A pair of key economic indicators in Connecticut show both that things are not as dire as they sometimes seem and that any progress the state has made remains precarious.
To start, based on a new revenue report issued this week, the state’s budget reserve, otherwise known as its rainy day fund, could grow to $2.65 billion this year. That’s far higher than the current $1.2 billion in reserve and something that must look tempting to legislators at a time when new revenue is under discussion in the form of expanded sales tax, tolls and other measures.
At the same time, the state economy grew at an estimated 1.8 percent in the last quarter of 2018, slightly below the national rate of 2.2 percent but good for 27th best in the nation. That may not sound like much, but for an economy rated in the doldrums for most of the recent past, middle-of-the-pack growth shows real progress.
It hasn’t all been good news, as the state has reverted to losing jobs after a period of growth, and other indicators show any progress to be modest at best. Still, Hartford will take good news wherever it can be found.
All the more reason to keep away from the budget reserve.
Gov. Ned Lamont has urged legislators to keep spending growth to a minimum, and as the CT Mirror has noted, even the increased rainy day fund doesn’t come close to matching the state’s projected budget deficits in the coming two-year budget period. It also falls short of the amount Comptroller Kevin Lembo has recommended to keep in reserve.
Maintaining a growing budget reserve while limiting growth will require discipline on the part of the Legislature’s Democratic majorities. But if they want to build on whatever economic progress the state has shown in the past few months, it’s a necessary course.
Speaker of the House Joe Aresimowicz appeared cognizant of that in remarks this week. “I understand the desire to want to spend that money, but the reality is we could find ourselves right back in recession in the next few years,” he said.
What Connecticut needs is to get back to a place where economic growth ensures a budget cycle that is not fraught with tough choices every time around. The state has been through one session after another of tax increases, cuts and shifts in spending, and it takes a toll on the business climate. Unless growth becomes larger, and sustainable, the budget pain is going to continue year after year.
Getting there means ensuring a healthy budget reserve. It’s called a rainy day fund for a reason.
Analysts have increased revenue expectations by about $400 million per year for each of the next two fiscal years, which is by any measure a good sign. Another revenue plunge, as occurred two years ago, could send the state into a tailspin.
The biggest issues before the Legislature this session remain unsolved. While plans are finalized, the budget reserve needs to stay off limits.