Prompted by an increase in estate and gift taxes and slower growth in state spending, Connecticut is now projecting a surplus for the last fiscal year of $312 million.
The surplus is being generated partly by better-than-projected tax collections and spending reductions that were approved by the legislature on a bipartisan basis shortly before last Christmas.
The legislature has already decided to spend about $220 million of the surplus by pushing that money into the current fiscal year, which started July 1. The rest of the money would be placed in the "rainy day fund" for future fiscal emergencies.
Legislators who were expecting to collect about $150 million in estate and gift taxes were stunned when the projection soared to $428 million -- the highest amount, by far, in state history. Some of the surplus comes from higher-than-expected collections of taxes, as some wealthy residents of Fairfield County died during the fiscal year. Others made major gifts to family members.
The official consensus revenue estimates by the legislature's nonpartisan fiscal office and the governor's budget office show that they expect inheritance and estate taxes to drop by more than half in the current fiscal year, back down to $172.9 million.
"This surplus restores money to the budget reserve fund -- which should be a first step toward fully funding this 'rainy day fund,'" state comptroller Kevin Lembo said in a statement Thursday. "Our goal -- to better protect taxpayers against volatilities on Wall Street and the economy -- should be a fully funded rainy day fund at 10 percent or $1.9 billion."
"One of the largest components of the budget, wages and salaries of employees, showed no growth over last fiscal year ... and is $105.6 million below the Fiscal Year 2011 expenditure level," Lembo said. "Overall, general fund spending was held to growth of 1.3 percent against the prior fiscal year. This compares to annual average growth of 7.3 percent over the four years leading up to the 2008 recession."
With the state economy still relatively sluggish, officials had been skittish about balancing the state budget. But the unexpectedly large tax collection rate helped turn the red ink into black. The boost pushed the state into a surplus, although lawmakers acknowledge that this represents one-time revenue that will be hard to duplicate.
Overall, the inheritance and estate taxes were $273 million more than expected, and the state income tax collections were nearly $165 million more than projected estimates.
At the same time, collections of sales taxes and the corporate profits tax are lower than expected. The sales tax will be about $190 million lower than expected, and the corporate taxes are about $51 million lower than projected. Total revenues for the general fund will be up by 4.3 percent overall.
"Despite the state's improved financial outlook, the economic recovery proceeded at a slower-than-expected pace during Fiscal Year 2013," Lembo said.
The $312 million surplus is calculated under generally accepted accounting principles, while the number would jump to nearly $360 million under the current method used by the state, which is known as a modified cash basis of accounting.
In addition to the deaths of wealthy residents, the state's budget situation has been helped by changes in federal tax law and the expiration of tax cuts passed by President George W. Bush.
Because the capital gains tax rate increased on Jan. 1, many wealthy individuals in Fairfield County sold stocks in December 2012 to avoid the increased taxes. In the same way, some corporations made advance payments on stock dividends in 2012 -- meaning that Connecticut residents would not see those gains again in 2013. Wealthy people also made taxable gifts to avoid the higher rates this year.
Reprinted with permission of the Hartford Courant.
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