Good news, bad news on Connecticut state budget as surplus hits $410 million for FY 2025

Hartford Courant – Tuesday, October 7, 2025
By Christopher Keating

Connecticut completed the 2025 fiscal year with a state budget surplus of $410 million as the stock market set records and unemployment remained low.

But state comptroller Sean Scanlon warned Monday that the state is moving into a period of uncertainty as officials do not know the length of the ongoing federal shutdown, the long-term impact of tariffs, and whether the stock market will continue to soar.

Officials are pleased that the state posted an operating surplus for the seventh consecutive year under Gov. Ned Lamont, which is a sharp departure from seven operating deficits in nine years that date back to 2009.

With the latest surpluses, the state has been able to transfer $10 billion in supplemental payments to the pension funds for state employees and public school teachers — a huge turnaround from more than 70 years of underfunding the pensions. Legislators changed the law on a bipartisan basis in 2017 to establish the so-called fiscal guardrails that have allowed the state to transfer the “volatility” surpluses that accumulate when the state collects more income taxes than expected from capital gains that are generated on Wall Street when the stock market soars. The markets have consistently broken records in recent years, including during the administrations of Presidents Joe Biden and Donald Trump. The additional principal payments have reduced the state’s long-term debt, saving $750 million per year that would have been set aside to help pay the debt.

On Monday, the S&P 500 index, the Nasdaq, and the Russell 2000 index of small stocks all set new records.

The state economy is also relatively solid at the moment as, for example, Connecticut’s unemployment rate of 3.8% is better than the federal unemployment rate of 4.3%.

But Scanlon said that his main view of the economy going forward is “uncertain” with less than three months left in the calendar year.

“There are some really good signs, and then there are some concerning signs,” Scanlon said when asked by The Courant. “It’s a strange economy if you talk to anybody who follows this very closely. … It’s a little bit of a wait-and-see time for us. Connecticut is very, very reliant on what happens on Wall Street just given the amount of people who live in our state that work there and pay taxes to us. We always probably pay more attention to things like a recession than other states because we’re so reliant on what happens on Wall Street.”

The Wall Street boom has continued, despite concerns about tariffs, the labor market, inflation, and pressure on the Federal Reserve Board.

While some believe the stock market is overheated, Scanlon said he is not sure where it is headed.

“I think there is a lot of uncertainty in the market right now,” he said as stocks related to artificial intelligence have increased sharply. “You see these big announcements every day about big investments in AI, and it seems a lot of people are putting a lot of money into that. What happens, long-term, if that doesn’t pay off or if it doesn’t matriculate to what it needs to be? If you watch the markets, they are pretty good. But I think there are warning signs that you can read if you read the newsletters of all the big banks.”

Another potential problem is the length of the shutdown of the federal government that started on the first day of the new fiscal year on Oct. 1. Many of the federal programs have enough money until Halloween as the financial spigot was not turned off immediately last week.

“We have not seen some of the impacts yet, but we are close to that,” Scanlon said. “We’re almost a week into this right now, and I think we’re about to start feeling the effects in the sense that this Friday is the first paycheck that would be missed for the employees. … There does not look like there is any resolution in short order or on the horizon. So I think what we’re preparing to do is to begin to look at what the adverse effects are of the shutdown, and I think we’re going to be seeing more of them the longer this goes on.”

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