COMPTROLLER LEMBO PROJECTS $157.0 MILLION SURPLUS, FORECASTS LONG-TERM IMPACT OF GROWING RESERVES
Contact: Chelsea Neelon
Comptroller Kevin Lembo today, in his monthly financial and economic update, projected a General Fund surplus of $157 million while celebrating the success of revenue volatility reforms and the growth of the state’s Budget Reserve Fund.
The Budget Reserve Fund, commonly known as “The Rainy Day Fund,” was nearly depleted as recently as 2017. In response, reform efforts crafted by Lembo were put in place beginning in FY 2018 to capture volatile revenues and automatically direct them into the fund. The maximum level of reserves was also increased to encourage savings up to 15 percent of General Fund expenditures.
The Budget Reserve Fund has reached its new statutory cap and Lembo is projecting an additional transfer of $1.2 billion this fiscal year in addition to the final year-end surplus.
“Connecticut’s Budget Reserve Fund is a remarkable success story and serves as a prime example of smart financial planning,” Lembo said. “At the time, my goal was to help the state escape the cycle of booms and busts where spending would increase dramatically during good years only to see tax increases and devastating service cuts when the economy turned. We exceeded those expectations and reached the fund’s cap far faster than anticipated. We were able to get Connecticut on firm financial footing. Now we can focus not only on our recovery but paying down the unfunded liabilities that have plagued us as a state for decades.”
The Budget Reserve Fund has already reached its cap. Any excess in volatility transfers will be used to pay down unfunded pension liability. According to an independent analysis conducted by the actuarial firm Cavanaugh MacDonald, applying the projected $1.25 billion contribution to the State Employees Retirement System would generate savings of $2.75 billion over the next 25 years, or approximately $110 million annually.
“This is real relief that will both spare future generations from our legacy of pension debt and give short-term budget relief to taxpayers,” said Lembo. “I remain inspired that so many legislators — of both parties — joined me in enacting these policies. It was a big, difficult change but now we’re seeing the reward of coming together to do hard things. There’s a lesson to be learned from that.”
In a letter to Governor Lamont, Lembo noted that this month’s surplus projection has decreased from last month, owed largely to $492.3 million in spending carry forwards into the new biennium budget. Strong revenue collections in June offset increased spending, with over $200 million projected in the estimated and final payments portion of the income tax. The continued growth of income tax withholdings, currently above FY 2020 levels year-to-date, have Connecticut poised to continue its positive economic trajectory as the state emerges on the other side of the pandemic.
Connecticut added 7,800 jobs in June, the fifth consecutive month of gains. Collectively, the state has recovered 63.3 percent of jobs lost during the pandemic, with the leisure and hospitality sector seeing the most growth this month. Low infection rates, high vaccination rates and job growth have led to growing levels of consumer confidence, almost returning to pre-pandemic levels.
The state’s Special Transportation Fund (STF) is projected to end FY21 with at $41.7 million surplus, representing a $36.2 million increase from last month. Current projections would leave a positive STF balance of $210.1 million at year-end.
“As a state, we are in a good place right now, despite the incredible turmoil we have endured over the last year and a half,” Lembo said. “While it may be a bit chaotic as the economy continues to find its footing, residents are finally seeing some light at the end of the tunnel.”
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