The Fiscal Situation in Connecticut and in Other New England States Presented to the Connecticut Sta

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The Fiscal Situation in Connecticutand in Other
New England States Presented to the Connecticut
State Budget Education SymposiumHartford, CT

• Robert Tannenwald
• Assistant Vice President and Economist
• Federal Reserve Bank of Boston
• 617-973-3093
• robert.tannenwald_at_bos.frb.org
• December 12, 2002

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The Big Picture

• Hit hard by dramatically reduced tax receipts in
  FY2002, New England states are facing difficult
  fiscal situations.
• Spending growth, although holding steady or
  cut-back, continues to outpace revenue growth.
• Deficits abound.
• Reserves are severely depleted.

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Surpluses to Deficits FY1998 to FY2003

Anticipated as of May Prior to Beginning of
Fiscal Year
Note Deficit (Revenues Carried-over
Surpluses) - Spending. It does not include loan
receipts or withdrawals from reserve accounts or
tobacco settlement accounts.
Sources National Association of State Budget
Officers, State Expenditure Reports, 1998-2001
state budget documents.
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Revenues Last Fiscal Year
Change from Prior Year in Total Revenues and Two
Largest Taxes (FY2001 to FY2002)
Note RI general revenues were down 4.5 percent
for FY2002. Facing a budget gap, the state
securitized its tobacco settlement revenues,
thereby raising 544.2 million. This transaction
alone accounts for the revenue growth indicated
in the chart above. Sources Official budget
documents state financial statements
conversation with state budget officials.
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After the Boom Falling Massachusetts
Stock-Related Tax Revenue
Estimated Source Reproduced from the Boston
Globe, February 17, 2002. Massachusetts Executive
Office for Administration and Finance Alan
Clayton-Matthews, UMass-Boston.
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Spending Last Five Fiscal Years
Annual Rate of Growth in State Own-Source General
Fund Spending FY1998 to FY2001 (actual), FY2002
(estimated)
Sources National Association of Budget Officers,
State Expenditure Reports, 1998-2001 state
budget documents.
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Source U.S. Census Bureau
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Revenue Growth v. Spending Growth in the Six New
England StatesFY1998 to FY2002
Revenues
Expenditures
Revenue line does not include tobacco
securitization proceeds.
Sources National Association of State Budget
Officers Official state budget documents.
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Reserve Balances
Note Reserves equal rainy day fund balances plus
carried-forward undesignated surpluses. Source
National Association of State Budget Officers,
Fiscal Survey of the States, December 1998 - May
2002.
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General Fund Deficits (Absent Corrective
Measures) as a Percentage of Spending, New
England States, FY1992 and FY2003 (Projected)
Source Authors calculations and National
Association of State Budget Officers.
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Rate of Growth in State Tax Collections from
Previous Year (Percent)
Source U.S. Census Bureau National Association
of State Budget Officers.
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The Effect of Tax Changes on Revenues,
FY1990-1992 and FY2001-2002
Source The Nelson A. Rockefeller Institute of
Government, "State Fiscal Brief", National
Conference of State Legislatures, "State Budget
and Tax Actions", and State budget documents.
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Revenues Year-to-Date
Change from Prior Year in Total Revenues and Two
Largest Taxes (MA, NH, RI and VT collected
through October FY03, CT and ME collected through
September FY03)
Sources Official budget documents state
financial statements conversation with state
budget officials.
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Looking To the Future

• Despite positive signs in data for the first few
  months of FY2003, the revenue situation for the
  New England states is expected to worsen over the
  current and next fiscal years.
• Spending in all six New England states was
  curtailed in FY2002, FY2003, and will be cut
  further for FY2004.
• Despite budget cuts and tax increases, all six
  New England states anticipate budget shortfalls
  in FY2003 and, possibly, FY2004.
• Rainy Day funds are significantly diminished or
  depleted and, therefore, not sufficient to close
  anticipated budget gaps in FY2003 and FY2004.