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COMPTROLLER LEMBO PROJECTS GROWING FISCAL-YEAR 2019 SURPLUS WITH A CAUTIOUS EYE ON APRIL AND WARNINGS ABOUT RECORD HOUSEHOLD DEBT RATESComptroller Kevin Lembo said that his projected surplus for Fiscal Year 2019 has grown to $506.8 million, another improvement over the prior month, though he warned about the potential consequences of record-high household debt that deserves monitoring, and the implications of a volatile stock market on April’s tax season.
This month’s increased surplus projection, an improvement of approximately $54.2 million, is due to a mix of reduced projected spending. In a letter to Gov. Ned Lamont, Lembo said that his surplus projection is slightly lower than the state Office of Policy and Management’s (OPM) recent projection due to his belief that expenditures in the Adjudicated Claims account (the account used to pay SEBAC v. Rowland claims and other negotiated settlements) will be higher than OPM’s projection.
For the second month in a row, Lembo again said he believes that the estimated payments portion of the income tax will be lower than projected by the state’s consensus forecast, although that difference will have no impact on the surplus (it would, however, affect the amount transferred to the state’s Budget Reserve Fund at the end of the year).
“The impact of federal tax changes and the stock market’s negative performance in 2018 may have a substantial impact on estimated and final payment collections for the balance of Fiscal Year 2019,” Lembo said. “As a result, the April tax collection period will take on added significance for this year’s final budget results. My office will continue to assess new information as it becomes available and revise this projection as needed in future months.”
The growing surplus is good news in the immediate term, but Lembo highlighted some economic indicators that deserve watching, particularly the latest report by the Federal Reserve Bank of New York that shows household debt has now grown 18 consecutive months. As of Dec. 30, 2018, according to the latest report, overall debt – including mortgages, auto loans, student loans and credit card debt – hit a record of $13.54 trillion.
“This information is particularly concerning because, while the report notes that it is consistent with seasonal patterns, it also marks the first time that credit card debt has re-touched the 2008 peak,” Lembo said. “We know what followed, and we know that we want to be careful about the ability of Connecticut households being capable of surviving another recession.”
Lembo’s lower projected estimated payments portion of the income tax would have no consequences on the projected surplus because any income above a newly established threshold from that revenue source goes directly to the state’s Budget Reserve Fund (BRF).
Lembo reported the latest status of the BRF, following the state’s new statutory revenue volatility cap:
- The current balance of the BRF is $1.18 billion.
- Adding Lembo’s estimated volatility transfer of $548 million, plus the projected Fiscal Year 2019 surplus of $506.8 million, would bring the year-end balance of the BRF to approximately $2.24 billion, or approximately 11.8 percent of General Fund expenditures.
“This result, if achieved, would represent a significant improvement over the recent past and move the BRF closer to the statutory target of 15 percent,” Lembo said. “A number of forecasts for the coming year are predicting slower growth for the United States and other major economies. Therefore, it is essential that Connecticut continue to build a strong balance in the BRF to protect against any future downturn.
“Connecticut’s overall budget results are ultimately dependent upon the performance of the national and state economies,” Lembo said.
[Click to view various economic indicators and trends from national and state sources]