Connecticut has paid down more than $8 billion in its accumulated state employee (SERS) and teacher (CTRB) pension debt through the state’s fiscal guardrails, and that payoff will translate to $18.5 billion in annual payment (ADEC) savings and interest by 2049, according to a report newly released to Connecticut Comptroller Sean Scanlon.

“In summary for SERS, the total amounts transferred to SERS total $5.61 billion but will result in a reduction to the total ADECs through fiscal year ending 2049 of $11.93 billion,” the report by CavMac said. “For CTRB, the total amounts transferred to CTRB total $3.05 billion but will result in a reduction to the total ADECs through fiscal year ending 2049 of $6.49 billion.”

According to the audit firm, Connecticut taxpayers will be saving $737 million from the pension debt payoff in 2024 and, without further pay downs, those savings add up to more than $18 billion by 2049, the date Connecticut is projected to completely pay down the debt that has previously wreaked havoc with Connecticut’s budget.

The pension pay-downs are part of the 2017 “fiscal guardrails” put in place under the bipartisan budget agreement in 2017; the state transfers volatile surplus tax revenue from income taxes related to Wall Street earnings to the state’s rainy day fund and when that is full – which it has been for several years – the money is instead used to pay down the pension debt, which topped out at $22.2 billion for SERS in 2019 with a funding ration of only 32 percent, and $18 billion for CTRB in 2020, with only 51 percent funding ratio.

As of the latest pension valuations for 2024, SERS is now 55.2 percent funded with 19.1 billion in debt, and CTRB is 62.3 percent funded with $15.9 billion in unfunded liabilities. Although Connecticut has put more than $8 billion into the pension pay-downs, factors such as market performance, interest, inflation, salaries, mortality, and the number of new and retiring employees affect the overall totals.

According to the valuations, Connecticut’s annual payment toward SERS – the vast majority of which is to pay down the debt – will be reduced from $2.04 billion paid in fiscal year 2024 to $2.01 billion this fiscal year, and then an estimated $1.98 billion next fiscal year. 

For teacher pensions, however, the annual payment will actually increase from $1.6 billion to $1.65 billion, according to the latest valuation. 

A policy report from the Yankee Institute and Reason Foundation determined that if Connecticut continues making supplemental payments toward its pension debt, the state could potentially pay off the debt entirely a decade early, saving more than $6 billion in payments and interest costs, and argues for maintaining the fiscal guardrails.

“The fiscal guardrails have reversed decades of pension underfunding, improving Connecticut’s creditworthiness and financial stability,” the Yankee Institute/Reason report said. “This stronger financial position reduces the risk of future tax increases and allows for responsible tax reforms or increased social spending. Therefore, keeping the fiscal guardrails intact is a responsible fiscal policy that benefits the state’s employees, residents, businesses and taxpayers.”

Despite Connecticut saving hundreds of millions per year in annually required contributions and continuing to bring in surplus revenue, Connecticut is facing budgetary pressure once again as the very same fiscal guardrails that paid down the pension debt, are also limiting how much of that surplus revenue legislators can spend.

Connecticut is on track for a $1.4 billion surplus this fiscal year, followed by $1.2 billion surpluses in each of the next two fiscal years, according to the latest revenue forecasts, but most of that will go toward the volatility transfer, leaving the General Assembly with a more modest $71.2 million, according to consensus revenue numbers. 

Rising Medicaid costs, a higher education system whose representatives are clamoring for increased funding, the exhaustion of federal COVID dollars, and mounting pressure by municipalities for more education funding — combined with major state employee union contract negotiations on the horizon — means a lot of hands out and not much to go around, spurring calls by some Democrats, municipalities, and left-leaning policy organizations to adjust Connecticut’s fiscal guardrails to allow more spending of surplus revenue. 

General Assembly Republicans, however, have pushed back on this idea, and Gov. Ned Lamont and Comptroller Sean Scanlon have, to date, continued to tout the benefits of the fiscal controls, while acknowledging a need to balance fiscal stability with “current needs.”

“With easing inflation, solid wage growth, and our lowest unemployment rate since 2001, Connecticut is well-positioned to continue our fiscal and economic growth,” Scanlon said in a press release. “As we prepare for the next legislative session and biennium budget, our state must continue finding a balance between fiscal responsibility and addressing current needs.”

“Our revenues remain strong in virtually every area, reflecting that Connecticut’s economy is growing, thanks to low levels of unemployment and businesses moving and expanding across our state,” said Lamont’s budget chief Jeffrey Beckham in a press release. “Governor Lamont has made clear that he wants to help our families and businesses succeed, addressing the needs they have, while ensuring our state’s long-term financial health. As we develop the governor’s budget for fiscal years 2026 and 2027, we are listening carefully to the needs of our families and businesses to understand how we can best secure their futures.”

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