New reports indicate that Connecticut’s significant savings program could keep the state’s finances in the black for at least five more years, despite no longer setting budget surplus records.
Projections from both Gov. Ned Lamont’s budget office and the legislature’s Office of Fiscal Analysis suggest that revenues will outpace debt payments and fixed costs. This positive trend, partly due to $7.7 billion in surplus transfers to pension funds since 2020, is expected to continue through 2028, albeit at a slower pace.
Even in an economic downturn, Connecticut could have a nearly $4 billion rainy day fund, its largest ever, equal to 17% of the General Fund by next fall. However, controlling costs in non-fixed areas, such as education, healthcare, social services, and town aid, will be crucial to maintaining these forecasts.
While the reports provide optimism for Connecticut’s financial future, challenges still remain. The spending cap and fiscal guardrails prioritize savings, but may not address pressing needs in core programs, especially after the COVID-19 pandemic. Legislators will face debates over cap flexibility to balance savings and essential services.
“There’ll be push and shove coming and that’s what happens every two years,” Lamont said. “That’s why I’m here.”
He credits the guardrails — including a spending cap, a volatility cap that dictates that excess revenue from unstable revenue streams to the budget reserve and then to pensions, and a revenue cap that limits state spending in order to create a surplus — with helping Connecticut right the ship financially.
The budget, which passed with broad bipartisan support, includes the largest income tax cut in state history and spending increases of nearly $900 million each year. Still, the nonpartisan Office of Fiscal Analysis projects a $615.4 million surplus next fiscal year, and $368 the following year.
“I’m not the only guy in this building that has to sometimes say ‘no,’” Lamont has said in support of the fiscal restraints.
Republicans, too, have been quick to praise the guardrails, which were first put in place during bipartisan budget negotiations in 2017.
Senate Republican Leader Kevin Kelly emphasized the importance of the guardrails, saying “Simply put: the guardrails are working. They alone provide the path for Connecticut to climb out of being the highest-taxed state per capita while forcing politicians to set priorities and make tough choices. We must stay within the spending cap and within our means. Connecticut Republicans will continue to push back on attempts by the majority to dismantle the spending caps and budgetary guardrails that have helped create our current surplus and reduce debt.”
Despite the positive budget outlook, interest groups argue that Connecticut should prioritize investments in social and human services to benefit those in need.
“Connecticut’s positive budget outlook is an opportunity to invest in the people who depend on social and human services provided by nonprofits. It’s also compelling evidence that those investments can be sustained,” President and CEO of CT Community Nonprofit Alliance Gian-Carl Casa said.