By Kevin McNabola
Orange Board of Finance
As we put 2022 within the rear view mirror, Connecticut is in one of the best fiscal form in over twenty years. However is it sustainable?
Connecticut completed fiscal 12 months 2021 with a $4.3 billion surplus and with a projected surplus of $1.3 billion in fiscal 12 months 2022 pushed by a robust inventory market, surging state revenue and enterprise tax receipts. The state has positioned itself to lastly be on robust monetary footing.
Connecticut has additionally taken the correct steps to handle its long-term monetary obligations, together with paying down near $6 billion in pension debt and on the similar time increase the wet day fund to $3.3 billion.
Based mostly on market efficiency in 2022, the query turns into: is it sufficient? This previous 12 months noticed a few of the worst monetary outcomes since 2008 with the S&P 500 down 19 p.c and the Dow Jones down 8.8 p.c. The ten-year treasury, which influences every thing from mortgage charges to scholar debt, hit a excessive of 4.25 p.c in late October (the best since 1991) from a low of 1.5 p.c in 2021. The Federal Reserve elevated charges seven occasions from 0.25 p.c to 4.5 p.c, with one other anticipated charge improve of 0.25 foundation factors in late January.
Because the market volatility continues into 2023, Connecticut now prepares to face a brand new problem getting ready for the impression of main losses inside shares, state revenue and tax receipts. These are main income parts throughout the price range, and Connecticut is already projecting price range deficits in 2024 and 2025.
In comparison with states like Illinois and New Jersey, Connecticut has been proactive in its dedication to structural price range balances and addressing the state’s long-term debt. These money owed embrace bond debt, pension and different postemployment profit liabilities. The price of serving pension money owed will proceed to weigh on Connecticut within the close to future as a result of dimension of the burdens.
Nevertheless, Connecticut has began the method of paying down on its obligations and is healthier positioned than most states. The forecast for 2023, with continued inflationary stress on power costs and commodity costs, will additional dampen monetary efficiency and expectations at each the state and native ranges. Because the housing market cools off, we are able to anticipated to see decrease conveyance tax revenues for native municipalities. A mean of 18 p.c misplaced in asset portfolios inside metropolis pensions will improve the annual required contributions, creating extra budgetary pressures.
The significance of correct budgeting for state and native finance managers will play a crucial position this 12 months as a result of state and native revenues will most definitely should be adjusted to mirror the fiscal realities and budgetary pressures that lie forward in 2023 and 2024.
Right here in Orange, the Board of Finance for the 2023-24 price range will even should issue within the lack of $700,000 in income from Amity Excessive College that had been budgeted inside a number of prior budgets primarily based on important surpluses throughout the Amity Excessive College price range. On the expense facet of the price range, we are able to anticipate to see will increase in well being care and pension prices, together with greater worker wage will increase, that are pushed primarily by quick provide and better demand for a talented labor pressure.
Kevin McNabola is the chief monetary officer for the Metropolis of Meriden and a member of the Orange Board of Finance.