Office of Policy and Management Secretary Melissa McCaw has decreased Connecticut”™s projected budget deficit by 40% ”“ although the figure remains at $1.2 billion.
Last month McCawa wrote to Connecticut Comptroller Kevin Lembo that the state was facing a gap of more than $2 billion. But thanks to better-than-expected tax receipts, the state”™s financial picture has improved significantly, McCaw wrote.
“The largest change is in the estimates and finals category of the personal income tax, up $210 million and reflective of healthy September estimated payments,” according to McCaw. “The sales and use tax has been revised upward by $90.7 million as that tax continues to exceed its target. Withholding taxes are also continuing to exceed their target and have been revised upward by $50 million.
“September estimated payments under the pass-through entity tax were also better than expected and have been revised upward by $85 million,” she continued. “Real estate conveyance tax collections are being revised upward by $40 million and may reflect pent-up demand from the early Spring when real estate transactions slowed at the height of the Covid pandemic.”
In addition, federal grants are being revised upward by $22.4 million, “as the state now expects to continue to receive an additional calendar quarter of enhanced Medicaid matching payments through the quarter ending March 31, 2021, under the Families First Coronavirus Response Act,” McCaw wrote. “Refunds of taxes are somewhat offsetting these gains and are being revised upward by $50 million. All other changes net to a positive $6 million.”
“Despite the Covid pandemic, the U.S. stock market is 14% higher than a year ago as measured by the S&P 500, which should bode well for capital gains realizations,” McCaw wrote. “For all other sources, the positive revisions generally reflect amounts received to date that have exceeded their respective targets.”
The secretary noted that vigilance is still needed, as “an unprecedented amount of fiscal and monetary stimulus was injected into the nation”™s economy by the federal government over the spring and summer months and such stimulus is now waning.
“In addition,” she continued, “pandemic-related closures of many businesses may have caused deferred consumption of goods and services, resulting in pent-up demand that is now being realized.”
McCaw noted, however, that “Until a vaccine for the Covid virus is widely available, and absent further federal measures to stimulate economic activity, significant challenges may remain over the coming months.”
Those challenges include reduced demand for air travel and reduced activity in the leisure and hospitality sectors, she wrote, especially with the impact of cooler weather.
