Rising sales tax revenues help add another $ 800 million to Connecticut’s already solid coffers this fiscal year and next, sparking new discussions on tax cuts Wednesday as the next election cycle approaches.
But the latest consensus forecast from Governor Ned Lamont’s budget office and bipartisan legislature analysts also shows that much of the extra dollars expected this fiscal year and next fiscal year will be tied to federal grants. And it remains unclear how much of that funding will continue when the coronavirus pandemic subsides.
“Wall Street is fine. Capitol Avenue [in Hartford] is good. But Main Street is not doing so well right now, ”said Rep. Sean Scanlon, D-Guilford, co-chair of the General Assembly’s Finance, Revenue and Loyalty Committee. “Inflation challenges the people.”
Scanlon has pushed for a new state income tax child credit to pump hundreds of millions of dollars annually to families with low- and middle-income children.
“I don’t think we should be talking about tricky $ 50 discount checks,” Scanlon said. “But a significant relief is something we should definitely look into.”
Governor Dannel P. Malloy proposed a $ 55 discount to residents when he tried to be re-elected in February 2014.
Lamont sparked the tax cut discussion Wednesday morning during an independent visit to a school in Enfield and came up with the idea of extending the property tax credit within the state income tax.
The governor, considering an offer for re-election, campaigned for a pledge to extend the loan in 2018 to relieve low- and middle-income residents. And while Lamont failed to keep that promise of tax credit, he signed a budget that spring that significantly bolstered community aid to most communities.
Lamont Budget Director, Office of Policy and Management Secretary Melissa McCaw said the increasing VAT levies “demonstrate our efforts to contain the spread of the coronavirus through effective protocols and give consumers confidence that they can shop safely in an open economy. In addition, our state has seen employment growth for nine consecutive months and we continue to benefit from strong investment performance. “
Still, Connecticut hasn’t regained about 30% of the 292,000 jobs it lost during the worst of the pandemic. And even before COVID-19 hit the state in March 2020, Connecticut had only regained about 80% of the 120,000 jobs it lost during the previous 2007-09 recession.
Despite these economic struggles, the state coffers have grown rapidly since 2018, in part due to a robust stock market and Connecticut’s long-standing reliance on state income tax revenues tied to capital gains and other investment returns.
This has helped the state build a $ 3.1 billion rainy day fund – which is currently 15% of annual operating costs, the maximum allowed under state law. It also helped Lamont and lawmakers make an additional $ 1.6 billion payment this fall into the state’s money-hungry pension system, which still has tens of billions of dollars in unsecured debt.
In addition, analysts had forecast more black ink for the current two-year fiscal cycle, expecting $ 1.24 billion to remain at the end of the current fiscal year on June 30 and $ 1.1 billion after fiscal 2022-23.
The latest report, released Wednesday by Lamont’s Budget Office and the Legislature’s Bureau of Financial Analysis, increases the projected surplus for this year to nearly $ 1.8 billion and the financial cushion to more than $ 1.3 billion in 2022-23 -Dollar.
Part of that growth includes a resurgent state sales tax, with projected revenue increasing by $ 155 million for this fiscal year.
But more than two-thirds of the financial cushion increased each year is tied to better-than-expected Washington funding, and that’s not always good news.
It was unclear late Wednesday how much of that additional federal aid is tied to coronavirus relief efforts – which are likely to expire in a year or two – and how much of that is the federal portion of rising Medicaid spending.
Additional federal aid in the latter area is likely to continue as the demand for public aid by the Connecticut poor to meet healthcare costs increases.
But top Republicans on the Treasury Committee said Connecticut must be cautious about any tax changes next spring as many households and businesses continue to struggle.
East Lyme Rep. Holly Cheeseman called it “a worrying sign” that other increases in tax revenues, such as Connecticut’s wholesale tax on gasoline, are related to rising inflation.
Bristol Senator Henri Martin said his litmus test for weighing tax changes will be whether they will help create jobs and stimulate the economy.
“I’m always open to a discussion” about tax cuts, he added. But “this return must be shown.”