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July 10, 2020

Boston Fed forecast shows CT tax revenue dropping up to 20% this year

HBJ Photo | Joe Cooper
By Sean Teehan

Connecticut's tax revenue could drop as much as 20% in the 2021 fiscal year that began July 1, compared with fiscal 2020, according to a forecast released by the Federal Reserve Bank of Boston.

The study, which forecasts 2021 tax revenues for New England's six states, predicts Connecticut's revenue will drop between 6% (in the event of a quick economic recovery) and 20%. Connecticut collected nearly $12 billion in tax revenue in the first 11 months of fiscal 2020, according to CT Data.

Bo Zhao, the senior economist at the Boston Fed's New England Public Policy Center who designed the model used in the forecast, said the data show Connecticut with the lowest decline in tax revenue out of the New England states. However, that's at least in part because it already had a higher unemployment rate and lower per-capita tax revenues than its neighbors before the pandemic.

"Connecticut hasn't performed well compared to other New England states in the pre-pandemic period," Zhao said. 

One bright spot for Connecticut is it's $2.5 billion rainy day fund, Zhao said. But that's likely not enough to carry the state through possibly years of lower revenues driven by a possibly prolonged period of higher unemployment.

Zhao said he thinks the data suggest policymakers should prioritize the public health issue COVID-19 presents in order to tackle the economic issues the pandemic creates. He also believes Connecticut and other states need federal funding in order to avoid the worst possible outcomes.

"It will probably take years for the job market to go back to what it was in the pre-pandemic period," Zhao said. "I think the state really needs federal aid, federal grants, that have no strings attached."
 

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