Connecticut ranked second to last among all the states for its outstanding debts, which amount to $50,700 per taxpayer, according to an annual accounting of state debt by Truth in Accounting, a Chicago-based nonprofit organization.
Although the report notes that Connecticut’s overall financial picture had improved with increased revenues and declining debt, the state’s outstanding debt amounted to $68.6 billion. Most of that debt, roughly $57 billion, came from pension and retirement health benefits for state employees and teachers, while bonded debt made up $34.9 billion.
According to TIA’s calculations, Connecticut has $91.4 billion in total debt and $22.8 billion in assets, leaving taxpayers on the hook for $50,700 and making Connecticut a “sinkhole state,” ahead of only New Jersey in their report.
“Connecticut continues to face challenges as fixed costs and debt service related to state pensions and retirement healthcare systems represent a growing share of the state budget,” the report says. “In 2022, the state’s major pension systems saw a negative return of 7.63 percent. The result was an increase in pension debt, which caused a deterioration in its financial condition.”
The report outlining Connecticut’s debt was based on 2022 figures, but Connecticut has made headway on that debt as the state continues to use surplus revenue from Wall Street earnings to pay down pension debts and free up more money in annual budgets due to lower annually required contributions to service that debt.
In their 2021 annual report, TIA found Connecticut’s total taxpayer burden to be $79.5 billion, amounting to $62,500 per taxpayer, meaning Connecticut has shaved more than $10 billion from its total debt in two years.
Much of that is attributable to the fiscal guardrails established by the 2017 budget, which filled Connecticut’s rainy day fund, transferred billions to pay down Connecticut’s pension debts and capped bonding. Connecticut has also been contributing more toward retiree healthcare that, combined with some accounting changes, resulted in a decrease of $4 billion between 2021 and 2022.
Connecticut’s retiree healthcare debt also decreased by another $4 billion, according to the state’s 2023 financial report. TIA’s report is based on 2022 numbers and the 2023 financial reports for Connecticut’s pension funds, which will include more of the state’s paydown, have not yet been released.
Connecticut’s top government leaders and lawmakers have continually expressed the need to maintain the fiscal guardrails set by the 2017 budget, including Gov. Ned Lamont, Comptroller Sean Scanlon and House Speaker Matthew Ritter, D-Hartford. The General Assembly voted in 2023 to extend those fiscal guardrails another five years.
Comptroller Scanlon recently announced Connecticut will pay down another $1.8 billion in pension debt following the conclusion of the 2023 fiscal year and attributed the state’s financial improvements to the fiscal guardrails. Connecticut has paid down more than $5 billion in pension debt since 2021.
“The fiscal reforms we enacted in 2017 and extended this year have turned Connecticut’s fiscal health around and have enabled us to pay down historic amounts of pension debt while also cutting taxes and funding vital services,” Scanlon said in a press release. “What we’ve been doing is working, and it is this continued thoughtful fiscal planning and discipline that will empower our state, our residents, and our businesses to thrive.”
Scanlon projects that Connecticut is on track for another budget surplus in 2024 of $284 million, although revenue from Wall Street earnings appear to be slowing, dropping by 14.1 percent compared to the same time period last year. Overall, the General Fund surplus is projected to be roughly half of 2023’s surplus at this point.
Department of Revenue Services Commissioner Mark Boughton and chair of the General Assembly’s Finance, Revenue and Bonding Committee Rep. Maria Horn, D-Salisbury, indicated last week that Connecticut revenue could be coming in for a “soft landing,” and indicated the Lamont administration is looking to craft an overall tax policy to guide tax changes made in the future.
Both Boughton and Horn urged caution in making any sweeping tax changes. Connecticut is currently bolstered by a reserve fund totaling more than $3 billion meant to supplant revenue losses in the event of a recession.
Overall, the financial picture for states across the country improved over the last year, with debt dropping from $1.2 trillion to $938.6 billion, according to TIA, which they attributed to tax revenue increases following the COVID-19 lockdown and billions in COVID assistance from the federal government.
Alaska, North Dakota and Wyoming occupied the top three spots in TIA’s report with taxpayer surpluses, while Illinois, Connecticut and New Jersey occupied the bottom three positions with the most taxpayer debt.