With the largest pension payments in state history being made, Connecticut taxpayers will be saving billions of dollars over the next two decades.
A new actuarial analysis, released Thursday, says taxpayers will save an estimated $11.5 billion over the next 24 years through reduced payments for debt. The savings total an average of more than $440 million per year after about $5.3 billion has been earmarked to fund the long-neglected pension funds.
For decades, the state legislature and multiple governors failed to set aside the amount needed to pay for the pensions, leading to about $40 billion in unfunded liability today for state employees and teachers, officials said Thursday. But that is being turned around with surplus money that includes a historic payment of $3.7 billion from the just-completed fiscal year, on top of an additional $1.6 billion the previous year.
“As economic volatility impacts all aspects of everyday life, the state’s budgetary situation is increasingly stable and still improving — in stark contrast to the years of sacrifice and chaos following the Great Recession,” state comptroller Natalie Braswell said in releasing an independent financial analysis.
A series of reforms that were negotiated by Republican and Democratic legislators in 2017 prevented the legislature from spending additional money that has been generated from capital gains on Wall Street. As such, that money has been set aside in the rainy day fund for fiscal emergencies that has now reached about $7 billion. The $3.7 billion payment for the pensions will be taken from the $7 billion fund.
With Wall Street losing more than 20% of its value in a bear market, the state has taken a cautious approach in revenue forecasting for the current fiscal year that started on July 1. Capital gains are expected to be down about 14%, and the pass-through entity tax, which is paid largely by rich investors who operate through limited liability companies, is also expected to be down by 14% in the current fiscal year.
“My hunch is you’ll see more of a dip when it comes to capital gains,” said Gov. Ned Lamont, a longtime Greenwich investor who follows the stock market closely.
While the state had an operating surplus of more than $1 billion for the just-completed year that ended on June 30, the projected deficit for the 2024 fiscal year is about $800 million, which is an improvement from an earlier deficit projection of $1.2 billion.
“It will change,” state Budget Director Jeffrey Beckham said of the projected deficit. “It could get better.”
On the campaign trail, Republican gubernatorial candidate Bob Stefanowski of Madison has repeatedly said that the state should offer tax cuts of $1 billion, representing about one-third of the rainy day fund. That includes immediately reducing the state sales tax to 5.99%, down from the current 6.35%. Lawmakers should also eliminate the 1% surcharge on prepared foods at supermarkets and restaurants, he said.
He has also called for suspending the gross receipts tax on gasoline, which is about 26 cents per gallon and is collected separately from an additional 25 cents-per-gallon excise tax that has been suspended until Dec. 1. As Republicans have done for months, Stefanowski is calling for suspending the highway use tax on large trucks that is scheduled to begin on Jan. 1, 2023, and would raise about $90 million per year.
“To be sitting on a $3.5 billion rainy day fund when it is pouring rain right now on every single small business and every single person in Connecticut is absolutely unconscionable,” Stefanowski said recently.
But Lamont sharply rejected those ideas Thursday.
“I disagree with him profoundly on that,” Lamont said when asked by The Courant. “The rainy day fund is there, in the face of a recession, to make darn sure I don’t have to raise anybody’s taxes or slash spending. … I think this is a buffer. It’s a cushion. It’s a smart thing to do for the people.”
Stefanowski, though, countered that the $24.2 billion state budget was balanced largely because of billions in funding from the federal government in responding to the nationwide coronavirus pandemic.
Stefanowski and Republican legislators have repeatedly complained that Lamont and the legislature did not move to block the 9 cents per gallon increase in the diesel tax on July 1.
“The governor’s celebrations from under the Capitol dome are completely out of touch with reality for Connecticut’s working- and middle-class families,” said Senate Republican leader Kevin Kelly and deputy leader Paul Formica. “The governor is celebrating government being awash with cash. Meanwhile, family budgets are broken. Not only are Connecticut Democrats refusing to deliver relief now, they are actually asking people to pay more taxes to a government that is flush with cash.”
Christopher Keating can be reached at ckeating@courant.com.