Liam Enea via Wikimedia Commons

Not even a week had passed since the start of the 2025 legislative session in Hartford before the mayors and superintendents of Connecticut’s largest cities called for the state to loosen its fiscal guardrails to support an increase in education funding. Governor Ned Lamont showed little willingness to budge on spending limits in his State of the State Address, setting up a standoff between local and state leaders over the guardrails. 

The state’s fiscal guardrails are rooted in an eight-year effort to rectify decades of fiscal mismanagement. But the state is not the only government attempting to alleviate debts of the past.

New Haven has faced similar concerns over fiscal mismanagement, and to address them, Mayor Justin Elicker has favored similar spending and borrowing limits. In addition to bringing greater financial stability to New Haven, according to Elicker, this fiscal caution accompanies a significant increase in the city’s contribution to New Haven Public Schools.

It’s time for the state, Elicker says, to champion New Haven’s strategy. Connecticut must increase education funding while continuing to save.

“The mayors are trying to balance the same thing the governor’s trying to balance,” Elicker said at the press conference in the state capitol. “All of us have pension liabilities that are significantly high. All of us have debt service payments because of borrowing over the years that is high … And us determining what is the right dollar amount to address the long-term liabilities that we have and what is the right dollar amount to ensure that we don’t create more liabilities…are hard questions.”

The News spoke to experts, policy-makers and advocates who say the financial decisions facing the state and city today pose a fundamental question: how to address decades of fiscal negligence while supporting the immediate needs of residents.

Why guardrails?

Connecticut’s fiscal guardrails date back to 2017. Designed to reverse over a century of underfunded pension liabilities and excessive borrowing, they limit the amount of money that the state can borrow. They also require state leaders to dedicate revenue above a set amount to the state’s rainy day fund, pension liabilities and bonded debt.

According to David Schleicher, an expert on municipal finance at Yale Law School, these changes have made Connecticut, once a state on the verge of fiscal crisis, a model of financial recovery in less than eight years — a shift “more dramatic” than any other state.

“It has gone from being one of our classic examples of a fiscal basket case to one of our most fiscally conservative states in the last couple of years,” Schleicher said.

For nearly 50 years, Connecticut has failed to save enough for its pension obligations to public employees — including all of the state’s public school teachers — and maintains the highest rates of bonded debt per capita in the nation.

Connecticut is 46th in the nation in terms of state pension plan funding levels, with only 63.5 percent of pension liabilities funded. In the long run, Connecticut does not have enough money saved to cover all of its pension obligations.

“We were on a pay-as-you-go kind of option,” said Lisa Hammersley, executive director of the School + State Finance Project, a nonprofit lobbying group focused on education funding in Connecticut. “We’re making up for all of those payments that we didn’t make previously.”

Hammersley added that the state has established a payment plan for pension obligations and should be able to slowly pay off its debts and liabilities in the next few years.

Since 2017, Connecticut has used historic budget surpluses to pay down substantial amounts of these debts and liabilities. According to Schleicher, the state has now filled its rainy-day fund and is directing millions of dollars in surplus revenue to unpaid pension liabilities.

But as the state diverts funds from spending bills, Connecticut’s failure to use budget surpluses to support funding for public school students has frustrated many local leaders. 

Elicker’s position

The debate over fiscal guardrails has pitted the mayors of Connecticut’s cities against state leaders, Lamont in particular. One irony of this fight is that cities like New Haven face a similar dilemma, pay for services or pay off debt, an irony that Elicker readily acknowledges.

“New Haven is very much in the same place,” he said. “As a mayor, I struggle with the same question in New Haven. What is the right balance between our ability to provide services which offer residents opportunity and keep New Haven an affordable city while continuing to address significant pension liabilities.” 

Elicker criticized the state for cutting taxes without increasing funds for public education — at a time where a dearth of funding for public schools has led to crumbling facilities and stretched services in cities like New Haven.

This, in turn, has forced municipalities like New Haven to raise property taxes to fund urban public schools. Connecticut already has some of the highest property taxes in the country.

“The state is effectively raising taxes, but mayors are taking the responsibility,” Elicker told the News.

Elicker also argued that failing to increase funds for public education would cost the state millions in the long run with even larger numbers of “disconnected youth,” a poorer tax base and more demand for social services.

The state, Elicker said, is now in a “good position” to address education needs, thanks to the fiscal guardrails. Additional funds would go directly to hiring new staff in New Haven Public Schools, where each counselor and psychologist now serves hundreds of students.

Loosening spending limits to support education “is the financially correct choice for the state,” he concluded.

In particular, Elicker favors changing the formula for the state’s volatility cap, one of the most widely discussed changes to spending limits. 

The volatility cap requires the state to save any revenue above a set amount or dedicate it to paying off financial liabilities. According to Schleicher, the current cap was set based on the two low-revenue years before 2017. A weighted average of the last few years of budget surpluses would allow for greater spending.

For Schleicher, this change, however, raises two concerns. Raising the volatility cap would reduce the amount of money the state saves each year and dedicates to paying down enormous debt and pension liabilities. Some also fear that changes to the volatility cap might open the door for larger violations of the fiscal guardrails, a fear that might make it more difficult for the state to borrow money from wary investors, he said.

Pension liabilities in particular pose a real political challenge to state and local leaders, Schleicher added. When the state pays down pension liabilities, today’s taxpayers are essentially paying for the services of the past — policing, schooling and firefighting, for example — through pensions for retired employees.

“The real political question for Connecticut is how much pain to suffer now for the sins of the past,” Schleicher said. “We’re still just paying for the long-running fiscal irresponsibility of Connecticut and will be for a long time, regardless of what happens. The question is just: how much?”

The 2025 Connecticut legislative session began Jan. 8 and will conclude June 4.