The state of Connecticut reported a nearly $400 million budget surplus for the 2013 fiscal year early last week.
The surplus, which represents approximately 2 percent of the state’s total budget for this year, is likely due to a combination of unexpectedly high tax revenues and low spending growth, according to a report filed by State Comptroller Kevin Lembo. The release stated that about $220 million of the surplus will be spent in future fiscal year activity, while the remainder will be channeled into the state’s Budget Reserve Fund.
“The state’s surplus should be a sign of cautious optimism for the future — a good outcome, but potentially the result of one-time revenue windfalls,” Lembo said. He attributed the surplus mainly to the increase in the federal capital gains tax rate and strong stock market performance.
Steve Lanza, a University of Connecticut economics professor, agreed that the increased capital gains tax enhanced revenues, but he added that the state inheritance and gift taxes also contributed to the revenue spike. Lanza stated that Connecticut’s substantial underlying economic growth boosted revenues as well.
Job growth and stabilization in the Connecticut housing market could mean surpluses in years to come, Lanza said, but these positive signs do not guarantee future performance. Lanza added that economic momentum could be diminished this fall by a national partisan conflict over the debt ceiling.
“[The allotment of funds to the Budget Reserve Fund] makes a lot of sense in an environment that’s prone to being volatile,” Lanza said.
The $180 million added to the Budget Reserve Fund will bring the total of the state’s reserve funds to $271.5 million, approximately 1.6 percent of the Connecticut operating budget for this year.
Lembo said the state should aim to have approximately $3 billion in the Budget Reserve Fund order to fully protect taxpayers against future economic downturns.
“While we’re pleased with the improvement over 2012, the economy still has a long way to go,” said Gian-Carl Casa, undersecretary for legislative affairs at the Office of Policy Management of the state of Connecticut. “We’ll keep working hard to support the businesses and individuals that are growing Connecticut’s economy.”
Lembo reported that state spending growth was just 1.3 percent for the 2013 fiscal year. In contrast, the preceding 10 years’ average growth was 4.5 percent, and this year’s rate of spending growth is the lowest since 2002.
“The average annual rate of expenditures in this administration is lower than the average rate under the previous two administrations,” Casa said. “Governor [Dannel] Malloy took prudent and necessary steps — such as mid-year budget cuts — to ensure that last year’s budget was balanced.”
Connecticut legislatures passed a two-year, $37.6 billion budget in June 2013.