The Connecticut Office of Fiscal Analysis (OFA) released a report on projected budget surpluses and one thing is clear: there is a lot of volatility in the economy.
“I can’t recall an economic environment that’s as dynamic as this one,” Don Klepper-Smith said. “If you don’t like what you see, you wait a day, and it can change, and it often does… I think this is one of the more challenging environments because of the economic volatility and the pending cuts that we’re seeing at the federal level. Everything, I think, is very much in flux.”
Klepper-Smith is the chief economist at Datacore Consulting. He was also the Chair of the Governor’s Council of Economic Advisors under Gov. M. Jodi Rell.
Currently, the OFA is predicting an operating surplus of almost $230 million within the General and Special Transportation Funds by the end of the current fiscal year. Of this $230 surplus, more than $226 million will come from the General Fund. The surplus from the General Fund will be transferred to the Early Childhood Education Endowment Fund, which was established this legislative session.
Projections have changed dramatically since last month. The projected surplus from the General Fund decreased by more than $221 million and $137 million from the Transportation Fund. These changes are due to different laws that were passed in the most recent legislative session and revisions to volatile revenue calculations.
“New carry forward authorizations in (FY 26027 Biennium Budget) are reflected as increased expenditures and reduce the projected lapse in various accounts by approximately $262.7 million in total, thus negatively impacting the projected FY 25 surplus,” OFA wrote in its report. “Partially offsetting this projected spending increase are significant downward adjustments to projected spending in other areas such as: 1): an $18.7 million downward adjustment to the debt service; 2) a $17.9 million downward adjustment to the Adjudicated Claims line item in the State Comptroller’s budget; and 3) a downward adjustment of $28.1 million (net) among various other updates,” OFA’s report states.
One of the largest changes was the estimated cost of the Teachers’ Retirement System, which the OFA now estimates will cost $150 million more than it expected last month.
“The unfunded pension liabilities that we have, both in education and in state workers, I think, represent an albatross around the necks of Connecticut taxpayers,” Klepper-Smith said. “This is something that’s been going on for many years, and I think that at some point it needs to be addressed, because right now, Connecticut has consistently ranked in the bottom quintile for business competitiveness.”
A study from WalletHub found that, out of all the states in the country, Connecticut was the second-worst place to start a business in 2025. A different report from the Tax Foundation found that Connecticut was the 47 worst state for business tax climate, which was a repeat finding. And recently, on Tuesday, June 24, Moody’s downgraded Connecticut Light & Power’s (CL&P) credit rating, because of the state’s regulations, which it dubbed “the least credit supportive utility regulatory environment in the US.”
Scribd
Klepper-Smith estimates there is a 70% chance of a recession in the next year.
In Connecticut, around 20% of the state and local dollars come from the federal government. So, what happens on the federal level will “set the table” for what happens in the state, he said. As of its most recent report, the OFA is expecting a $13 million increase in federal grants for the General Fund and a $3 million decrease in federal grants for the General Transportation Fund.
“The fiscal situation here in Connecticut and across many England states is tenuous, and I think what we’re finding here is that the federal cuts that are pending across many of the New England states… The second half of the year, I think is poised to be one that’s going to offer tough sledding.,” Klepper-Smith said. He went on to say, “Looking at what the situation here is at the state level, the budget assumptions for continued economic growth, I think, have to be reassessed.”
Was this article helpful?
Republish our articles for free, online or in print, under a Creative Commons license.
