At the Office of the State Comptroller’s (OSC) Fiscal Year 2025 Review, Comptroller Sean Scanlon had one message about Connecticut’s economy: it’s complicated.
“(Things are) uncertain,” Scanlon said at the review session, which took place on Monday, Oct. 6. “There are… some really good signs and then there are some really concerning signs. It’s a strange economy.”
Some of the positive trends are happening in the economy include: Connecticut had an operating surplus of $410 million this year, and this is the eighth year in a row that the state ended with an operating surplus; around $750 million was saved in the general fund this year; the state will spend $110 million to pay down pension liabilities; and unemployment remains low.
“While we continue to monitor what is happening closely with the market and with the economy, I would just say that our fiscal progress is continuing,” Scanlon said. “We continue to see strong revenue collection here in the state, we continue to see strong economic indicators like the recent news we got last week on our GDP (Gross Domestic Product).”
At the start of the month, the OSC released a report that found that Connecticut’s real GDP increased by 4.2% in the second quarter of the fiscal year, outpacing the national average. Much of this growth was driven by the manufacturing industry.
“We’re seeing growth that we have not seen in some time here in the state of Connecticut,” Scanlon said. “I think we are moving in the right direction, but there are a bit of warning signs ahead that we continue to monitor.”
Those “warning signs” include inflation, slow job growth, the future impact of tariffs, and instability on Wall Street, Scanlon said.
OSC’s report for the fiscal year 2025 states that the central bank has a target of only 2% inflation rate; in the last year, inflation hovered between 2.5% and 3%, and, as of July, was at 2.9%. In Connecticut, only 12,000 jobs were added to the labor force in the past year.
On top of that, the price of housing and mortgage rates have increased, the cost of living is also up, and the state’s expenditures were $740 million higher than its budget for this year, OSC’s Director of Policy and Legislative Affairs Anthony Naples mentioned in the review.
The largest expense increase in the last year was Medicaid. The state spent $225 million, or 7%, more on Medicaid programs than the previous year, primarily because of “higher-than-expected” caseloads, Naples said.
Medicaid will likely get more expensive in the future. If the Medicaid reforms in the One Big Beautiful Bill Act (OBBB) go through, states will be responsible for enforcing a work requirement. This will require Connecticut to create a new system to track how many hours people work, volunteer, or pursue an education every month.
Earlier this year, the OSC estimated that the new Medicaid provisions in the OBBB, combined with the expiration of the Affordable Care Act (ACA) Enhanced Premium Tax Credits, could cost the state between $20 and $50 million, largely because of the expenses involved in implementing the work requirement.
In D.C., Democrats and Republicans are having a showdown over these ACA credits and portions of the OBBB related to health care, which has caused the government shutdown. Democrats refuse to approve a continuing resolution that would keep the government open unless Republicans agree to extend the ACA tax credits. The open enrollment period for Access Health CT begins on Nov. 1, and around 90% of people enrolled in Access Health utilize these tax credits.
President Donald Trump has threatened mass layoffs if the shutdown continues. That poses another set of problems for the state.
“If the layoffs tick up and people stop spending, because they worry about losing their job, we could see some really significant changes to our economy and an economic downturn that would bring us closer to a recession,” Scanlon said. “That obviously would be a jeopardizing factor for some of the progress that we’ve made.”
Shortly before OSC’s Fiscal Year 2025 Review, Senator Richard Blumenthal announced that he was flying back to D.C. to negotiate a continuing resolution to end the shutdown.
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