The state remains on track to end the current fiscal year with a $93.9-million deficit under the provisions of Gov. Dannel P. Malloy’s Executive Order Resource Allocation Plan, according to a statement from Comptroller Keven Lembo.
The projections are based on revenue and spending through September.
The new biennial budget, signed two weeks ago – as well as updated consensus revenue projections expected later this month – are expected to have a significant impact on this outlook in future months.
In a letter to Malloy, Lembo said that Connecticut – dogged by persistent revenue uncertainty and three consecutive months of job loss – continues to lag the nation in economic performance.
In particular, Lembo noted areas that warrant close watch include underperformance in both the sales tax and the estimated payments portion of the personal income tax.
“Even as the national economy exhibits increasing signs of strength, Connecticut’s economy continues to post mixed results across an array of key economic indicators,” Lembo said in a statement.
“Despite Connecticut’s historical budget relationship with the stock market, shifts in equity portfolio allocations following the presidential election and a run-up in equity values has not delivered capital gains revenue increases to the state. The estimated and final payments portion of the personal income tax accounts for about 35 to 40 percent of total state income tax receipts, and yet first-quarter estimated payment receipts came in 5.1 percent lower this year.”
“In anticipation of federal tax reform – and the potential for lower tax rates on capital gains for some of Connecticut’s wealthiest earners – investors may be delaying large gains in the current environment,” he continued. “Investors are also increasingly using tax-efficient vehicles such as Exchange Traded Funds (ETFs) that don’t generate as large a number of taxable gains transactions.”
Lembo said these factors will demand close monitoring as the state implements the provisions of the new biennial budget.
