One week after Connecticut reserved $500 million from last year’s surplus to potentially replace vanishing federal dollars for human services, surging revenues already have replenished much of the state’s coffers.
Gov. Ned Lamont’s administration this week projected an updated surplus of nearly $2 billion for this fiscal year, up $213 million from last month. And that huge cushion, equal to 8% of the General Fund, would be even larger had President Donald Trump and Congress not extended federal corporate tax cuts otherwise set to expire. Connecticut links its corporate tax system to the federal code — as do several other states.
But that corporate tax revenue hit, estimated at slightly less than $140 million, is more than offset by surges in state income and other business tax receipts. The sharpest growth comes in income tax receipts tied to quarterly filings, a category dominated by capital gains and other investment-related earnings.
State officials had been expecting good news since Nov. 10, when fiscal analysts for the legislative and executive branches upgraded revenue projections by $1.1 billion from a joint forecast issued April 30. Legislators already had anticipated some of that growth in the latest state budget, which they adopted last June.
Advocates for greater social services and health care spending say a $213 million bump upward to an already enormous state surplus means Connecticut is well positioned to help its most vulnerable residents as federal funding shrinks.
An omnibus measure Trump and Congress passed in July would curb funding for: health insurance subsidies; grants to combat homelessness; and Supplemental Nutrition Assistance Program or SNAP benefits for immigrants, young adults, veterans and people experiencing homelessness.
The Connecticut Department of Social Services estimates the latter cut could affect as many as 36,000 residents here between Dec. 1 and March 31.
Advocates for free and reduced meal services in Connecticut schools expect the SNAP cuts will trigger a reduction in federal aid for subsidized school breakfast and lunch programs.
Lamont, whom legislators gave sole discretion to propose what federal cuts, if any, Connecticut should reverse by tapping this $500 million state fund, has not said yet what he’ll do.
But while that response fund is temporary — expiring in early February — the federal cutbacks that social service advocates worry about would continue indefinitely. In other words, if Connecticut taps the $500 million reserve to help combat homelessness or help provide health insurance, groceries or school meals in December and January, advocates would expect Connecticut to continue dedicating state funds indefinitely — meaning likely for years to come.
State legislators and Lamont likely won’t resolve that larger question until after the regular 2026 General Assembly session, which starts on Feb. 4.
“I do worry about using short term monies to pay for long term obligations,” the governor said this week. “I think that’s something that’s gotten us in trouble in the past. [But] we’re going to take care of people in need.”
But Connecticut’s state finances haven’t been “in trouble” for quite a while.
State budget surpluses have averaged about $1.8 billion per year since 2017, when aggressive budget caps were installed to force big savings. And given that only roughly one quarter of state spending is discretionary, leaving $1.8 billion or 8% unspent is huge.
“The chaos in Washington D.C. is made worse by inaction or delayed action here at home,” said Emily Byrne, executive director of Connecticut Voices for Children, an economic policy and advocacy group.
“While the government shutdown may be over, the harm is not gone,” Byrne said. “The Congressional mega-bill kicked off thousands of Connecticut residents from food assistance and tens of thousands more are struggling to meet the new, rigorous work requirements to receive SNAP. Over one hundred thousand residents are wondering how they’re going to afford health coverage next year and many more are worried about the new rigorous work requirements placed on beneficiaries of Medicaid.”
Byrne added, “Connecticut must be vigilant and proactive so that our residents are protected. We’re talking about people’s lives. The state must act now.”
CT For All, a progressive coalition of more than 60 faith, labor and other civic organizations, has argued for years that state surpluses don’t honestly reflect excess, unneeded dollars. Rather they involve vital resources siphoned away from core programs. Lamont and the General Assembly have used more of these surpluses, about $10 billion since 2020, to accelerate paying down Connecticut’s hefty pension debt.
“To call this money ‘a surplus’ is a lie,” said CT For All Director Norma Martinez-HoSang. “Year to year we underestimate the money available for spending, while public education institutes and social services are underfunded and policies that would improve our lives are taken off the table.”
Keith M. Phaneuf is a reporter for the Connecticut Mirror. Copyright 2025 @ CT Mirror (ctmirror.org).