Connecticut is still on track to have a budget surplus, even though stipulations in the One Big Beautiful Bill Act (OBBA) have dramatically changed the state’s sources of revenue and financial responsibilities.

“Despite us seeing substantial, over $100 million, loss of revenue [this month] because of that tax change coming from Washington and because our Medicaid program is in deficiency, we’re spending more money than we budgeted for,” State Comptroller Sean Scanlon said during the Economic Update he issued on Dec. 1. “We still are on course to have a surplus at the end of this budget.”

The “tax changes” that Scanlon referenced have to do with corporate taxes. Specifically, the OBBBA repealed a bill that made corporations amortize domestic research and development costs over five years. Now, companies can expense the cost of research and development immediately.

In a presentation given during a news brief on Monday, Office of the State Comptroller (OSC) Economist Michelle Parlos explained that anticipated corporate tax revenue has been revised downward from $186.9 million to $136.9 million because of the impact of the OBBBA. On top of that, the estimated revenue was revised down by an additional $50 million because of underperformance.

Another provision in the OBBBA requires state officials to implement work requirements as a prerequisite for Medicaid, and institute systems to ensure that Medicaid recipients are residing in the United States legally before giving them Medicaid. These new regulations coincide with the sunset of the Affordable Care Act (ACA) enhanced premium health care subsidies that were introduced during the pandemic.

State officials are now predicting a $164.4 million budget surplus in the General Fund and a $43.7 million surplus in the Special Transportation Fund at the end of Fiscal Year 2026, according to the monthly Economic Update from the OSC.

“The change that the Big Beautiful Bill made allows the [Corporation Tax] phase-in to essentially go out, and instead of us observing the revenue loss through the corporate tax over a course of several years, it’s hitting us all at one time, and therefore, you had a big change this… month that is a significant hit to our budget,” Scanlon said. “The reason why it is not damaging to us, along with the Medicaid increase, where we see an $80 million overage, for lack of a better way to describe it, of our Medicaid program, is that we’re seeing growth in other revenue sources.”

Withholding and Sales Tax revenue were revised upwards by $76 million, Parlos reported.

Economists have also been going back and forth on whether or not a recession is on the horizon. In October, Scanlon said that the economy was “strange” and that there were “some really good signs” and “some really concerning signs.”

“We have enough money to withstand a classic recession right now, given the state of our rainy day fund,” Scanlon said at the Dec. 1 Economic Update. “But if you paired that recession with other federal changes, I would be concerned that we might not have enough money to survive that without having to make some of the drastic decisions that we made the last time there was a recession in ’08 or ’09.”

There are still many unknowns in this economy. Due to the government shutdown, the state is not expecting to have unemployment and job growth data for the month of October, Parlos said. However, the Job Market report for September should be released on Dec. 11.

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