Connecticut’s Fiscal Guardrails—Risk Reduction for the Future

The Connecticut Business Roundtable released Connecticut’s Fiscal Guardrails—Risk Reduction for the Future March 20 in partnership with Economic Leadership LLC, examining the broader economic impact of the state’s fiscal guardrails.

The report underscores how the 2017 bipartisan fiscal reforms reduced Connecticut’s financial risks, improved the state’s credit ratings, and positioned its local economy for future competitiveness.

Key insights:

• Despite progress, Connecticut’s fiscal health remains a competitive challenge. Connecticut ranks 49th among all states for fiscal stability and 43rd for affordability, according to U.S. News & World Report.
• National trends highlight the importance of fiscal discipline, if Connecticut wants to become more competitive. Other states—including Texas, Michigan, and Massachusetts—successfully strengthened their economies by implementing long-term liability reduction strategies. Connecticut must stay on its current path in order to compete.
• While some say the guardrails are now collecting too much money, there is clear evidence that volatility levels in recent years should not be counted on in the years to come. While recent revenues have been volatile to the upside resulting in large surpluses, they have been more volatile since fiscal 2018 relative to the preceding decades. Volatile revenues are heavily influenced by capital gains and tax policy, both of which have seen abnormal changes in the past seven years. Making adjustments to the guardrails now based only on data since 2018 would be unwise.
• While the guardrails contributed significantly to paying down Connecticut’s long-term debt, there is much work still to be done. In recent years, paying down unfunded pension liabilities has meant that taxpayers will save an estimated $18.4 billion over the next 20 years. However, there is more work to do: Connecticut still has one of the nation’s most underfunded pension liability problems that continues to impede its ability to compete against other states, locally and nationally.