Long before COVID-19 strangled the state economy, the watchword from the Lamont administration has been caution. The governor has been loath to spend down the rainy-day fund, has adopted conservative outlooks on budget projections and has tried to position the state to be ready when the next inevitable downturn arrives.
He has also been mindful of criticisms that dogged his predecessor and has been careful to avoid tax increases, even as many in the liberal wing of his party have pushed in that direction. While Gov. Ned Lamont’s first two-year budget made sales taxes apply to previously exempt purchases, he did not hike income tax rates.
There was plenty of worry that the coronavirus would make all that caution moot. With many businesses shuttered completely after the virus first hit in March, and many others operating at reduced capacity, the hit to state coffers has been real. And accompanying that trouble have been worries that the only way to make up the revenue lost to the state would be the kind of tax increases Lamont has sought to avoid.
Some good news this week may put off that reckoning for a bit.
Increasing tax receipts have helped to cut nearly 40 percent off the state’s projected $2 billion deficit, state officials said this week, which could not only forestall tax increases but provide more money to public universities, which have taken a big hit during the pandemic, as well as others hurt financially over the past seven months.
That’s a welcome turn of events, driven in large part by higher-than-expected stock market returns. While many had predicted a calamity on Wall Street, the results have gone in the other direction. “In addition, pandemic-related closures of many businesses may have caused deferred consumption of goods and services, resulting in pent-up demand that is now being realized,” Melissa McCaw, Lamont’s budget director, wrote in her monthly forecast, as reported by the CT Mirror.
Also contrary to expectations, the state’s rainy-day fund has continued to grow, and could help cushion the harm from the still-sizable budget deficits the state is facing in its next two-year cycle. Deliberations on that plan will start under a new Legislature early next year.
No one could have predicted the pandemic and accompanying blow to state finances. But this is the reason why a large rainy-day fund has been necessary, and a strategy of simply hoping for better-than-expected returns was not going to work. A number of plans to take advantage of the reserve fund have been floated in Hartford in recent years, including a plan to eschew tolls and use the reserve to pay for repairs to our transportation system. While no one would argue that our roads and trains need help, it was the wrong way to pay for it.
It would be wrong to assume Connecticut is in the clear. There is no telling how long the pandemic’s economic pain will continue, and far too many businesses will be unable to survive. But one of the first roles of government is to mitigate harm and prepare for the worst. Maintaining a robust budget reserve was the right choice.