Connecticut Governor Ned Lamont, a Democrat, talked pure Republicanism in his State of the State address last week, eloquently articulating fundamental GOP principles.
Talk is cheap. Will he walk the walk, and will he be able to bring Democrats along on the walk?
During last fall’s election campaign, Lamont took personal credit for turning a $4 billion deficit into a $4 billion surplus. In last week’s address he was humbler, crediting the turnaround to the bipartisan budget reforms of 2017 that were adopted even before he announced his first campaign for the Governor’s Mansion.
Not only did he credit the budget reforms, but he doubled down on them, saying “Connecticut’s permanent fiscal crisis is over. It’s over, as long as we maintain the same fiscal discipline that served us so well over the last four years.” That means the various caps on spending and on use of revenue are to remain in place.
Waxing more expansive, Lamont intoned “My fiscal priorities are economic growth, because growth is the precondition to opportunity.” If there is a single central GOP principle, opportunity through growth is it.
He continued, saying he hoped to achieve growth through “getting people back to work.” No Republican would disagree.
He embellished this statement, saying “The next four years should focus more on recovery, less on rescue, less need for lifelines and more focus on ladders.” These are Republican beliefs.
He ripped the trademark page from the GOP playbook, calling for “a meaningful tax cut” for the middle class. Lamont should be apprehended and indicted for cultural appropriation.
In a late-2022 interview, Lamont said, “It’s a little premature, but the 5 percent rate, if I can get it down to 4.75% or 4.5% in negotiations with our friends in the legislature…” All of those “friends” are surely Democrats, because there is not a single Republican who would “negotiate” against tax cuts.
As Lamont addressed the opening session of the General Assembly, bipartisanship was everywhere. Democrat Matt Ritter’s nomination to a second term as House Speaker was seconded by House Minority Leader, Republican Vinny Candelora. That’s not surprising. Why not cheer your opponents when they are executing your game plan?
It all looked so easy and congenial. Ongoing divisive state and national politics seemed a figment of one’s imagination.
But wait. Is the state’s “permanent fiscal crisis” really a relic of the past? Not likely. The stock market plunge in 2022 will decimate revenue sources responsible for 26% of general fund revenue last fiscal year.
The record gains in the stock market in 2021 – the S&P was up 25% and the NASDAQ 35% – produced $6.6 billion in fiscal 2022 tax revenue on investment gains paid both with estimated and final tax filings (“E&F Revenue”) and via the pass-through entity tax (“PET”).
In a dramatic reversal of fortune in 2022, the S&P plunged 20% and the NASDAQ plummeted 34%. Likely as not, E&F and PET tax revenue will drop by 50% or more, eliminating at least $3.3 billion in revenue in fiscal 2023, far more than the $1.0 billion drop in such revenue projected in the official budget for fiscal 2023.
The additional unbudgeted $2.3 billion decline in E&F/PET revenue would wipe out the projected transfer of $1.8 billion of such revenue to the rainy-day fund. In turn, this would reduce by a similar amount any deposit from the rainy-day fund into the state’s pension funds which are hardly in sound condition. The largest fund held only $16.7 billion in assets as of September 30th, or just 41% of its $40.6 billion in liabilities reported recently by the state’s actuaries.
After the elimination of the projected $1.8 billion transfer of E&F/PET revenue to the rainy-day fund, there would remain $500 million in lost revenue which would hit the state budget, cutting in half the $1.0 billion budget surplus that the State Comptroller was still projecting just last week.
All of these budget machinations can be very confusing, but we will know the actual numbers soon enough – or we should, because, on January 16th, filers with investment income are supposed to file the last of their quarterly estimated tax forms together with payments bringing their total payments up to the full amount due for 2022.
Yet, the state’s next legally-required Consensus Revenue Forecast will be issued on January 16th as well, obviously leaving no time to tally the returns due on the same day. The next Forecast is not scheduled until late April.
Accordingly, the state budget process is likely to proceed in blissful ignorance of the magnitude of the E&F/PET tax revenue decline.
When reality finally punches through, we’ll see whether the fiscal crisis is a thing of the past and whether Lamont walks the walk. If he does, we’ll see if he is able to bring Democrats along with him.