CT Faces $900 Million Shortfall Now, $2.3 Billion Deficit In 2021

CONNECTICUT — Gov. Ned Lamont said the financial impact of the new coronavirus on Connecticut is very "sobering." He said COVID-19 has been tough on all of us "physically, mentally and now fiscally."

Connecticut is facing a $900 million budget shortfall before the end of the fiscal year, which ends June 30, 2020. And in fiscal year 2020-21, Connecticut is staring at a $2.3 billion budget shortfall.

Connecticut's rainy day fund, or contingency account, is at $1.9 billion, which will help the state weather the fiscal storm, Lamont said. Despite the robust rainy day fund, Lamont and the legislature are anticipating making reductions totaling $415 million.

No specifics were released concerning how the state planned to address the $415 million in needed cuts.

Lamont said he hopes to hold taxpayers "harmless" which includes not raising taxes, but planned additional tax relief next year will likely not be possible now.

We were fine until COVID-19 but not anymore

Lamont said Connecticut was doing "very well" up until two months ago and that "our situation isn't unique." He said Connecticut is in better shape financially than many other states.

He said he must assume Connecticut will be on its own to make up the revenue shortfall and he has to plan accordingly. He said if the federal government provides states funds for revenue losses, then that would be a bonus.

Office of Policy and Management Secretary Melissa McCaw said the true shortfall for the current fiscal year is $570 million on the revenue side, which is due to lower personal income tax as a result of the massive surge in unemployment in the state. State officials believed a $370 million payment from the federal government would come this year but it's now scheduled for the 2021 fiscal year, Lamont said.

There was a 3.7-percent reduction on income tax revenue in March. Since mid-March more than 400,000 Connecticut residents have filed unemployment claims.

The 2021 budget was previously approved at $20.2 billion and Connecticut is expecting $18 billion in revenue which leaves a $2.164 billion revenue shortfall. McCaw said the state had also planned to make an additional $164 million in budget adjustments concerning pension and health care costs, which brings the total shortfall to $2.3 billion for next year.

Rainy day fund impact and possible cuts

Lamont said Connecticut's $1.9 billion rainy day fund is one of the strongest in the country and will be integral in helping the state survive the economic impact of the coronavirus. Lamont said his goal remains to hold "taxpayers harmless" and avoid a tax hike next year.

"We need to stretch our dollars the best we can," Lamont said.

Lamont said some cuts will be needed and he'll need to work with "our friends at labor" and all of the state's service providers. He said everyone must sit at the table, including labor and he'll ask them to "help with the pain we're all sharing right now." He said he'd like to speak directly with the labor unions before commenting further. The state labor unions have a contract that is in effect until 2027. Lamont declined to speculate on what he might ask of labor unions.

Lamont said he anticipates a special legislative session to address some of the budgetary issues.

"Our rainy day fund will be a major support," McCaw said, but added more is needed to be done. It's estimated that the state's economy will quickly rebound in 20202, she said.

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Transportation fund

The state's transportation fund is expected to run out of money by July 2021, Lamont said. He said the state must do something to address that. He didn't resurrect the tolls debate on Friday but he did say it must be addressed and bonding isn't really an option in light of the massive losses of revenue due to the coronavirus pandemic.

Federal government's funds and how its being spent

Connecticut has received $1.4 billion from the federal government but those are dollars to reimburse the state for COVID-19 expenses, it's not money to offset the massive revenue losses, Lamont said.

The $1.4 billion will specifically go toward testing costs, health care overtime, money for education and to help hospitals offset losses from elective surgery.

"Hospitals have been heroic in getting through this," Lamont said.