NEW YORK, Jan 30 (Reuters) - Connecticut Governor Dannel Malloy proposed Thursday to use a surplus in the state’s budget to boost the rainy day fund, pay into depleted pension funds and provide modest tax relief to state residents.
Malloy, a Democrat, said he would introduce legislation to ensure that future surpluses were used for these three aims as he tries to keep the state’s economy and finances on track.
“Connecticut has faced more than its share of challenges over the last few years. Now that things are beginning to improve, it’s critical that everyone shares in the recovery,” he said in a statement.
The state currently estimates a surplus of $505 million in the present financial year. Malloy proposes using that to boost the rainy day fund by $250 million, to $520 million.
The rainy day fund was almost completely depleted during the financial crisis and recession, which hit Connecticut particularly hard due to its exposure to the financial, and defense and aerospace industries.
The governor also wants to increase the legal maximum of the rainy day fund from 10 percent to 15 percent of state revenue.
Connecticut was the only state whose economy shrank in 2012, the last year for which data is available. Economists at TD Economics expect the state’s economy to expand just 1.6 percent this year, a full percentage point below the national rate.
The rainy day fund, together with high pension liabilities, has worried investors who buy the state’s debt. Connecticut’s borrowing costs are about 0.3 percentage point above top-rated U.S. municipalities. That spread puts the state among the 10 states paying the most to borrow money.
Malloy also wants to use $100 million of the surplus to pay into the state’s pension system, which is one of the worst-funded in the country, with about 42 percent of the assets needed to meet obligations, according to actuarial numbers.
The governor, who faces re-election in November, also wants to return $155 million to tax payers in the form of a gas and sales tax refund that he says will return $55 to taxpayers earning less that $200,000 and $110 to joint filers earning less than $400,000.