As fears of a recession grow, Connecticut’s finances enjoy unprecedented protection, with one new forecast from Gov. Ned Lamont’s administration projecting a moderate downturn wouldn’t even drain the state’s reserves for two and a half years. Connecticut’s record-setting $4.3 billion r ainy day fund, which represents 18% of annual operating expenses, is more than double the financial safety wall the state built just prior to the Great Recession of 2007-09 — an economic slump that drained all reserves, left the state with $1 billion in operating debt, and triggered at least one of the largest tax hikes in state history. “Make no doubt about it, today Connecticut’s fiscal health is the strongest it has been in decades,” Lamont said this week. “And that is due to the responsible budgetary decisions we’ve been making over these last several years.” Lamont was talking about how the state’s savings habits have helped eliminate billions of dollars of the massive pension debt Connecticut accumulated across seven decades prior to 2011 — a burden that still exceeds $33 billion. But the administration says those same savings habits, which generated yearly budget surpluses averaging $1.8 billion since 2017, also completely rebuilt Connecticut’s chief defense against a sharp economic downturn. The governor’s comments come as fears of a looming recession grow. Mark Zandi, chief economist for Moody’s Analytics — the research arm of a major Wall Street credit-rating agency — told Fortune magazine the country is on the precipice of a recession with too many households living paycheck-to-paycheck, job growth softening and tariffs ordered by President Donald Trump staggering the economy. On Thursday, Connecticut Department of Labor Commissioner Danté Bartolomeo released the September labor situation report. While the state’s unemployment rate remained unchanged at 3.8%, September payrolls declined by an estimated 5,700 jobs and the labor force declined by 5,400. In August, total jobs reached a 17-year high and private sector jobs were at an all-time high. (The September report is normally released in early October, but it was delayed due to the federal government shutdown.) Bartolomeo didn’t discuss a recession Wednesday but she said the decline in jobs in the state followed a national trend. A recession typically triggers a sharp drop in tax revenues that can last for several years. States typically respond by drawing down their rainy day funds, hoping to delay program cuts and tax hikes for as long as possible to shield residents and businesses already beset by a weak economy. Connecticut’s budget reserve held just $212 million eight years ago, a meager cushion equal to 1% of annual operating expenses. Today, Connecticut’s fund ranks in the top tier among states, according to the Pew Charitable Trusts. According to a new recession “stress test” ordered by legislators and released recently by Lamont’s budget staff, a “mild” recession like the 2001 downturn triggered by overvaluation of internet companies wouldn’t even exhaust Connecticut’s reserves. The rainy day fund would shrink from $4.3 billion now to $1.4 billion before the hypothetical downturn ends in 2029. An average or “moderate” recession would empty the rainy day fund by 2029. Even a “severe” slump like The Great Recession of 2007-09 wouldn’t exhaust Connecticut’s reserves this fiscal year or next, though the state would slip about $800 million into the red by 2028. The state would end the recession owing about $4.5 billion, which represents 19% of the pre-recession General Fund. At first glance, that’s worse than the $1 billion in operating debt — about 6% of the pre-recession General Fund — that Connecticut ran up during the 2007-09 slump. But it’s not a fair comparison. The administration’s “stress test” analysis doesn’t assume any savings from program cuts legislators likely would employ during the next recession, as they did in 2007-09, to mitigate operating debt. Gov. M. Jodi Rell and the 2009 General Assembly also ordered tax hikes worth almost $620 million per year to avoid more debt. Prior to the 2007-09 recession, state officials had built a $1.4 billion rainy day fund equal to just 8.5% of operating expenses — less than half the reserve Connecticut has now. Gov. Dannel P. Malloy, who succeeded Rell in January 2011, inherited a budget on pace to run a record-setting 18% in deficit unless adjustments were made. He and the General Assembly then approved a tax hike estimated at more than $1.8 billion a year, one of the largest in state history. Lamont’s “stress test” assumes no tax hikes are ordered during the next recession. Officials from both parties praised the new analysis. “I think that points out how much has actually been done,” to avoid fiscal mistakes of past, said Sen. Cathy Osten, D-Sprague, co-chairwoman of the Appropriations Committee. She added Connecticut’s pensions for state employees and municipal teachers also have been strengthened considerably since 2020 by the transfer of more than $10 billion in budget surpluses into these retirement benefit programs. These deposits also will protect state finances during the next economic slump, when earnings from pension investments usually drop and states are required to deposit more funds. Rep. Tammy Nuccio of Tolland, ranking House Republican on the Appropriations Committee, said that while both parties voted for the 2017 budget caps that prepared Connecticut for the next recession, she fears majority Democratic legislators have forgotten Connecticut’s history. Democrats in recent years have forfeited hundreds of millions of additional surplus dollars by not properly funding Medicaid programs and by creating a new fund — outside of the formal budget and spending cap — to bolster affordable child care. “We need to make sure we’re ready for what comes,” Nuccio added. “We don’t want to be the Connecticut of the 2010s. … It was not a great time for us.” House Speaker Matt Ritter, D-Hartford, said legislators have struck a careful balance between preparing for economic slumps, paying down pension debt, and preserving core programs like health care, child care and education, even as President Trump and Congress shrink federal aid to states. “The idea of putting away money for a rainy day is a positive thing,” Ritter said. “But also, you’ve got needs now.” ...read more read less