Connecticut Gov. Ned Lamont COVID-19 Press Conference Transcript May 1

Ned Lamont: (00:50) All right. Good morning, everybody. Wanted to give you an update on our 2020 budget, which fiscal year ends on June 30, and our best projections for the next fiscal year. I'm here with Josh and Paul, per usual, and Melissa McCaw, who's our amazing head of OPM and put together these budgets, and the numbers are sobering. I've got to tell you that COVID has been tough on our physical health. It's been tough on our mental health. And it's also tough on our fiscal health. The state was on track and doing very well on budget up until a couple of months ago. Ned Lamont: (01:34) And our situation is by no means unique. In fact, in many ways we're better off than some of our peers. Melissa will show you that the sales tax revenue has probably taken even a bigger hit than the income tax revenue, and for those states that rely more on sales tax, they're going to have to figure out that hole. We're not dependent upon energy revenues. There are a number of states that get half their budget paid for by taxes on energy, and those states are seeing an even bigger shortfall. Ned Lamont: (02:07) The numbers that I'm going to present to you are numbers that, assuming we don't get any additional federal aid, that we're on our own and we'll see what that is. I know Senator McConnell has backed off the bankruptcy talk, so I talked to Jim Himes, he's there with Speaker Pelosi. They feel that aid to the states and localities will be part of the next supplemental or there won't be another supplemental. So, we will see, but as we've learned, how can Connecticut do it on its own and what would that look like? Plan for the worst, hope for the best. Ned Lamont: (02:46) Very quickly before Melissa runs through the numbers in detail, we're looking at about a $900 million deficit in this fiscal year, which ends June 30. It's a deficit that really didn't exist until very recently with COVID. That 900 overstates it a little bit. There's about $370 million that we thought was coming from the feds in this fiscal year. It's in the next fiscal year, so it's really... It's still really a deficit. Thank goodness we kept our rainy day fund intact. That's going to allow us to power through the end of this fiscal year. It gave us a lot of flexibility in terms of putting off some of the tax revenues to give you more of a breathing room, as well. And what Melissa and I are trying to do with these numbers now is to do everything we can to make sure that we can stretch out our rainy day fund, not just for this fiscal year, but for the next fiscal year. Do it by also holding our taxpayers and holding our service providers harmless. Ned Lamont: (03:53) I'm not sure we'll be able to promise a lot of new tax cuts or a lot of new spending increases, but we're going to try and do the best we can given the current situation to hold that harmless. The next fiscal year, though, starting in July 1, does look like a $2 billion deficit, and that's plus some additional costs that are fixed, and Melissa will tell you how that drives the cost up to probably more like $2.4 billion. So, if you're doing the math, you're going to see we are going to have to streamline things, make some cuts, work in collaboration with our friends in labor, work with all the different entities that provide services here. See how we can do our best to hold down those costs and stretch our dollars as best we can. Ned Lamont: (04:45) I'd also tell you that along the way, we have the special transportation fund. I'd say we spent a lot of time talking about this special transportation fund last year. We had hoped that given our gasoline fuel tax revenues, the special transportation fund would at least stay solvent for another three or four years. Right now, it looks like given the drastic cut in gasoline prices, drastic cut in revenues coming in to the special transportation fund, with our share of the gas tax, that special transportation fund probably runs out. We'll eat up the reserve funds by about July 1 of next year. So, maybe we can sit down with the legislature. You heard my best ideas on how to shore up our special transportation fund, and I'd love to work with you in terms of other ideas we have to shore this up, and there's not much left in the rainy day fund to play games with that, as well. Ned Lamont: (05:45) I just leave you with the fact, before Melissa takes over, that we're working hard every day. I think you're going to see some support from the federal government. How that's allocated, we'll see. To date, we've gotten about 1.4 billion. And you're saying, "Well, man. That's pretty good. You've got 1.4 billion. What more could you need?" That goes specifically just to reimburse us for COVID-related expenses. Testing expenses, healthcare overtime, a variety of things that are specifically related at the state level and at the local level. As Melissa will tell you, we're getting the ledger from the local and municipal government within the next week, so we can see what their expenses have been, as well. Ned Lamont: (06:34) We've got a preliminary budget on what we can do with that 1.4 billion and we're trying to make sure that plays out over the course of the next year, as well, so we've got that balanced going forward. In addition, there's some money in there for education, for higher education, and there's money there for K through 12 education. And that money is being allocated right now, some of which I hope is already going to K through 12. And finally, our hospitals obviously are putting out a lot of expense, and they're not getting the revenues they used to get from so called elective surgery. We've got distributed I think about 150 million, give or take, right now to the hospitals to help shore them up. I think that's about one third of the first money dues to the hospital under the federal bill, and there's another 75 billion. So, I'm hoping we'll be able to get that money to keep our hospitals together. They've been heroic, by the way, in getting through this, just like every single hospital worker and front line responder has been. Ned Lamont: (07:42) Look. I'm sorry to ask everybody. We're going to have to do a little more, all of us, on this fiscal front. But we are getting through this, just like we're getting through the COVID crisis. Just like you heard yesterday how we're slowly getting our economy going again. And in terms of clarity and certainty, you will know when we know how things change. We'll know how fast sales tax revenue starts picking up as we open up different pieces of Main Street economy. You'll know how fast the income tax coming up. Melissa's made best estimates, conservative estimates, which we think get us through for the next fiscal year, and we'll be making updates on this on a monthly basis. Ned Lamont: (08:24) Melissa? Melissa McCaw: (08:25) Thank you very much, governor. First of all, I just want to acknowledge the outstanding work of the Office of Policy and Management and the Office of Fiscal Analysis. We are required by statute to produce consensus revenue updates multiple times per year, and this is reflective of that combined effort, as well as is informed by economic data from IHS Consultants as well as Moody's that is used by the Office of Fiscal Analysis. Melissa McCaw: (08:52) As the governor indicated for fiscal year 2020, our latest estimate for projected shortfall is approximately $ 934 million. That does include revenue adjustments that are baked into the consensus revenue report that was released yesterday. Approximately 370 million of that shortfall is just the timing of receipt of federal funds based on the late approvals of our hospital settlement and the related state plan amendments that have to be validated and approved by the federal government. So, the true shortfall in terms of revenue shortfall in fiscal '20 is about $570 million. And that's primarily in the areas of lower personal income taxes withholding. Obviously, we have a significant number of unemployed individuals in the state and we immediately begin to see a reduction in income tax withholding. For the month of March alone, we saw a 3.7% reduction in withholding, and obviously we were at the very early stages of our COVID economic impact in the state. Melissa McCaw: (10:02) As we are moving into fiscal year- Melissa McCaw: (10:03) ... 2021, we have a budget that has been adopted and is in place and that has not been amended in that budget is a $20.2 billion budget. Based on the updated consensus revenues we project revenues of $18 billion leaving us with a revenue shortfall of about $2.164 billion. And the areas that are significantly drive that obviously are again personal income tax withholding. From an economic growth rate perspective, we're seeing about a four and a half percent reduction. Our personal income tax, the estimates and finals portion and past serenity tax that does contain, one portion of that would be the capital gains impact. We are projecting about a 26% reduction. On a positive note, those particular income sources are subject to our volatility cap due to the good work of our Democratic leadership and Senator Fonfara, we do not budget all revenues that we anticipate to receive in a given year, so that helps to soften the impact to the budget. Melissa McCaw: (11:11) On sales and use tax, if we look at the industries that have been temporarily suspended, they comprise about 35% of our sales and use tax revenues. And so as we thoughtfully reopen the state for business, we do anticipate seeing those revenues begin to replenish, if you will, to prior levels. But we are projecting about a 5% reduction in growth rate and obviously that's reflective of the timing it takes for individuals in the state to become re-employed, the timing of the recovery and businesses reopening, as well as the extent to which consumers feel comfortable spending up at prior levels. And historically there is a little bit of a delay in the recovery to see spending increased to prior levels. Our corporation tax, obviously the extent to which businesses feel some impact on their net income or profits, they will update their estimated payments to the state, we are projecting an approximate 14% decline in the growth rate. Melissa McCaw: (12:18) So what does that mean for us for fiscal 2021? As indicated, we have about a $2.164 billion revenue shortfall. Revenues will come in $2.1 billion lower than budgeted. And we have some other areas that we knew we required adjustments in the midterm budget. For example in our healthcare costs, about $40 million adjustment that we would have made in the midterm budget, pension costs just to reflect the latest numbers from our actuaries, as well as some of our entitlement programs such as Medicaid and the caseload trends that we're experiencing. And so there is a known amount of adjustments that would have been required to this budget, that is about $ 164 million. When you take the revenue shortfall and some of those expenses that will come and higher, we project a $2.3 billion deficit early estimate for fiscal year 2021. Obviously as reported for fiscal year '20, we will by and large depend on the rainy day fund to cover the fiscal '20 shortfall. Melissa McCaw: (13:25) We estimate closing the fiscal year with an approximate $1.9 billion rainy day fund. We are very fortunate here in Connecticut for the foresight of prior leaders as well as the diligence of our current governor in protecting the rainy day fund. We have one of the highest rainy day funds in the nation at 13% of general fund revenues and that's helped us not only weather the storm and fiscal 2021 as anticipated, but also helped us with our cash position as we're seeing slower revenue coming in because we've given businesses more time to pay their taxes and where possible, we've expedited payments for example to our municipalities. Melissa McCaw: (14:08) With that being said however, with a $2.3 billion estimated deficit, we will require some additional mitigation in order to close the fiscal year in balance. And we are just beginning to establish a framework for that mitigation, we will be doing so in partnership with our appropriations and finance and revenue chairs. And the soft edges of that plan if you will, would include some amount of revenue changes which will be essentially holding revenues flat and where there might've been some opportunity to give additional tax relief, we will likely be proposing to hold the line and those types of changes. Melissa McCaw: (14:52) We estimate about a hundred million dollars in revenue changes. And we also have to make about $415 million in rescission and other deficit mitigation measures. The governor does have 5% recision authority and statute and any reductions above and beyond that would require a legislative action. With those measures, we will be attempting to reduce the shortfall to $1.8 billion to allow us to be able to utilize the remaining budget reserve fund balance. I will note the following, obviously these are estimates, we will not know how we close the fiscal year '20 budget until August and September and our true best first estimate for fiscal year '21 will be in November. Obviously expenses can change, they can go up or go down as well as revenue, so this will be a plan that continues to evolve. Melissa McCaw: (15:48) With respect to our special transportation fund as the governor indicated, we also started the COVID downturn, if you will, with a really strong starting balance, 20% of the transportation fund appropriations in reserves. We do anticipate over fiscal '20 and fiscal '21, fully drawing down on those reserves and that's due to decline in motor fuels taxes. Obviously a lot of individuals are not driving into work and we have very low motor fuels pricing right now. And we're seeing the same thing in the oil companies tax with respect to diesel fuel prices. That being said, the challenges we have in the transportation fund, we will have to confront them and we'll have to confront them as early as approximately a year from now. I will say the following, that our federal government has been very swift in implementing significant measures to help with the economic decline. Obviously stimulus payments have gone out to individuals to help stabilize their finances. Melissa McCaw: (16:48) That should stimulate some spending in the economy. The $600 unemployment bonus has started going out to the unemployed and all of the stimulus funds that we've received, had they not been provided, the shortfalls would be much more significant. So in summary, our rainy day fund will be a major support in 2021. Connecticut is well positioned and one of the highest in the nation with that rainy day fund. We do believe that the rainy day fund will be inadequate. Melissa McCaw: (17:19) On a positive note, economists estimate that our recovery will begin as early as 2022 that this will be a swift downturn and we will begin to grow. However, we will need to look at additional mitigation to support our budgetary needs as Connecticut reopens and recovers. And as we've seen in prior downturns, it does take multiple years for our revenues to actually return to prior levels. But the governor has tasked the agency to work with our probes and finance chairs on a plan. And this is the beginning of that discussion. So with that, I will conclude that, and I believe we're going to open it up for Q&A. Speaker 2: (18:00) Go first to the Waterbury Republican American. Hartford current. Hartford current? We seem to be having some kind of an audio issue right now. Standby. Yeah, I can't hear him. One second. Who had a higher rainy day funding? The percentage? Josh: (19:20) Team, standby. Chris: (19:22) Okay. Josh, you can hear us or no? Josh: (19:24) Yeah I can- Speaker 2: (19:24) All right. Chris, we got you. I think we had the same issue with the Waterbury Republican American. Let's start with Paul Hughes, of the Waterbury Republican American. Paul, go ahead. Paul Hughes: (19:35) Okay. I noticed in the estimates that you have not changed the amount of tax refunds for the next two fiscal years. I think for the entire projection. Why is that? Why wouldn't we see an increase in tax refunds? And how will that affect your deficit projection? Melissa McCaw: (19:54) Okay, thank you for the question. You might recall that more recently, the pass through entity tax was essentially a carve out from our- Melissa McCaw: (20:03) ... standard personal income tax program. One of the new requirements in recent years are individuals that typically do not have to withhold taxes from their pension or retirement payments. So for example, maybe if I had a 401k, typically would report on an estimated basis then true it up in their final payment. Well, the legislature did pass a law requiring that those individuals withhold. We believe that there could have been some miscommunication in that rollout and if the individual did not elect a specific tax bracket or tax rate, it defaulted to the highest tax bracket of 6.99%. Melissa McCaw: (20:48) So the Department of Revenue Services does believe that that contributed to an increase in refunds that will normalize in the future. Obviously that's still an unknown, but given that it was just the first year of implementation, we will have to monitor that going forward. So that is the reason why the refunds has not been adjusted. We believe that that is a part of the implementation of that new requirement that should normalize in future years. If we find that is not the case, then obviously we'll be updating that in a future consensus revenue estimate. Speaker 4: (21:23) Thank you. Governor, yesterday you mentioned that I believe a real GDP figure of 245 million [inaudible 00:21:30] billion. I thought at the end of the year the BEA, the Bureau of Economic Analysis put Connecticut's real GDP in 2019 at 249 billion. So have you made an adjustment? Are you anticipating some sort of reduction in the economy based on that figure? Ned Lamont: (21:53) No, Paul my- Speaker 4: (21:53) Because that's what your administration came up with. Ned Lamont: (21:57) I think it's just two different estimates of the same event. It's pretty close. Speaker 4: (22:03) It is. It is indeed. Okay. Thank you very much. Max: (22:05) Hartford Current. Speaker 5: (22:09) Thanks Max. I wanted to talk a little further about the wall street money and the estimates and finals. If I'm looking at the numbers correctly, the estimates and finals, you have no change for the current fiscal year and I was hoping you could explain that. I guess we're too deep into the year, but also could you talk about going forward, obviously you do have in multiple years you have the numbers projected to go down. Can you take us through that? Melissa McCaw: (22:35) Sure. So with respect to estimates and finals, you'll recall if you were to look at our most recent comptroller's report that we are projecting that estimates and finals will be reduced by 300 million and that we would see a pickup on the pass through entity tax. So current estimates show a reduction in estimates and finals, but an increase in past serenity tax, which you'll recall did come in higher than budget last year. This is one that we will obviously have to continue to monitor. If for some reason that does not prove to be true, then that will impact the 300 million that's estimated to go into the budget reserve fund for the current fiscal year. So essentially if there is a net reduction in the combination of estimates and finals and past serenity tax, it will result in a reduced rainy day fund. It will not increase fiscal 20's deficit. It will reduce the rainy day fund estimated deposit, and it will make obviously fiscal 21 more challenging. So our estimates are based on the best information that we have to date. Speaker 5: (23:40) Okay. I was just looking at the numbers. I got them right in front of me. The January and the April numbers look to be exactly the same, but we can move on. Tell me also about the real estate market, which will obviously have a big impact on this. I did not see that you've changed any of the numbers on real estate conveyances. Is that correct? And have you just not factored in any impact on the real estate market? Melissa McCaw: (24:07) Obviously we're continuing to monitor. You will notice that in the consensus revenue numbers we have at $210 million is the current estimate for fiscal year 20. All of our data is showing that we will meet the projection for the year and so obviously with only a couple of months remaining, the data's not proving that we would need to adjust it further. The assumption for fiscal year 2021 already reduced to that assumption from 210 to $161 million. So we do believe that the reduction in the revenue that is reflected in the consensus estimates at this time is the most accurate forecast that we have. Ned Lamont: (24:55) I might add on that Chris, that there's some silver lining. The amount of activity, real estate activity inquiries, people looking at Connecticut real estate has taken a big boost over the last month or so. It's not reflected in these numbers as yet, but I'm hopeful that you might see some reflection the next year. Not in terms of new building developments, but in terms of a real estate Melissa McCaw: (25:18) And governor, just to support that, IHS consultants, our economists that we use to support our projections does project that housing sales will still grow in 2020 and this data is probably about a month less than a month old at 8.6%. so the economic indicators to this point do not suggest that we would need to adjust to any further from that base, but obviously we'll continue to monitor. Speaker 5: (25:46) Okay. Max: (25:48) Connecticut Public Media. The Associated Press. Speaker 7: (26:00) Good morning everyone. Melissa, I was wondering, given the large number of job losses that we have and the fact that Connecticut has expanded Medicaid eligibility, are you seeing an increased number of Medicaid costs? How big of a budget burden is this? Melissa McCaw: (26:19) Thank you for the question. Yes, absolutely. Part of our response measures to COVID, naturally we're going to see an increase in Medicaid volume, but through the leadership of Commissioner Gifford and her work with OPM, we obviously have taken other measures to support the COVID response such as reopening enrollment periods, covering more of the uninsured waiving copays. We have also included measures such as to allow telemedicine and so naturally you will see an increase in Medicaid expenditures. Fortunately, the federal government did increase our reimbursement rates by six percentage points and they didn't just apply that to COVID direct expenditures, they applied it to all of our eligible expenditures. Melissa McCaw: (27:10) So for Connecticut, that means that we brought in ... We received an additional $200 million in federal revenue to offset the Medicaid costs and increases. That is reflected in the $934 million shortfall. Otherwise stated, if the feds did not increase Medicaid reimbursement, then we would have had likely a $200 million ... Up to a $200 million increase in our deficit for fiscal year 2020. They've made that commitment through June 30th which is the time period in which the feds have extended the national emergency. So we'll continue to monitor if the feds will make that commitment beyond June 30th, but for right now they've stood up a really good response to help support those additional costs of recurring. Speaker 7: (28:00) Oh, thank you for that. And Josh, I was hoping to ask you a question about the numbers that came out last night for nursing homes and assisted living facilities. I saw that there weren't any numbers regarding the number of deaths in assisted living facilities and I wondered why. And also is the administration looking at other senior living facilities? There's things out there like independent living, active adult communities, these continuing care communities. Are you guys monitoring any kind of COVID outbreaks in those places as well? Josh: (28:33) Yeah. Our team at the Department of Public Health is in contact with a wide variety of facilities, including the ones you mentioned. With regards to the data last night that we reported for the first time on assisted living facilities, we do intend to report deaths in the future. The team was not able to get that data together. This was the first time pulling that report together and just ran of time for this week. But we expect to be able to include that next week. But we're pleased to be able to get out some data. I think it's a first, I'm not sure of other states that are reporting any data in this regard. So it's a start, but we'll add to it in the coming weeks. Speaker 7: (29:10) And are they on the morning call, assisted livings, or is that mostly just with the nursing homes in terms of asking if they need supplies and [crosstalk 00:29:19]? Josh: (29:20) Yeah, so it's both. And as the governor issued an executive order now a couple of weeks ago mandating assisted living facilities also report to the state with their status, their statistics and any needs that they have from mutual aid perspective. Josh: (29:35) Thank you. Speaker 6: (29:38) News 12 Connecticut. Speaker 9: (29:43) Hi governor. So given the dire STF projections, is it time to revisit the tolls discussion? Ned Lamont: (29:52) I think I'm going to work collaboratively with the legislature to see what we can do about our special transportation fund. We've got a year to do it and we ought do it right and we ought to do it together. Speaker 10: (30:02) So if we're not talking tolls, what's your appetite for increased borrowing to shore up the fund? Ned Lamont: (30:12) Look, my appetite is insatiable, but there's only so much revenue. We've seen our revenue in the general fund go down dramatically. So there's no capacity to just bond and bond and bond more. There's surely no capacity to take it from the Rainy Day Fund so going to have to work with the transportation chairs to come up with some alternatives. But we've got to solve it. Speaker 10: (30:34) What do you envision those being though? Ned Lamont: (30:37) Well, I think you have an idea of what I thought was appropriate. We had a good discussion about that at some length. Obviously, other states they're not looking at totaling of trucks or otherwise. Some are looking at gasoline taxes and given the low price of gasoline. Let me hear the ideas from the Legislature, good constructive ideas. I'm ready to work with people on this to get it done. Speaker 10: (31:01) So correct me if I'm wrong, Governor, but it sounds like you might be hinting at considering a gas tax increase. I just want to pin you down on that. Ned Lamont: (31:12) No, I mean, I didn't like it last time because Connecticut paid 95% of that as opposed to the other alternative where Connecticut paid a lot less of that. But, look, we're going to sit down and discuss this. This is one of those problems that we just can't afford to keep kicking, kicking, kicking down the road and we'll solve it in the upcoming legislative session. Speaker 11: (31:35) [Osato 00:31:35] Media. Speaker 12: (31:46) Hi, everyone. Governor Lamont, there are thousands of people concerned about the unemployment rate at this moment and unsure if they will find employment. And there will also be new professionals that will be hunting for jobs plus the deficit and the struggles that the COVID-19 is leaving to the state. How is the state of Connecticut going to handle the job market? Ned Lamont: (32:13) I think that's a really good question, in this sense. I think post-COVID the job market will be very different and we're going to be making sure people are trained for the jobs that are out there. I think public health is going to take on a whole new dimension. Up until three months ago, we had an amazing shortage, an incredible shortage, a big shortage of folks in manufacturing. We're training people up for that. We'll see how this sorts out over the course of the next six months and make sure that our Workforce Development Team led by Garrett Moran is training people for the jobs that are out there. It'll be a changing marketplace. Speaker 12: (33:02) One more question, Governor. So that means that Connecticut is going to follow the steps of New York and in the tracing and the strategy to hire professionals to find out if any other people are getting infected and that way maybe create jobs in the health industry for young professionals in that area? Ned Lamont: (33:26) Well, we are surely going to be doing track and tracing. We're doing that right now. We're doing that with volunteers. Josh and our team are ramping up right now going out to other public health folks, some in public health schools, seeing if we can get them allied with our Public Health Department spread around the state and ramp up our track and trace. I think we're doing that in a big way in time for May 20th as we selectively start opening our businesses Melissa McCaw: (33:56) And Governor, and thank you for the question, a lot of the steps that the federal government has taken the idea is to help bridge the loss for businesses so that they are ready to reopen and rehire. Coupled with the Bridge Recovery Program that Commissioner Lehman has rolled out, we are hopeful that, that will allow businesses to open and to rehire. When you couple that with the work that is underway by Garrett Moran, that the Governor references, there's always an opportunity to evaluate the market and the extent to which new jobs or new demand for jobs such as in the healthcare industry becomes available and how the state can be a part of that solution. But I think what's unique about this particular downturn is the response the feds have made and that is really to bridge the time and bridge some of those losses for businesses so that they're able to reopen and to rebound. And so obviously we will continue to monitor that and that will directly impact the ability for individuals to become gainfully reemployed but also the State's revenue estimates. Speaker 11: (34:59) Channel Three Eyewitness News. Speaker 14: (35:03) All right. Thank you. Thank you, I had a couple of questions. One, you had mentioned earlier that the Rainy Day Fund will be very helpful in this case, and we have one of the highest in the country, that you don't want to raise taxes but a certain tax relief because of revenue changes. Can you be specific on maybe exactly some of those specifics and also deficit mitigation, what's some of the things you may have to look at to try to put it all together? Melissa McCaw: (35:32) So, I'll give you an example, but out of respect for our Legislature leader- ....