HARTFORD — A deposit into the state’s rainy day fund last week brought the balance to just over $3 billion, or 15.1 percent of net general fund appropriations, a record high according to Comptroller Kevin Lembo, that could be quickly depleted based on early revenue projections for fiscal year 2021.
In his monthly financial update on Tuesday, Lembo said that his office agreed with the Office of Policy and Management forecast of a $2.07 billion general fund deficit for the 2021 fiscal year.
The deficit projection is on the high end of possible ranges, according to Lembo, but it was “appropriately cautious” given the unpredictable nature of the pandemic.
“Taking those numbers down in our budget expectation now and being pleasantly surprised is far better than trying to make believe nothing’s happening, which has been a way of operating in Connecticut,” Lembo said in a press conference Tuesday.
Lembo urged caution in the press conference, noting the projection is early and that a lot could change between now and the end of the fiscal year in June. Whether there is a resurgence of COVID in the fall or winter will have a significant impact on where state finances end up, he said.
“Another shutdown, another surge of the virus, another group of folks who lose employment as a result, that is, in fact, the worst case scenario,” Lembo said. “As we move forward, if we are lucky, if things go well, then these will continue to improve.”
If a vaccine becomes available and employment returns to normal levels, Lembo said that Connecticut’s reserve fund puts the state in a better position to weather a loss in revenue than other states.
The rainy day fund was bolstered by a $530.3 million deposit last week, which was required when 2020 revenues exceeded the $3.29 billion statutory revenue cap for estimated and final income tax payments and revenue from the Pass-through Entity tax.
Some of the $3 billion rainy day fund will be used to cover any remaining deficit from 2020, according to Lembo, so there will be less money left to cover the eventual 2021 deficit.
Connecticut nearly depleted its rainy day fund in 2011, and its balance was just $212 million in 2017 before growing rapidly as a result of the statutory transfers, which the Connecticut General Assembly first included in the 2018-2019 budget. The first statutory transfer was made in the 2018 fiscal year.
The current projections mark a 10.8 percent drop in revenues compared to the adopted 2021 budget, driven by expected declines in income, sales and use, and corporate tax payments.
Lembo closed his press conference by saying the federal government needs to pay attention to the financial situation of states, and states need to pay attention to municipalities. The federal government needs to look at another round of stimulus for states where revenues are off, he said.
“We should not be punished as a state for doing the right thing and putting money in the bank,” Lembo said.