot cover longer-term revenue losses, he added.
Lembo and other state officials repeated their calls for more federal funding. The latest relief bill is stalled in the U.S. Senate.
“Additional federal resources are necessary to offset state and municipal revenue losses and to lend support to the thousands of Connecticut residents who are out of a job through no fault of their own,” he said.
Lembo’s economic indicators show the pandemic is affecting virtually all aspects of Connecticut’s economy, with job losses notably disproportionately affecting the service industry, including the loss of more than 50% of jobs in leisure and hospitality.
In addition, economic volatility and the delayed income tax filing date have made revenue projections uncertain. New home listings, meanwhile, have dropped 56.5%.
Under the second reopening phase, hair salons and barber shops resumed business on Monday. Foxwoods Resort and Mohegan Sun casinos also reopened despite worries by Lamont that it was premature.
On Wednesday, Lamont announced a public-private partnership with philanthropic organizations to provide emergency assistance to residents most directly affected by the virus and are ineligible to receive assistance through federal pandemic relief programs.
The initiative is funded with $2.5 million in state funding and $1 million from COVID-related charity 4-CT.
Eight people in the state died of the virus on Tuesday, Lamont said, the lowest daily count since March. COVID-19 has claimed 3,972 Connecticut lives. Testing capacity in the state is strong, the governor said, citing a large site at Pope Park in Hartford. “We have more capacity than people getting tested.”
Connecticut has planned its third and final bond sale for the fiscal year next week, a $400 million general obligation tax-exempt issuance.
Sales in late May included $850 million of special tax obligation bonds and $500 million of taxable GOs. Orders from investors for the latter totaled $4.4 billion, far exceeding bonds offered, according to state Treasurer Shawn Wooden. It enabled the state to reduce the interest rates on the bonds in the final pricing.
The overall interest cost on the 10-year taxable bond issue was 2.43%, he added, comparing favorably to 3.28% and 3.76% overall interest costs on the state’s last two 10-year taxable GO bonds issues, in 2019 and 2018, respectively.
Proceeds will backstop a variety of projects and organizations, including affordable, elderly and rental housing projects; aid for municipal road improvements; Connecticut Innovations, the state's primary business investment organization; and loans to companies for new or expanded facilities.
Boosting the rainy day balance before the pandemic has helped Connecticut stabilize its bond ratings, Wooden said. Before the May sales, the major rating agencies reaffirmed their credit ratings and stable outlooks.
Moody’s Investors Service rates Connecticut GOs A1, while S&P Global Ratings rates them A. Fitch Ratings and Kroll Bond Rating Agency rate them A-plus and AA-minus, respectively.
“These bond sales are positive signals that the markets have confidence in Connecticut, especially during these very challenging times,” Wooden said.