Despite projections showing the State of Connecticut will take in billions in surplus revenue between now and 2030 that will be used to pay down the state’s pension debts, the latest fiscal accountability report from the Office of Fiscal Analysis shows Connecticut’s fixed costs will also continue to rise by billions.

Between this fiscal year and 2030, Connecticut’s fixed costs – which include pensions, retiree healthcare, Medicaid, and debt payments – will grow by $2.1 billion, with most of the increase coming from a $1.2 billion increase in the cost of Medicaid, driving fixed costs to consume nearly 54 percent of the budget.

Debt service payments are projected to grow by $500 million; state employee pension and retiree health costs are projected to grow by $450 million, and teacher pension payments are projected to decrease by $120 million. 

To date, Connecticut has paid down more than $8 billion in state employee and teacher pension debt through the state’s volatility cap, which uses surplus revenue related to Wall Street earnings to fill up the state’s reserve fund and then pay down unfunded pension liabilities. While those pay downs have successfully saved the state hundreds of millions per year in annual pension payments, the cost of healthcare for state retirees, which is projected to increase by 11.4 percent, continues to drive those costs for state employee retirement benefits higher.

However, it is Medicaid that presents the largest growth in fixed costs. Medicaid represents 70 percent of fixed cost “entitlements” that also include Community Residential Services, accounting for 17 percent of entitlement costs.

According to the report, Connecticut continues to face an $80 million Medicaid shortfall this year despite Gov. Ned Lamont having to declare a spending cap emergency during the 2025 legislative session so the General Assembly could approve an additional $466 million in spending, including $284 million for Medicaid.

The $80 million shortfall is “primarily driven by higher than budgeted hospital and pharmacy costs,” and increased costs due to the “anticipated expiration of enhanced federal subsidies,” according to the OFA.

However, Connecticut’s Medicaid costs could increase more, according to the report, but analysts are unable at this time to make projections because of continuing debate in Congress over the continuing resolution to fund the federal government following an extended shutdown. Part of the deal to reopen the government includes the Senate taking up a bill to continue COVID-era enhanced subsidies and eligibility for Affordable Care Act health plans. Although the Senate will purportedly take the bill up for debate, there is little guarantee it will be taken up in the House of Representatives.

“These changes primarily impact eligibility for and the administration of Medicaid and SNAP. The majority of the provisions and their associated impact on the state budget are not captured in these projections due to uncertainty while states await additional federal guidance,” the OFA wrote in its report. “Many components of the law are not effective until 1/1/27 and beyond, including Medicaid work requirements, more frequent eligibility determinations, and cost sharing. The state may also be required to cover a percentage of SNAP benefits beginning in FY 28, which are currently fully federally funded.”

Gov. Lamont signed another declaration of “extraordinary circumstances” in November so that the General Assembly could set aside $500 million as a hedge against future federal funding cuts during special session, with most of the concern surrounding the future of Medicaid and SNAP benefits under the One Big Beautiful Bill Act.

“Programs that support some of the most basic needs of our state’s residents – such as healthcare, childcare, home heating assistance, and food and nutrition assistance – are at risk because of volatility being caused by the Trump administration and Congressional Republicans,” Lamont said in a press release. “Many states are confronting this instability being caused by our federal government, and here in Connecticut we will stand with our most vulnerable residents to ensure they have the basic support and assistance they need.”

Connecticut continues to maintain a full rainy day fund of $4.1 billion, which is projected to grow to $4.8 billion by 2030. The rainy day fund exists for emergencies, primarily recessions, and a stress test by the OFA shows Connecticut has enough “recession protection” to weather a median-sized recession, and almost enough to get through a recession on the scale of the 2008 Great Recession.

The OFA also projects billions more in pension debt payoffs, calculating roughly $5.8 billion more in paydown between 2026 and 2030, which will further decrease the annually required contributions. 

The fiscal accountability report found that Connecticut’s revenue growth will continue to outpace its expenditure growth, including growth in non-fixed costs under a new methodology meant to better reflect future finances. 

According to the report, the estimates on non-fixed cost growth include new wage contracts currently being negotiated between the State Employees Bargaining Agent Coalition and the Lamont administration, and wages for private providers contracted by the state, totaling $881 million between 2028 and 2030.

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