State Fiscal Briefs

November 2021

Looking for Connecticut data related to the pandemic? We have health, economic, and fiscal data on our new tool, How the COVID-19 Pandemic is Transforming State Budgets.

Connecticut’s budget basics

According to the National Association of State Budget Officers (NASBO), Connecticut’s total expenditures in fiscal year (FY) 2020 were $33.9 billion, including general funds, other state funds, bonds, and federal funds. NASBO reported that total expenditures across all states in FY 2020 were $2.3 trillion, ranging from $4.7 billion in Wyoming to $337.7 billion in California.

Each state allocates spending and taxes differently among different levels of governments, and local governments often administer programs with state funds, so combined state and local government data show a more complete picture of individual benefits and contributions when comparing states.

Per the US Census Bureau, Connecticut’s combined state and local direct general expenditures were $34.4 billion in FY 2018 (the most recent year census data were available), or $9,637 per capita. (Census data exclude “business-like” activities such as utilities and transfers between state and local governments.) National per capita direct general expenditures were $9,801.

Connecticut’s largest spending areas per capita were elementary and secondary education ($2,729) and public welfare ($1,090). The Census Bureau includes most Medicaid spending in public welfare but also allocates some of it to public hospitals. Per capita spending is useful for state comparisons but is an incomplete metric because it doesn’t provide any information about a state’s demographics, policy decisions, administrative procedures, or residents’ choices.

Connecticut’s combined state and local general revenues were $43.7 billion in FY 2018, or $12,239 per capita. National per capita general revenues were $10,071. Connecticut uses all major state and local taxes. Connecticut’s largest sources of per capita revenue were property taxes ($3,107) and individual income taxes ($2,725).

Connecticut’s politics

Governor Ned Lamont, a Democrat, was elected in 2018 with 49 percent of the vote. The next gubernatorial election is in 2022.

Democrats control both the House of Representatives (97 Democrats to 54 Republicans) and Senate (24 Democrats to 12 Republicans). Control of the governor’s mansion and each house of the legislature gives Democrats a trifecta in Connecticut. The entire legislature is up for election in 2022 because both representatives and senators serve two-year terms.

Connecticut’s budget institutions, rules, and constraints

Connecticut uses a biennial budget. The legislature must pass a balanced budget, but it can carry a deficit into the following year. State spending growth is limited further by the average growth in personal income. The rule is binding and thus requires a legislative supermajority or vote of the people to override it. However, the state does not have any supermajority requirements for raising revenue or passing a budget. On top of these rules, the state limits its authorized debt.

(Note: Some states have informal budget institutions that constrain overall spending growth or a specific expenditure’s growth.)

Connecticut’s recent fiscal debates

  • Connecticut has struggled in recent years with slow revenue growth and legacy costs (e.g., pensions) accounting for an increasingly larger share of its budget. In 2018, however, the state approved a budget with several new fiscal controls, including the following:
    • Strengthening its spending cap so the legislature cannot exceed a specified percentage of the estimated revenues.
    • Enacting a revenue volatility cap that diverts some income tax revenue to the state’s budget reserve fund. Any eligible revenue over $3.15 billion (adjusted annually for personal income growth) is diverted to the fund.
    • Directing unappropriated general fund surplus revenue and savings from the credit revenue bond program toward the budget reserve fund.
    • Enacting a “bond lock law” that promises bondholders the state will comply with certain fiscal controls for the next five years. The legislature can only change the state’s obligations under limited circumstances.
  • Connecticut was one of four states that sued the federal government in 2018 over the new $10,000 cap on deductions for state and local taxes (SALT). Before the Tax Cuts and Jobs Act of 2017 established the cap, Connecticut had the second-highest average deduction, behind only New York. Connecticut also passed a SALT deduction workaround that allows charitable deductions for contributions to funds that provide money for public services, but the Treasury Department and IRS proposed rules to block the strategy. Connecticut, along with New Jersey and New York, is now contesting that ruling in court.
  • A big debate in the state’s 2019 legislative session was over how to raise new tax revenue. Governor Lamont wanted to make more items eligible for Connecticut’s general sales tax, while Democratic legislators (who control both chambers in the state legislature) wanted to increase the state’s tax on capital gains income from 6.99 percent to 8.99 percent. Legislators eventually dropped their proposal and agreed to expand the sales tax to fewer services than the governor originally proposed, including parking, dry cleaning, laundry, and interior design.

Connecticut’s current budget

Governor Lamont released his FY 2021 budget adjustments in February 2020. (Connecticut uses a biennial budget. The FY 2020-2021 biennial budget was enacted in June 2019). The governor’s revised general-fund budget proposed $20 billion in spending for FY 2021, a 1 percent increase from the enacted budget. The governor’s adjustments prioritized expanding economic opportunity, protecting the climate and environment, and optimizing state agency operations.

However, when the Connecticut legislative session ended early because of the COVID-19 pandemic, the budget adjustment legislation (along with nearly all other bills) was dropped. It was also not brought up during a very short special session over the summer. Instead, all fiscal debates were pushed to the next session, when the legislature must enact a new biennial budget.

Governor Lamont released his FY 2022-2023 biennial budget proposal in February 2021 and gave his State of the State address in January 2021. Over the two-year period, the governor’s plan includes $41.7 billion in general fund spending. In his speech, the governor pledged to “fund our critical services without draconian cuts or broad tax increases.” Governor Lamont prefers using the state’s reserves to balance the state’s budget, while many Democrats (who have substantial majorities in both the House and Senate) want to increase income taxes for high earners. However, the governor did propose legalizing and taxing marijuana, legalizing sports betting, and creating a vehicle mileage tax.

For more on Connecticut’s budget, see