Despite some of America’s highest taxes, and despite being America’s wealthiest state, Connecticut can’t seem to pay its bills without breaking into its rainy day fund. Such raids on state savings are rare, and usually happen in states reliant on commodity royalties for revenue. When commodity prices tank, those states have a hard time making up the difference.
Connecticut is a well rounded economy, with a heavy dose of the finance business located in its South Western corner, and the insurance capital of America, Hartford, dead center. The state isn’t suffering from a wild swing in a commodity price, but it did have to dip into its rainy day fund in order to pay its bills to close its budget hole.
I’ve been writing for some time now that Connecticut won’t be able to tax its way to prosperity. Despite the state’s best efforts to do just that, it is failing. Joseph de Avila and Jon Kamp report:
Connecticut is once again coming up short on cash, and its rainy-day fund is already strained.
About halfway into the budget year, sales and income tax revenues have come in about $208 million under projections. That comes even after lawmakers enacted deep spending cuts, raised fees on motor-vehicle registrations and required teachers to contribute moreto their pensions to pass a two-year budget in a bruising process that took 10 months.
Shortfalls have “caused us to tap our rainy-day fund, our budget-reserve funds,” Paul Potamianos, the state’s executive budget officer, said on a conference call. “This is a problem for us because our reserves are not growing,” even though the nation is not in a recession, he said.
The state’s reserves of $213 million currently comprise about 1.1% of expenditures. That compares with a forecasted median of 5.1% around the U.S. this fiscal year, according to a report released Thursday by the National Association of State Budget Officers, or Nasbo.
Connecticut Gov. Dannel Malloy, a Democrat, sent lawmakers a proposal Wednesday to close its budget hole. Mr. Malloy is recommending a mix of spending cuts and tax increases including on sales and cigarettes.
Despite a growing national economy, Connecticut is one of a few outlier states that have dipped into their reserves—funds saved to help buffer against the next economic downturn, according to the Nasbo report.
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