CT Projects $2 Billion Budget Deficit, Lamont Plans Plug

CONNECTICUT — Gov. Ned Lamont released his plan to plug an anticipated budget shortfall of $2 billion, which is about 10 percent of the state’s budget. Predicting budget shortfalls is a tough task in regular years, but there is additional volatility due to the coronavirus pandemic and its unknown future over the coming months.

The state will use a mix of cuts and some of its record rainy day fund to plug the anticipated deficit. Here’s how the state plans to plug the hole:

• Using $1.8 billion of the state’s budget reserve fund, which would leave the state with a balance of $1.2 billion to help with future deficits.
• Using $100 million of the state’s Coronavirus Relief Fund to pay salaries and benefits of personnel who are doing direct COVID-related work. The federal treasury recently released guidance that the money could be used in this way.
• Hiring restrictions: The state isn’t enacting a hiring freeze because many public health and safety positions related to the pandemic are needed, but state agency heads are being asked to limit hiring and promotions to only essential functions. This is estimated to save the state $30 million over the fiscal year.
• Executive branch department recessions totaling $25.3 million. The legislative and judicial branches are being asked to reduce spending by $2.25 million and $5.5 million respectively.
• Minor policy changes that will total $43.8 million in savings.

State officials are projecting $3 billion budget deficits in each of the next two fiscal years as well.

The deficits still have a great deal of variability due to the pandemic.

At one point Connecticut was projecting a $900 million budget deficit for the fiscal year that ended over the summer. However, the state ended up having a small budget surplus. That was in large part thanks to $500 million in federal aid that came in sooner than expected, said state Secretary of Policy and Management Melissa McCaw.

The state also ended up sending out fewer state tax refunds in the previous fiscal year because the filing deadline was moved from April to July, McCaw said. The state is now sending out more refunds in the current fiscal year.

Connecticut got one of the best shares of federal Paycheck Protection Program benefits, which helped businesses retain their employees. Economic stimulus payments also gave people money, which allowed them to keep spending and in turn generate sales taxes.

Connecticut also saw a quick recovery for jobs lost due to shutdowns and other economic effects from the pandemic. The state used data the Great Recession market downturn to help predict the coronavirus market downturn.

“We went with something not as heavy of an impact, but we did expect about a 25 percent decline in those revenues,” she said. “We are actually seeing that only 16 percent decline in revenues.”

The jury is still out on what letter shape the economic recovery will follow, McCaw said.

Economists typically refer to U recoveries as gradual losses and gradual recoveries, “V” as a sharp downturn and a quick recovery and “W” as a double-dip for both downturns and recoveries, according to CNBC. However, there is growing worry that the economy may be following a “K” shaped recovery, where higher earners and those with a lot of stock market investment recovery quickly, while lower-wage earners don’t recover.

Around 92 percent of Connecticut jobs lost since March have been recovered, McCaw said. State officials will continue to look and see what kind of jobs have been regained and at what salary level. As of Thursday the state didn’t have that data. The hospitality industry was hit particularly hard by the pandemic and those jobs tend to be lower paying, she said.