How quickly lawmakers have forgotten Connecticut’s budget crisis in 2017.
That year, the state faced budget deficits and cuts, exorbitant borrowing, and tax increases. In response, a bipartisan group of lawmakers passed the ‘fiscal guardrails’ — reforms including caps on spending, revenue, and volatility caps, plus a bond lock — to change course, and put Connecticut back on a solid footing.
Since then, the fiscal guardrails have reversed decades of pension underfunding, improved Connecticut’s creditworthiness, and saved the state more than $170 million annually in reduced pension debt payments. The reforms were so effective the General Assembly unanimously extended them in 2023.
Today, however, lawmakers are considering busting them, even though the state faces financial uncertainty.
Here are the top five reasons why the fiscal guardrails matter — and why they need to be protected.
1. Stabilizing State Finances After Years of Chaos
Enacted in 2017, Connecticut’s fiscal guardrails brought much-needed discipline to a state that had long struggled with budget deficits and financial instability. Before their implementation, the state faced a rollercoaster of surpluses followed by massive shortfalls, often leading to emergency tax hikes. The guardrails have helped generate consistent budget surpluses for six straight years, and built a ‘rainy day’ fund now at $4.1 billion. This stability is a lifeline for a state once teetering on the edge of fiscal ruin, proving that these controls are essential to prevent a return to the “bad old days.”
2. Reducing the Crushing Pension Debt Burden
Connecticut has one of the nation’s highest per-capita pension debts, with unfunded liabilities exceeding $37 billion. The fiscal guardrails have been a game-changer here, directing surplus revenues — over $7.7 billion since 2020 — toward paying down this debt. This has already saved taxpayers millions in interest costs, with projections suggesting more than $7 billion in savings over the next 25 years if the guardrails stay intact. Without them, the state risks letting this debt spiral further, threatening future generations with higher taxes or slashed services.
3. Enabling Tax Relief and Economic Growth
The guardrails’ focus on debt reduction and controlled spending has freed up funds for meaningful tax relief — like the state’s first income tax cut in decades in 2023 — while keeping the budget balanced. This financial discipline has also boosted Connecticut’s credit ratings, lowering borrowing costs and making the state more attractive to businesses. Weakening the guardrails could undo these gains, potentially forcing tax hikes or reckless spending that stifles economic progress just as the state is finding its footing.
4. Protecting Against Economic Downturns
The volatility cap, a key guardrail, ensures that unpredictable revenue spikes (like those from capital gains) are saved in the ‘rainy day’ fund or used to pay down debt rather than spent immediately. This has proven vital as federal pandemic aid dries up and economic uncertainty looms. With a fully funded reserve, Connecticut can weather recessions without drastic cuts to education, healthcare, or social services — cuts that would hit hardest during tough times. Ditching the guardrails risks leaving the state vulnerable when the next crisis hits.
5. Ensuring Long-Term Fiscal Responsibility
The guardrails aren’t just a short-term fix; they’re a commitment to sustainable budgeting. By capping spending growth and locking in savings via bond covenants (set to last until mid-2028), they force lawmakers to prioritize and live within the state’s means. This has reversed decades of overspending and underfunding pensions, setting Connecticut on a path to solvency. Removing or loosening them could unravel this progress, inviting a return to the unchecked spending that once pushed the state’s finances to the brink.
Ultimately, Connecticut’s fiscal guardrails are the backbone of its recent financial turnaround. Once notorious for fiscal mismanagement, the state now has surpluses, reserves, and a plan for the future. Keeping them intact isn’t just prudent — it’s critical for the well-being of every resident and the state’s long-term prosperity.
