News From Kevin Lembo

COMPTROLLER LEMBO PROJECTS $571.8-MILLION SURPLUS; URGES CONTINUED DISCIPLINE AND WARNS ABOUT PERSISTENT DISPARITIES DESPITE ECONOMIC GROWTH



MONDAY, JUNE 3, 2019 | Contact

Comptroller Kevin Lembo today announced that the state is on track to end the 2019 fiscal year with a $571.8-million surplus, though he warned that economic uncertainties demand that Connecticut maintain its commitment to fiscal discipline.

In a letter to Gov. Ned Lamont, Lembo said that his latest projection aligns with the state Office of Policy and Management (OPM)’s projection, which is a slight decrease by $9.1 million from last month’s projection due to increased spending.

Lembo also highlighted this year’s annual report by the Board of Governors of the Federal Reserve System that shows the national economy experienced substantial economic gains in 2018, though these gains failed to narrow persistent economic disparities by race, education and geography.

The state’s surplus, growing Budget Reserve Fund and expanding national economy are good news, though Lembo said it is critical – for true economic growth - for policymakers to be aware of a persistent unchanging underlying disparity.

These disparities mean that many Americans have been forced to take on “gig” activities (supplemental work in addition to regular full-time jobs), faced monthly unpredictable changes to income or were forced to skip necessary medical care because they could not afford the cost, Lembo said.

“This report tells us that we are experiencing bird's-eye view economic growth, but not true economic growth – which requires at least one measure of change to our persistent economic disparities,” Lembo said.

“Despite low unemployment and a growing national economy, a recent study shows too many families are still being left behind financially. The report found that four in 10 adults are financially vulnerable and would have difficulty handling an emergency expense as small as $400. Unpredictable work schedules and not enough work hours contribute to financial stress. One-fifth of adults surveyed had major, unexpected medical bills to pay in the prior year and one-fourth skipped necessary medical care in 2018 because they were unable to afford the cost.

“The report concluded that many families have experienced substantial gains in the past five years; nevertheless, another year of economic expansion did little to narrow the persistent economic disparities categorized by race, education and geography.”

While Connecticut may be unable to alter national or global uncertainty in the financial markets, Lembo said the state can account for how it prepares for these uncertainties.

A state revenue volatility cap, adopted only a few years ago, requires that revenues above a certain threshold be transferred to the state’s Budget Reserve Fund (BRF). Lembo, who advocated for this measure and continues to push for a fully funded BRF, provided the following update:

  • For Fiscal Year 2019, the threshold (or “volatility cap) where any additional revenue from the estimated and final income tax payments and the pass-through entity tax must be transferred to the BRF is $3.2 billion.
  • If current projections are realized, an $885.5-million transfer would be made to the BRF.
  • The current BRF balance is $1.2 billion.
  • Adding the estimated $885.5 million transfer, plus the projected Fiscal Year 2019 surplus of $571.8 million, would bring the year-end balance of the BRF to $2.64 billion, or approximately 13.9 percent of Fiscal Year 2019 General Fund expenditures. This is notwithstanding any action by the legislature between now and the close of the legislative session later this week that would alter this status.

“This result, if achieved, would represent a significant improvement over the recent past and move the Budget Reserve Fund closer to the statutory target of 15 percent,” Lembo said. “A strong Budget Reserve Fund is an essential financial management tool for Connecticut.

“In the past, when economic downturns struck, state government was unprepared and had to make difficult policy choices in the midst of a crisis. The state was forced to raise taxes and cut spending at the worst possible time – just when the need for essential state services was growing. Maintaining financial discipline and a strong Budget Reserve Fund balance will help protect against future economic downturns.”

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Read the Comptroller's Full Letter | View PDF for Economic Indicators