Connecticut is on track to deposit another $3.6 billion into its cash-strapped pension funds at the end of the fiscal year in June, after tax receipts rose again on Friday.
These additional payments would be in addition to the $2.9 billion in required contributions Connecticut made this fiscal year to pensions for state employees and municipal teachers.
Those projections were included Friday in Governor Ned Lamont’s latest monthly budget estimates from Governor Ned Lamont’s administration, which also projects a $3.8 billion surplus for the current fiscal year.
While most of this expected windfall will help pay off pension debt, the remaining $200 million will be deposited into the state’s emergency budget reserve to keep it at its legal limit.
The rainy day fund, which cannot contain more than 15% of annual operating expenses, is capped at $3.1 billion for that fiscal year. But with the next state budget increasing spending by about 6%, the rainy day fund can accept an additional $200 million once the new fiscal year begins in July.
The additional pension payments will come just a year after the state broke ground with an additional $1.6 billion deposit in pensions.
But with $40 billion in unfunded liabilities accumulated over seven decades, Connecticut’s per capita pension debt is among the highest in the country. Even with the additional payments, this debt is expected to put considerable strain on state finances for another two decades.
However, these additional payments should lower the minimum required contributions that the State must pay. Lamont estimated that over the next few years, these minimum annual payments could decrease by more than $400 million, freeing up those resources for other priorities.
The excess looks smaller, but in some ways it’s bigger
These extra pension payments were largely made possible by state tax revenue that has jumped since 2018 and a new savings program launched around the same time that requires lawmakers to save some tax revenue. income and business quarterly.
Revenue projections, which have risen frequently during this period, jumped again on Friday, even as the $3.8 billion surplus projection – on the face of it – is down from the cushion of 4 $.8 billion projected just a month ago.
Lamont and the General Assembly have used more than $1.2 billion of that cushion to help support the new $24.2 billion budget for the fiscal year that begins July 1. This package includes more than $660 million in tax relief and significant new investments in childcare and social services. .
“In addition to making groundbreaking investments in child care, crime prevention, environmental protection and caring for our most vulnerable, the budget we have just enacted provides specifically targeted relief for low- and middle-income families with children,” Lamont said on a Thursday. press conference to discuss tax relief programs.
Had Lamont and lawmakers not redirected these funds, the projected surplus would be approximately $5 billion – an unprecedented total that is almost a quarter of the entire General Fund budget approved for 2021-2022.
And while state income and business tax revenues account for most of that potential $5 billion surplus, the sales tax — boosted by inflation above 8% — generates nearly $500 million. dollars more than initially planned for this year.
Despite plentiful state government coffers, Republican legislative leaders say Lamont and his fellow Democrats in the legislative majority missed an opportunity to help badly hurting households and businesses.
With potential $5 billion surplus, GOP says state could have given more tax breaks and significantly reduced pension debt, especially if some overspending was reduced.
Republicans pointed to a package of raises and bonuses for more than 40,000 state employees endorsed by Lamont and the Democratic majority in the legislature earlier this year. The four-year deal, which includes annual cost-of-living increases of 2.5%, an annual increase that typically adds an additional 2 percentage points and one-time bonuses totaling $3,500, will cost the state on average more than $460 million per year. .
Democrats are countering the raises and bonuses were key to stemming a sharp rise in state employee retirements this spring.
“Inflation creates a windfall for the state budget,” Senate Minority Leader Kevin Kelly, R-Stratford, said Friday. “As families struggle to make ends meet, the state budget benefits from their pain. The right thing to do is return the overtax to Connecticut families.
The GOP approved tax cuts of about $1.2 billion, including the first income tax rate cut since 1995.
House Minority Leader Vincent J. Candelora, R-North Branford, called the Democrats’ tax package an Election Day appeasement, noting that more than half of the relief measures expire after this year.