COMPTROLLER LEMBO PROJECTS FISCAL YEAR 2020 DEFICIT OF $170 MILLION; DETAILS LATEST BUDGET AND ECONOMIC IMPACT OF COVID-19 CRISIS
Contact: Tara Downes
Comptroller Kevin Lembo today, in his first monthly budget and economic outlook report since the COVID-19 pandemic first emerged in Connecticut, said the state is currently on track to end Fiscal Year 2020 with a General Fund deficit of $170 million – although the ongoing and rapidly changing conditions will demand close monitoring and scrutiny in the coming weeks and months.
“The speed and scale of the pandemic’s economic disruptions are unprecedented for Connecticut,” Lembo said. “As a result, the full extent of the impact is not yet clear and may take weeks, if not months, to determine. The current year deficit could, and likely will, grow larger. My office will continue to monitor the situation closely and update these projections in future reports.”
In a letter to Gov. Ned Lamont, Lembo commended the Governor and his administration for their leadership and dedication to the people of Connecticut during the COVID-19 crisis and reinforced the need for continued support to minimize the impact of this pandemic on Connecticut families during and beyond this response.
“My office is already seeing a drop-off in withholding receipts from the large number of layoffs and furloughs resulting from non-essential business closures related to the state’s response to the COVID-19 pandemic,” Lembo said. “In addition, we are reducing the sales tax estimate by $30 million, again due to coronavirus-related business closures and shelter-at-home directives.”
On the spending side, Lembo said his office is largely in agreement with OPM’s projections at this point – although he acknowledged that the state’s response measures related to the coronavirus is an evolving situation, which means projections must be revised as more information becomes available.
Lembo said that the state’s efforts to rebuild its Budget Reserve Fund (BRF) in recent years has proven essential at this time. The state’s statutory revenue volatility cap, which requires revenue above a certain threshold to be transferred to the BRF – often referred to as the “rainy day fund” – is $3.3 billion for estimated and final income tax payments and revenue from the pass-through entity tax for Fiscal Year 2020.
Recent economic disruptions, stock market losses and extensions of various tax filing deadlines demands that these projections be revisited as the fiscal year progresses. However, at this point, Lembo said the updated BRF outlook includes the following:
“The state has made enormous progress in building the Budget Reserve Fund balance over the past two years,” Lembo said. “That effort required sacrifice and discipline. Now, as the state faces an unexpected public health and economic crisis, Connecticut is better positioned to meet the challenge.”
Regarding the outlook of future federal and state response to the COVID-19 crisis, Lembo said that, to date, three federal emergency spending bills have been enacted by Congress that will provide financial resources to Connecticut to combat the coronavirus and the associated economic damage. This includes the $2.2 trillion Coronavirus Aid, Relief, and Economic Security (CARE) Act, signed by the President on March 27. According to a Federal Funds Information for States (FFIS) analysis, Connecticut is projected to receive $2.36 billion in CARE Act funds. As millions of Americans and thousands of Connecticut residents lose their jobs in the economic fallout of the COVID-19 pandemic, Lembo said that sustained support will be needed, including:
“The scope and suddenness of this crisis is without precedent in living memory,” Lembo said. “Therefore, relief needs to be provided quickly and be sustained over time to prevent even more harm, especially for those most in need. The recovery will be difficult and uneven. The biggest risk for policy makers is not doing too much, but rather doing too little in the face of these enormous challenges.”
Connecticut’s budget results are ultimately dependent upon the performance of the national and state economies, and virtually all economic measures look back at past periods. In the present situation, therefore, Lembo said some economic indicators presented in this report may appear inconsistent with more recent developments in the rapidly changing response to the COVID-19 pandemic.
Connecticut and the nation saw a historic spike in initial unemployment insurance (UI) claims in recent weeks as coronavirus concerns forced numerous businesses to close in support of public health-related social distancing efforts. In the economic summary to follow, Lembo provides more in-depth details – however, according to the U.S. Bureau of Labor Statistics (BLS), initial UI claims for Connecticut increased 630 percent (from 3,440 to 25,098) for the week ending March 21. Jobless claims continued to surge as more claims poured into the Connecticut Department of Labor (DOL) on a daily basis.
View PDF for Economic Indicators|