U.S. Bureau of Economic Analysis 2019
23 Nov 2020
Connecticut’s fiscal outlook is brighter today than it was just months ago. The state’s rainy-day fund has actually grown to $3.1 billion, up from $2.5 billion less than a year ago. The governor now anticipates a deficit of $1.3 billion, down from a $2 billion deficit projected back in May. Why? Tax receipts are up; expenses are down. The governor deserves credit for continuing to tighten the belt.
This is all good news, really good news. And we could use some of that in this crazy year.
Here comes the hard part: There will be pressure to spend more freely.
The governor will use the $3.1 billion rainy-day fund to fund this year’s deficit and will still have as much as $1.7 billion left over. And that’s before another potential round of federal stimulus, which could provide even more aid to Connecticut.
This pandemic has brought enormous economic and social hardship to every corner of Connecticut, but we know it has disproportionately ravaged our most vulnerable citizens, including our communities of color, small businesses and low-income earners across the board. Any new spending should prioritize these communities.
The governor’s recently announced $50 million small-business relief fund — half of which will go to businesses and nonprofits in distressed municipalities — is a nice follow-up to the $42 million in business support provided earlier this year. Of course, more help is needed, and this should be a top spending priority.
But let’s remember, fiscally speaking, we are not out of the woods. The pandemic drags on, and we still have seven months left in the fiscal year. Future income tax receipts could decline. And then there is the $80 billion or so of unfunded pension liabilities hanging over our state. We must continue to be cautious, to prioritize careful spending and to maintain fiscal discipline.
Assuming we do have financial flexibility, it is an opportune time for the governor and the legislature to make strategic investments in Connecticut’s future. Investments in our infrastructure, communities, workforce, and Connecticut’s brand can have a multiplier effect, particularly if private-sector funding can also be leveraged. Our goal should be to put Connecticut on a much faster growth trajectory than it experienced coming out of the 2008 financial crisis.
Only the highest return-on-investment initiatives should be considered, as well as those that address racial and educational inequity and the enormous income disparity in our state.
Let’s take this opportunity to redesign and simplify Connecticut’s outdated business regulations, including licensing and permitting (which won’t cost the state much). Connecticut is a perennial loser in annual ease/attractiveness of doing business rankings. It’s time to address it.
Connecticut cannot do it all. Lines have to be drawn, including the line between spending and investing. Connecticut must remain disciplined and continue taking steps to keep our fiscal house in order.
At this point, the temptation might be to raise taxes. We must resist. According to the Tax Foundation, Connecticut’s state and local taxes form the second highest tax burden in the country. We have the third highest state and local individual income tax collections per capita. New taxes can’t be the answer.
AdvanceCT’s mission is to drive job creation and new capital investment in Connecticut through business attraction, retention and expansion. We spend a lot of time talking to businesses in and out of state. These companies know Connecticut, like every state, faces significant fiscal challenges. What is their ask? They want certainty. They want to know they are in (or considering) a state with its fiscal house in order.
Here is the thing: Connecticut looks pretty darn good right now. COVID-19 is forcing a complete rethink of dense urban living and working. Just ask the 30,000 New Yorkers who changed their address to Connecticut so far this year.
Our current financial position, relative to our neighboring states, seems favorable. New York is staring at a $8 billion to $15 billion deficit, and New York’s surplus is not nearly enough to cover its deficit. New Jersey just approved a $33 billion budget that relies on $4.5 billion in new borrowing and higher taxes on wealthy households and corporations. It already spent its rainy-day fund.
If we can manage this challenge, demonstrate that we have our fiscal house in order, selectively invest in our future and avoid raising taxes, we have a chance to keep businesses in Connecticut and attract more businesses here. That, of course, will lead to more revenue and more opportunity for all.
We can do this, Connecticut.
Peter Denious is president and CEO of AdvanceCT, formerly the Connecticut Economic Resource Center, a private, nonprofit organization seeking to foster business growth in the state.
U.S. Bureau of Economic Analysis 2019
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