After projecting a budget deficit last month, the Office of the State Comptroller (OSC) announced on Monday that Connecticut is projected to finish 2026 with a $322.8 million surplus to its General Fund and a $20.3 million surplus to its Special Transportation Fund (STF).
“We’re in a good place,” said State Comptroller Sean Scanlon. “The good news is we’re back to having a quite large projected surplus to end our fiscal year.”
Michelle Parlos, Office of the State Comptroller’s (OSC) economist, explained that this month’s General Fund projections represented a $431.8 million increase since last month’s projection, which expected the fund to face a $109 million deficit. On the other hand, the $20.3 million surplus to the state’s STF represents a $99.4 million decrease from last month’s projections, due to a $100 million transfer to next year’s STF budget, to “help with the balance in that year,” said Parlos.
The state’s one-time adjustment to its Rainy Day Fund’s volatility cap threshold was instrumental in righting the state’s deficit, said Parlos. Since the state enacted strengthened fiscal guardrails in 2017, Lamont has remained relatively recalcitrant on the issue of adjusting the volatility cap threshold, which dictates how much surplus revenue gets used to pay down the state’s pension debts. Last summer, in the face of imminent federal funding cuts resulting from Trump’s One Big, Beautiful Bill Act, Lamont changed his tune and called a special session to increase the volatility cap by approximately $800 million.
The volatility cap was adjusted further by the passage of Public Act 26-68 last month, the state’s budget adjustment bill, which increased the threshold by another $813.7 million. The General Fund received an additional $104 million in revenue due to a transfer from the Federal Cuts Response Fund, a $500 million fund created last November to offset federal funding cuts. In spite of these changes to the volatility cap, the OSC projects the state to pay down an additional $1.13 billion towards its pension debts, “due to tax collections tied to the booming stock market,” per the OSC’s monthly report.
Of the additional $813.7 million retained in the General Fund by the state’s volatility cap adjustment, Parlos explained that $103.7 million has been transferred to next year’s budget, and another $50 million has been added to the Federal Cuts Response Fund. Of those remaining funds, Public Act 26-68 allocated $283 million towards education and municipal aid to help offset rising property tax rates, as well as approximately $300 million in additional funding towards the state’s Early Childhood Education Endowment Fund, introduced in 2025.
“So that’s basically how we get to the impact of the budget on the current fiscal year, and it brings Connecticut’s fiscal outlook looking great as we now have a surplus, and we’re able to make a very large investment in the early childhood education endowment,” said Parlos.
Scanlon said that he expects “there will be pressure to increase the volatility cap threshold in the coming years,” due to the state’s recent flirting with budgetary deficits. He spoke in favor of such adjustments, but believes they should be made with a plan.
“I don’t think that one-offs are a good idea,” said Scanlon. “I think that we just need to get on the same page about what we want to see next iteration of these guardrails look like, right? They were created to end a fiscal crisis in 2017. That crisis, in my mind, is over, but there are other crises that are now at the top of mind for elected officials, which is why they’re changing these policies, whether it’s on the spending side or the volatility side.”
Scanlon said he thinks “it’s important to get everybody in the room before the 2027 session, and try to be thoughtful about what we can do,” to adjust the state’s fiscal guardrails going forward.
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