Connecticut

State Fiscal Briefs

March 2020

Connecticut’s budget basics

According to the National Association of State Budget Officers (NASBO), Connecticut’s total expenditures in fiscal year (FY) 2019 were $34.1 billion, including general funds, other state funds, bonds, and federal funds. NASBO reported that total expenditures across all states in FY 2019 were $2.1 trillion, ranging from $4.5 billion in South Dakota to $311.3 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 $33.9 billion in FY 2017 (the most recent year census data were available), or $9,490 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 $9,449.

Connecticut’s largest spending areas per capita were elementary and secondary education ($2,618) and public welfare ($1,068). 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 $40.9 billion in FY 2017, or $11,442 per capita. National per capita general revenues were $9,573. Connecticut uses all major state and local taxes. Connecticut’s largest sources of per capita revenue were property taxes ($3,020) and federal transfers ($2,266).

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 (90 Democrats to 59 Republicans) and Senate (22 Democrats to 14 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 2020 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’s proposed FY 2020–21 budget subjected more goods and services subject to the state’s general sales tax, introduced a new tax on sugar-sweetened beverages, and increased tolling on roads to pay for transportation projects. The governor also highlighted elevating the state’s minimum wage to $15 an hour and creating a paid family leave program in his 2019 state of the state address.

The legislature passed its budget in June 2019. Included in the tax changes were a more modest expansion of the sales tax base than the governor proposed and a “mansion tax” of 2.25 percent on property sales exceeding $2.5 million. In separate legislation, the legislature approved a $15 an hour minimum wage and required the wage to increase annually with the federal employment cost index. The legislature also established a new paid family-leave system (SB 1) that will provide 12 weeks of leave to parents of newborn and adopted children and to the family of seriously ill relatives. The program is funded by a 0.5 percent payroll tax on all Connecticut employees.

Governor Lamont released his proposed FY 2021 budget adjustments and gave his 2020 state of the state address in February 2020.

For more on Connecticut’s budget, see