After rebounding from the depths of Connecticut’s shutdown due to the coronavirus pandemic, state officials are now predicting they will collect more than $1 billion in additional taxes compared to the lowest estimates that they once feared.
The new consensus revenue numbers, released by law Tuesday, show that the largest amounts of additional money are coming from the state’s wealthiest residents as the stock market has been breaking records in a sharp rebound after an initial hit from the pandemic.
Officials are now projecting a state budget deficit of about $935 million in the current fiscal year, representing an improvement from a projected $1.2 billion only one month ago and about $2 billion in April.
Fiscal analysts are now projecting collections of an additional $422 million in estimated and final payments of the state income tax, which are paid largely by upscale investors who have been making major capital gains on Wall Street. An additional $220 million is expected from the pass-through entity tax, which largely involves limited liability companies and other entities. While many small business owners pay the tax, about 80% of the total money collected from the tax is from those earning more than $500,000 per year, officials said.
The state is seeing improvements in most financial categories, including withholding payments for the personal income tax, along with increased sales, cigarette and real estate conveyance taxes. The projection is also up by $55 million for slot-machine revenue-sharing payments from the two Native American tribes in southeastern Connecticut, compared to the April estimate when Mohegan Sun and Foxwoods Resort Casino were closed due to the pandemic.
At the same time, officials project they will receive nearly $400 million less in federal grants in the current year because the money arrived early and was placed on the books in the last fiscal year to help the state end the year with a $39 million surplus.
With the state budget marked by volatility on Wall Street and uncertainty over the amount of federal money coming from the new administration of President-elect Joe Biden, state House Speaker-designate Matt Ritter of Hartford and other Democrats said the legislature should avoid making any rash decisions until knowing the full budget picture in 2021.
“It’s very premature for us to be talking about bad [budget-cutting] decisions that we have to make,” said Rep. Sean Scanlon, the newly named co-chair of the tax-writing committee. “Yesterday was one of the best days in the stock market in a long time. People are excited about the prospect of what that Pfizer [vaccine] announcement means for our economy revving back up again. ... It’s not all gloom and doom, and it’s important for the people of Connecticut to know that.”
Democrats urged caution until the state receives the biggest tax information of all — the April 15 annual payments at the state and federal level. But Republicans called Tuesday for an immediate meeting with Gov. Ned Lamont to begin budget planning.
“The problem with waiting until April to take any action on the state budget is that it allows problems to worsen to the point where we will be left with few choices when it comes to balancing the budget," three Republicans leaders said in a joint letter. “We have seen that play out before. Not doing anything, and instead counting on the rainy day fund or borrowing to fill budget holes creates a self-fulfilling prophesy that we will have no other options or tools available to us to stop the pain and keep our state finances afloat.”
The Republican letter was written by the three new leaders in House and Senate — incoming Senate GOP leader Kevin Kelly, Deputy Senate leader Paul Formica, and incoming House Republican leader Vincent Candelora.
“We must face the pandemic head on and that includes prioritizing funding for core needs such as mental health care, substance abuse treatment, protection for seniors, education, job creation, and basic safety net supports," they wrote. “To best ensure that funding is properly prioritized for these needs, we cannot put off addressing our budget issues and shortfalls.”
With budget deficits still on the horizon, House Democrats moved quickly Tuesday by announcing their top budget leaders earlier than usual so they can get a jump-start on Connecticut’s fiscal problems. Ritter chose Rep. Toni Walker of New Haven, the longtime budget committee co-chair, to continue in the role she has held for the past 10 years. Walker knows the budget intricacies better than virtually any other legislator, and she has run the committee with various vice chairs and co-chairs who have come and gone through the years.
Ritter also chose Scanlon, a rising star in the Democratic caucus from Guilford who currently serves as co-chair of the insurance committee. A Boston College graduate, Scanlon is known as a quick study, and he will need those skills to pivot from insurance to the often-intricate details of tax policy for individuals and businesses in a committee that is heavily lobbied at the state Capitol.
“The numbers are encouraging, but there is a long way to go before we adopt a new state budget in 2021,” Ritter said. “I remain hopeful — given that President-elect Biden has been so clear in his support for providing states with pandemic relief — that federal dollars are coming our way. When you combine federal assistance with Connecticut’s record rainy day fund, there is reason to be optimistic.”
Lamont noted that the federal government awarded nearly $1.4 billion to pay for COVID-related expenses, but that total does not provide any money for lost revenues. But Lamont added that will not know for months on the amount of money that Connecticut might receive from the Biden administration.
“Unlike other people, at least I have $3 billion in the bank — called the rainy day fund,” Lamont said. "So we can afford to wait.''
Christopher Keating can be reached at email@example.com.
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