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August 4, 2020

Lembo: CT’s economic gains could slip away soon without more federal aid

HBJ File Photo The State Capitol in Hartford
By Keith Phaneuf, CT Mirror

State Comptroller Kevin P. Lembo warned Monday that Connecticut’s economic gains since the depths of the pandemic could soon slip away without more federal aid.

The comptroller also confirmed recent projections that the state’s coffers have swollen, not shrunk, since the pandemic began.

“It’s decision time,” Lembo said. “Our state economy is showing signs of recovery from the devastating effects of the COVID-19 pandemic, but without a significant investment from the federal government, those gains may slip away, and Connecticut families and businesses will suffer.” 

The state has recovered more than 100,000 jobs that were lost when the pandemic struck in mid-March or shortly thereafter, according to the comptroller. But jobless levels remain near record-highs and overall employment remains down 172,000 positions from one year ago.

Low-wage workers face the greatest burden, Lembo added, noting that according to the Federal Reserve, about 40% of households nationally earning less than $40,000 per year had lost at least one job by May.

Congress has approved four rounds of pandemic relief, but Capitol Hill has been stuck in partisan gridlock for months over the prospect of a fifth package.

State Comptroller Kevin P. Lembo

Lembo said another wave of federal pandemic relief is crucial for Connecticut, and the nation, to survive an economic slump.

“I am urging Congress to consider the human cost of delaying further financial assistance,” he said. “Without sufficient support, Connecticut and nearly every state across the country, will see spikes in evictions, foreclosures and bankruptcies, and the jobs we’ve yet to recover may be lost permanently. State and local governments will be forced into impossible budgetary choices.”

The Republican-controlled Senate has ignored a massive relief bill approved in mid-May by the Democrat-controlled House. Negotiations between parties over a new relief package are ongoing, but showing little progress.

“I can tell you that this is one of the most frustrating and frightening moments of my entire political life,” U.S. Sen. Richard Blumenthal, Connecticut’s D-Conn., said during a news briefing Friday in Hartford. 

The Senate GOP caucus is sharply divided over whether to approve additional aid, and Majority Leader Mitch McConnell has allowed that division to paralyze him, Blumenthal said. “So we are saying, to Mitch McConnell, … ‘lead, follow, or get out of the way.’”

One form of relief that is crucial in any third federal package, Lembo, a Democrat, said, is an extension of the $600 supplemental weekly unemployment benefits that lapsed on July 31. Other key areas, the comptroller added, include aid to low-wage workers who have been harmed by contractions in the service industry, and grants that can replace revenues states and municipalities have lost since mid-March.

Despite the uncertainty of more federal relief, Connecticut is better poised than many other states to face a recession. On paper, the state finished the 2019-20 fiscal year on June 30 with a $128.1 million deficit, Lembo wrote.

But since 2018 the state also has followed new rules that force it to save a portion of state income tax receipts tied to capital gains and other investment earnings. Once the nearly $320 million in mandated savings for 2019-20 is applied, the deficit is eliminated and the rainy day fund is projected to grow from $2.5 billion to $2.8 billion.

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2 Comments

Fred Carstensen
August 6, 2020

While in the VERY short term, CT is "well positioned" to handle the immediate challenges of the pandemic because of its disciplined fiscal policies and its substantial rainy day fund, the sad reality is that Connecticut is in very bad shape. It has the worst record of any state since the Great Recession, never having recovered in either real output (state GDP) or employment. Because of a huge shift of CT residents working out-of-state, income tax revenue is down more than $500 million (measured as revenue as a percent of aggregate household income in CT); more troubling is the more than $220 million decline in sales tax revenue, despite broader coverage and higher rates. Perhaps DRS, having lost significant staffing, is unable to audit tax payments properly--whatever the driver, the Legislature ought to figure out why such a decline in revenue.

The reason CT did not recover in jobs or output is that it apparently lost touch with the data-driven, digitally dependent modern IT economy. The evidence of this disconnection is the virtually absence of growth in the occupations central to the IT economy--and our neighboring states all enjoyed robust economic recoveries and boasted strong double digit growth in those exact occupations. CT saw growth in low-wage, low-skill jobs in tourism, hospitality, logistics (fulfillment centers), elder care, etc. All, if working full time, deliver much less than $40,000 annually; few in these sectors in fact enjoy full time employment. At the same time, CT suffered the virtually disappearance of its nondurable manufacturing and sharp contraction in the finance and insurance sector. CT does not have a solid foundation for longer-term recovery. Adopting policies and pursuing strategies that will speak to this challenge is urgent.

Anonymous
August 4, 2020

Perhaps all that recent spending on foreign businesses was a bad idea after all - Venture Clash ($20m) and Innovation Places Hartford/Launch Hartford/Launch ($6.4m).

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