CT’s budget safety net is growing as other states’ shrink
Despite redirecting state budget surplus money to bolster childcare, municipal aid and federal human services programs under the knife, Connecticut still boasts one of the most robust emergency reserves in the nation, according to a new analysis from The Pew Charitable Trusts.
And while many states’ rainy day funds are declining, Connecticut’s continues to grow, despite a struggling economy.
When the last fiscal year closed on June 30, the median state had enough reserves to run for 47.9 days, Pew analysts wrote, citing data from the National Association of State Budget Officers. That’s down from 49.1 days following fiscal 2025 and 54.5 days after 2024.
“Although rainy day fund levels are still high compared with before the [COVID] pandemic, policymakers are navigating sluggish tax collections, growing spending pressures and decreased aid from the federal government,” wrote Pew staffers Justin Theale and Page Forrest.
But despite those trends, Connecticut’s state government could operate for 68.6 days on the nearly $4.5 billion it held on June 30, eight days longer than its surplus operating capacity two years ago.
That’s more than 40% greater than the national median and ranks 11th highest among all states. Connecticut’s $4.5 billion represents 18% of annual operating expenses, the maximum allowed by state law.
“Families set aside money for emergencies so that an unexpected expense doesn’t force difficult budget choices. State government should take the same approach,” Gov. Ned Lamont’s budget spokesman, Chris Collibee, said Friday.
States chiefly tap their rainy day funds during a recession or other severe economic downturn, using those saved dollars to temporarily replace eroding tax receipts and spare key programs such as health care and education from deep cuts.
“This [budget reserve] gives residents and businesses greater confidence that their state will be there to help protect essential services when they need it,” Collibee added.
While nearly all states have exhausted the billions in American Rescue Plan Act funds Congress awarded them in 2021 to recover from the pandemic, Connecticut also continues to impose aggressive budget caps that have forced surpluses averaging $1.8 billion, more than 8% of annual operating expenses, since 2017.
Those surpluses initially built a miniscule reserve into a record-setting one, but they mainly have been used to shrink the Connecticut’s hefty pension debt, a $30 billion-plus problem that still drains resources from other programs. About $11 billion in unfunded liabilities has been eliminated since 2020 because of surplus alone.
Connecticut could accommodate those surpluses more easily when it was awash in federal pandemic grants, which could be spent outside of the traditional budget process and replace much of the savings forced by fiscal caps.
But as those grants dwindled in recent years, Connecticut legislature’s Democratic majority has pressured Lamont to redirect some of that savings to respond to several issues.
Acknowledging a dearth of affordable childcare program slots statewide, the governor and lawmakers have invested $712 million in potential surplus over the past two years into a childcare expansion program.
Another $550 million was set aside to bolster federal human services programs cut by Congress and President Donald Trump.
And more than $280 million went to cities and towns this past summer to help communities avert property tax increases.
Lamont, a fiscally moderate Democrat, initially had been reluctant to modify budget caps and savings efforts.
But House Speaker Matt Ritter, D-Hartford, brokered a compromise in 2024. Connecticut would shift some potential surplus to protect key programs, but it also would increase its maximum allowable rainy day fund from 15% of annual operating expenses to 18% to guard against future recessions.
Ritter has predicted legislators will look to make more adjustments to budget caps over the next two years, with changes depending heavily on whether Washington continues its present course of cutting human services funding and aid to states.
But he also said lawmakers also want to continue to pay down pension debt at a healthy pace, though not as aggressively as they did during the early 2020s, while continuing to invest more in education, affordable childcare and municipal aid.
“Nobody is opposed to paying down pension debt,” he said. “The question is to what degree.”
