Jobs & the Economy, Taxes & Government Spending

Four Reasons CT’s Projected Budget Surplus Doesn’t Warrant Celebration

  • Jan 22, 2014

Connecticut is on track to end the current fiscal year (2014) with a $500M budget surplus.  Unsurprisingly, our leaders in Hartford are already celebrating.  Here’s a few reasons these celebrations may be unwarranted: 

1.     This Surplus Was Only Achieved By Borrowing To Cover Operating Expenses

Connecticut’s current budget borrows $625 million to cover operating expenses, including:

  • Delaying repayment on $392M of bonds that had come due;
  • Borrowing $112.8M to partially reimburse municipalities for diverting local revenues to state government;
  • Borrowing $60M more than in the previous budget ($120M total) to fund town aid road grants;
  • Borrowing $40M to buy back tax credits issued under the Urban and Industrial Site Reinvestment Program;
  • Borrowing $20M to compensate the state’s Stem Cell Fund for the $20 million diverted from that fund into the general fund.

This is the state government equivalent of taking a loan from the bank to put money in your bank account.  Your account statement has a greater balance, but you’re not actually any richer.  The same is true of Connecticut's government.

2.     This Surplus Reflects Increases in Tax Rates

Governor Malloy has consistently claimed that the current budget did not raise taxes.  This is simply untrue.  The budget raised tax rates to cover at least $275M of spending, including:

  • Raising the gas tax by 4 cents per gallon and diverting $109.7M of revenue from that tax increase out of the special transportation fund and into the general fund;
  • Extending a 20% corporate tax surcharge that was due to expire to cover $118M of spending;
  • Temporarily reducing the Earned Income Tax Credit (which benefits low-income workers) to cover $32.1M of expenses;
  • Temporarily extending an electric generation tax that was set to expire to cover $17.5M of expenses.
  • All of this, of course, is over and above Connecticut’s 2011 tax increase, which was the largest in state history and fell most heavily on middle-income workers.

3.     This Surplus Does Not Reflect Connecticut’s Long-term Fiscal Outlook

The current budget relies on roughly $400M of unsustainable, one-off revenues, including more than $175M from the state’s tax amnesty program and $220.8M from transferring windfall revenues from the last budget to the current budget.  Unlike revenues from borrowing, these revenues do reflect an actual increase in state government’s wealth.  But unfortunately they are a one-off infusion, not a sustainable income stream.   Beginning in Fiscal Year 2016 the CT General Assembly’s non-partisan Office of Fiscal Analysis projects ongoing deficits that average more than $1B per year.

4.     This Surplus Does Not Reflect A Meaningful Recovery in Connecticut’s Job Market

Although analysts estimate Connecticut’s income tax revenues will grow by 3.5% over last fiscal year, this estimate results almost entirely from gains in the stock market, which grew by 30% in calendar year 2013.  The most recent projection of income tax revenue from paycheck withholding (which reflects employment levels and wages / salaries in the state) actually lowered revenue expectations from previous estimates.

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