Buoyed by a surging stock prices and a roaring real estate market, state budget officials are predicting a strong spike in tax revenue despite the lingering pandemic.
Revenue estimates released Friday by Gov. Ned Lamont’s budget office and nonpartisan legislative fiscal analysts project a net gain of about $455 million in the current fiscal year over estimates that were prepared in January.
Not all of that money can be used to fund government operations: under law, $350 million must be placed in a reserve fund.
Still, officials hailed the numbers, saying they mark a stunning turnaround for a state that just last year was bracing for a $2 billion deficit brought on by coronavirus shutdowns and high unemployment.
“There can be no question that, once again, the consensus revenue forecast is good news for the state of Connecticut based on where we thought we would be last spring,” said Melissa McCaw, the governor’s top budget adviser.
“We continue to see stronger than expected performance in our economy which improves our revenue estimates in the current year and in the future,” she said.
In a joint statement, Senate President Pro Tem Martin Looney and House Speaker Matt Ritter said the numbers reflect the state’s overall fiscal health.
“The consensus revenue estimate shows Connecticut is in a strong position,” the two Democratic lawmakers said. “Our appropriations committee approved a fiscally responsible budget that looks to keep Connecticut moving forward.”
The state is expected to end the fiscal year on June 30 with a surplus just shy of $250 million. That’s in addition to a rainy day fund that’s expected to reach almost $4 billion.
Connecticut’s budget is heavily dependent on the stock market and its swings exert enormous influence over tax revenue.
But the market’s gains don’t provide a complete picture of Connecticut’s economy. The pandemic’s influence has been felt unevenly, widening income inequality and hurting many workers who don’t invest in the market while providing an economic boon to those who do.
McCaw noted that the good news on tax revenue “must be balanced with the fact that our state’s unemployment rate is still 8.3% and above the national average.”
“This forecasted revenue improvement still does not bring us back to our pre-pandemic estimates, that we are still relying on one-time federal funds for ongoing expenses and that we still have projected budget deficits measured in billions for the foreseeable future,” she said.
McCaw said the state has maintained its rainy day fund and recently saw its credit upgraded by the major rating agencies. But, she added, “there is still much more work to be done.”
Daniela Altimari can be reached at dnaltimari@courant.com.
