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On May Day, Connecticut state budget masters wiped away $2.0 billion of expected tax revenue, without much notice.
May Day, May Day, we just lost $500 million annually over four years in a state with an annual general fund budget of just over $20 billion. That was not the general reaction, though it should have been.
The Nutmeg State cannot afford the sudden loss of $500 million per year, as projected in the new official state tax revenue forecast, jointly released Monday by the Office of Policy and Management and the Office of Fiscal Analysis.
The practical question now is what Governor Ned Lamont will do – Lamont, who won re-election last fall on the strength of the now-missing $2.0 billion. With those funds in prospect, Lamont campaigned on the idea that he had put the state on firm financial footing after decades of “permanent deficits.”
What will his fellow Democrats do? They have been angling to spend even more than the originally forecasted tax revenue including the now-gone fantasy money.
The more fundamental question is why Connecticut citizens should take anything that goes on in Hartford seriously. One day we have $2 billion, the next we don’t?
The citizenry can be forgiven if they just throw up their hands and ignore everyone in the state capital… except, of course, that they cannot, because the state is intruding further and further into more and more dimensions of their life.
If Hartford politicians and bureaucrats have not confused citizens, then, surely the state news media has sent their heads spinning like Linda Blair’s in the movie The Exorcist.
What did Monday’s announcement by OPM and OFA of the un-expectation of $2 billion elicit as news headlines? The Hartford Courant, once the state’s leading newspaper, blared “New revenue estimates allow CT to spend about $200 million more next year; this year’s surplus tops $1.5B.” Tucked away in the body of the article was an acknowledgement that $560 million, or about one-quarter of the fantastical tax money, had disappeared suddenly like the Cheshire Cat’s grin from this year’s budget with only two months to go; the $1.5 billion that will not be seen over the course of the next three fiscal years merited not a word.
The headline in CT Mirror, which features itself as the ascendant news leader, pronounced “CT remains on pace for big surplus, but revenue begins to slow.” If an abrupt disappearance of $2 billion of expected tax revenue is “slowing,” I want to see what the Mirror considers “plunging.” Note again that $560 million of the “slowing” is for this fiscal year ending in less than two months, so the change was not really a change in forecast but an acknowledgement of hugely disappointing results that should have been anticipated in a change in forecast months ago.
Between these two news outlets, it was not enough to report that “down” was “up.” The Courant headline reported a $1.5 billion “surplus,” while the Mirror’s sub-headline, stated “Consensus Revenue Forecast shows $2.9B surplus, $400M less than expected.” Well, is it a $1.5 billion surplus or a $2.9 billion surplus? Obviously, the two outlets use different definitions of “surplus.”
Imagine if The Wall Street Journal and The New York Times used different definitions of “net profit” in reporting corporate earnings.
The news that I am reporting in this column is that Connecticut news outlets are misreporting the news. The news on Monday was the huge miss in revenue projections. That’s what actually happened. The news outlets highlighted the short-term ramifications of that news, without reporting the actual news, nor its long-term implications.
There are five types of taxes in Connecticut, each of which exceeds $1.0 billion annually, that, together, account for the lion’s share of state’s general fund tax revenue. Two are conjoined twins, “Estimates & Finals” (E&F) and the “Pass-through Entity” tax (PET). They derive predominantly from high-income taxpayers, mostly from their gains in the stock market. They are volatile, so much so that they are labeled “volatile” in state law.
OPM and OFA reduced their forecast of E&F and PET revenue by $2.0 billion, or 16%, over four years. Note that (without the confusing explanation), despite the plunge, the phantom $2.0 billion will remain in the budget and can be spent.
OPM/OFA adjusted their projection of revenue from the other three taxes only slightly, increasing them together by less than $150 million annually, or less than 1% per year, over four years.
Clearly, the actual news was the huge change in projected E&F/PET revenue, especially the whopping $500 million miss with only two months to go in the current fiscal year.
The more substantive news should have been the long-term implications of so massive a tax revenue loss over coming years. Readers will hear from this columnist on that score in upcoming columns.