Connecticut Bleeding Red, Faces Budget Crisis

US state of connecticut flag with transparent dollar banknotes

Connecticut is one of the wealthiest states in the country, but it’s drowning in debt, and the governing Democrats aren’t entirely sure what to do about it. But they’ll need to work fast to pass a budget–either that or face implementing additional spending cuts to education and municipal aid across the state.

Connecticut has gone nearly two months without a budget and is getting crushed by a debt load and pension liabilities (fixed costs that constrain spending) that has pinched spending and ramped up political discord in the legislature.

State lawmakers will need to agree on a biennial budget or else Governor Dannel Malloy’s executive order to cut state aid to municipalities and eliminate school funding for some districts will take effect in October. The state faces a projected deficit of $3.5 billion over the next two years.

Despite being one of the wealthiest states, home to hedge fund managers and the 0.01%, Connecticut has been strained by high taxes, falling revenue, wealthy people leaving the state, and $50.0 billion in unfunded pension liabilities.


Large, tax-paying corporations are following Connecticut’s wealthiest citizens out of the state as well. General Electric Company (NYSE:GE) left Fairfield for Boston, Aetna Inc (NYSE:AET) is set to leave Hartford for New York City, UBS Group AG (NYSE:UBS) moved its headquarters to Manhattan, and Pfizer Inc. (NYSE:PFE) simply gutted its 750,000-square-foot facility in Groton.

Roughly $23.0 billion in outstanding municipal debt has also put a dent on spending. Bondholders get paid ahead of other expenses, such as non-essential services and payments to vendors.

In fiscal 2017, the $2.85 billion of principal and interest the state paid on its bonds was the highest in six years.

By many metrics, Connecticut’s debt load is the worst in the country. It has the most net-tax-supported state debt per capita in the U.S., the highest debt service costs as a portion of state revenues, as well as debt relative to gross domestic product.

The state’s budget crunch is trickling down to its cities, including the state capital of Hartford, which is considering bankruptcy.

Not surprisingly, Connecticut was downgraded by all three major Wall Street credit rating agencies in May.

State Democrats and Republicans in the legislature have proposed a number of solutions. House Democrats have said they still plan to raise the state sales tax to 6.85% from 6.35%. That plan is lower than their initial proposal to raise sales tax to 6.99%.

Meanwhile, Republican Leader Themis Klarides said her position has not changed and that she and her caucus have no plans to support tax increases to balance the two-year budget.

Governor Malloy echoed that sentiment, saying he does not support an increase in the state sales tax. However, he did not say he would veto the budget if it included it.

The governor holds that municipal aid cuts have to be a major part of the budget solution. Without them, other programs for the poor and disabled would suffer.

Without new revenue streams, it is hard to see how Connecticut will ever be able to deal with its crippling debt load.



2018-2019 Biennial Budget,” State of Connecticut Office of Policy and Management, last accessed August 23, 2017.