Connecticut rainy-day fund to cover $530 million budget gap
Connecticut expects to draw from its rainy-day fund to close a projected $530 million budget gap for the current fiscal year as the COVID-19 pandemic continues to pummel the state’s economy, officials said.
The drawdown will leave the state’s budget reserve fund with nearly $2.3 billion or 11.4% of net general fund appropriations, according to Office of Policy and Management Secretary Melissa McCaw.
“Our estimates include anticipated state costs for the state’s pandemic response,” McCaw said in a letter to state Comptroller Kevin Lembo.
Agencies, notably those with 24/7 operations, are running up overtime and other personnel costs that may prove to be reimbursable through federal supplemental funding bills, McCaw said.
“As a result, we believe that our spending estimates may overstate the requirement for state funding in response to the pandemic.”
The state lowered its revenue estimates by $510.7 million for this month, including a $281.3 million in sales tax receipts; $120.7 million for personal income tax withholding and $71.9 million for the corporation tax.
“The adequacy of the Budget Reserve Fund will be critical for any necessary long-term recovery of state finances,” McCaw said. “The rapid deterioration of the BRF during the last recession necessitated years of budget cuts and tax increases.”
Connecticut also deferred $2 billion in tax payments to July 15, due to tax-filing deadline extensions.
While Connecticut has low ratings for a state government — A from S&P Global Ratings, AA-minus from Kroll Bond Rating Agency, A1 from Moody’s Investors Service and A-plus from Fitch Ratings — recent rainy-day deposits helped its stance on Wall Street last year.
S&P in 2019 revised its outlook on Connecticut’s general obligation bonds to positive from stable, marking the first outlook or rating upgrade in 18 years. Kroll, four months later, elevated its outlook to stable from negative.
“A lot of other states around the country are in a short cash position. They’re going out for short-term borrowing,” Gov. Ned Lamont said at last week’s meeting of the State Bond Commission, which he chairs. “It looks like we’ll be able to get through this fiscal year without having to go out in the short-term market.”
The Volcker Alliance elevated Connecticut’s average grade in the reserve funds category to A from B in its annual report card on the states. The report, which the organization released on Feb. 20 — before the pandemic hit — covers the previous three years.
Only Connecticut and Montana improved their average in the reserve funds category from the previous three-year period. The median grade for states was B.
In 2017, Connecticut incorporated revenue volatility into its rainy-day fund policy, enacting a law that required deposits from personal income tax collections above a certain amount. The state set the cap at $3.1 billion for 2019 and $3.3 billion for 2020.
The bond panel unanimously approved $700 million in borrowing for various transportation projects, and released $136 million in stalled grants to cities and towns.