Rising Revenues Provide Opportunity to Tackle Affordability 

Connecticut is entering the next legislative session with significantly more fiscal flexibility than previously anticipated, presenting policymakers with an opportunity to make strategic investments, provide meaningful tax relief, and reinforce the fiscal discipline that helped put the state on firmer financial footing. 

The November consensus revenue forecast projects more than $750 million in additional revenue in the current fiscal year and roughly $1 billion in additional revenue over the next biennial budget cycle.

The state is now projected to close the current fiscal year with a $2.65 billion surplus, the second largest in Connecticut history.  

The improved outlook reflects strong income, business, and sales tax receipts.

However, the surge in revenue also comes with an important warning: lawmakers cannot assume today’s revenue growth will continue indefinitely. 

‘Reinforce Progress’

Gov. Ned Lamont noted that the projections reflect the progress Connecticut has made strengthening its finances and economy over the past eight years. 

“These latest revenue projections reinforce the progress Connecticut has made,” he said in a statement.

“Over the past eight years, we have strengthened our fiscal foundation and built an economy that attracts innovative companies, supports good jobs, and helps communities and schools thrive.”  

“These projections should be viewed with care.”

OPM’s Josh Wojcik

Office of Policy and Management secretary Josh Wojcik offered an equally important note of caution. 

“These projections are estimates and should be viewed with care,” he said, noting that the outlook remains subject to federal policy decisions and a volatile global economy.  

That caution msut help guide the General Assembly as it develops the next two-year state budget. 

Corporate Tax Gains 

The revenue gains are also being supported by stronger-than-expected corporation business tax collections, a welcome turnaround from last year, when receipts from the tax came in below projections.

That $150 million improvement is particularly significant for policymakers considering the state’s affordability and competitiveness challenges.

Stronger business tax receipts must not be an invitation for unsustainable new spending.

Connecticut’s improved fiscal position did not happen by accident.

Instead, they provide Connecticut with greater flexibility to maintain its fiscal guardrails while returning some of that strength to the businesses and taxpayers driving the state’s economy through targeted tax relief and pro-growth investments. 

Connecticut’s improved fiscal position did not happen by accident. The fiscal guardrails helped align spending growth with economic growth, build reserves, reduce unfunded pension liabilities, and provide greater stability to state finances. 

The latest revenue projections strengthen the case for maintaining that framework, not abandoning it. 

Volatile Sources Driving Revenue Growth 

A significant portion of the state’s revenue growth is coming from volatile sources tied to capital gains and investment income.

Those revenues can rise quickly when financial markets are strong, but history shows they can also reverse just as quickly when economic conditions change.

Analysts increased projections from investment-related and certain small business income sources by roughly $500 million for the current fiscal year alone. 

Using potentially temporary revenues to finance permanent, rapidly growing spending commitments could recreate the structural budget problems Connecticut spent years working to correct. 

Lawmakers must preserve the fiscal guardrails and ensure that state spending grows at a sustainable rate.

Instead, lawmakers must preserve the framework of the fiscal guardrails and ensure that recurring state spending grows at a sustainable rate that reflects the underlying growth of Connecticut’s economy. 

Fiscal discipline, however, does not mean avoiding necessary investments.

A sustainable budget can continue to make targeted investments in property tax relief, education, and affordable childcare, all of which can strengthen Connecticut’s workforce and improve the state’s competitiveness. 

The challenge for policymakers is to prioritize those investments while avoiding commitments that become unaffordable when economic conditions change. 

Affordability Must Be a Priority 

The revenue forecast also sends another clear message to the incoming legislature: Connecticut has an opportunity to provide meaningful affordability relief without sacrificing fiscal stability. 

Employers, particularly small businesses, continue to face significant cost pressures. The next budget will likely return some of the state’s stronger-than-expected revenues to taxpayers rather than allowing every additional dollar to become new recurring spending. 

One place to start is restoring Connecticut’s pass-through entity tax credit, providing tax fairness to more than 100,000 small businesses and their owners. 

Restoring the credit will directly improve Connecticut’s tax competitiveness.

Restoring the credit will directly improve Connecticut’s tax competitiveness and put dollars back into the hands of employers that can use those resources to hire workers, increase wages, invest in equipment, and grow their businesses. 

Lawmakers should also eliminate the sales tax on energy bills, providing immediate relief for skyrocketing electricity and natural gas bills.

Connecticut businesses and families already contend with some of the nation’s highest energy costs. Taxing those essential costs only compounds the affordability challenge. 

With revenues running hundreds of millions of dollars ahead of previous projections, the time is now to provide much needed relief for our state’s job creators. 

Strengthen Connecticut’s Competitiveness 

The state enters the next budget cycle from a position of financial strength. That creates choices, but it also creates responsibility. 

“The goal cannot be determining how quickly Connecticut can spend a projected surplus,” said CBIA’s Chris Davis.

“The goal must be to use the state’s improved fiscal position to build a more competitive and affordable Connecticut for the long term. 

“The goal cannot be determining how quickly Connecticut can spend a projected surplus.”

CBIA’s Chris Davis

“That means maintaining the fiscal guardrails, keeping recurring spending aligned with sustainable economic growth, making strategic investments in our workforce, paying down state debt, reducing pressure on property taxpayers, and delivering meaningful tax relief to small businesses and families.” 

Connecticut has made real progress strengthening its fiscal foundation. The latest revenue projections demonstrate that progress.

The incoming legislature now has an opportunity to build on it by pairing continued fiscal discipline with an equally strong commitment to affordability and economic growth.  

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For more information, contact CBIA’s Chris Davis.