Central to Gov. Ned Lamont’s political brand and his run for a rare third term is a fiscal discipline that has contributed to Connecticut’s extraordinary run of budget surpluses. He’s wrapped seven consecutive years in the black, using $11 billion of those unspent funds to wipe out pension debt. No other governor in modern history has made one such payment. And Lamont, a Democrat who has served with strong Democratic legislative majorities, cut state income tax rates in 2023, something done only once before in the 35-year history of the levy, while still building a record-setting budget reserve that tops $4.4 billion. But the governor owes some of his success to hard things done prior to his election in 2018, much of it by Dannel P. Malloy, the Democratic predecessor who left office with one of the lowest gubernatorial approval ratings in the U.S. Malloy and the legislators who served with him between 2011 and 2018 ordered two major tax hikes — centered on Connecticut’s wealthy — that have generated billions for the state’s coffers throughout Lamont’s administration. Malloy used reports, contract negotiations and a cross-state promotional tour to force a new fiscal culture and end the longstanding practice of inflating pension costs while pushing them onto future generations. Lawmakers from both parties wrote aggressive budget caps in 2017, when Republicans held half the seats in the Senate. One of them limited how revenue spikes from volatile sources could be used, a favorite tool employed Lamont, who has insisted that increased spending be matched by sustainable revenue growth. Governors who took CT’s pension debt very seriously “I think I’m the only governor — ever — to take our pension obligations seriously and make a difference there,” Lamont said in June 2025, shortly before wrapping the annual budget cycle with nearly $1.3 billion unspent and available to reduce pension debt. Over the past seven years, Lamont has dedicated an average of nearly $1.6 billion in surplus to offset Connecticut’s unfunded pension obligations, a burden that still exceeds $30 billion and likely won’t be paid off until well into the 2040s. But without all those extra deposits, the required contributions that already consume a hefty chunk of the state budget would be $800 million to $900 million greater each year. “I think people are taking a second look at Connecticut” because of this fiscal dedication, Lamont said this week. “They say, ‘They’ve got their act together.’” By comparison, governors and legislatures for decades prior to 2011 had forfeited billions of dollars in potential investment earnings by not properly saving for benefits pledged to state employees and teachers. But it wasn’t Lamont’s successes that left some observers stunned by his claim of exclusive dedication to sound fiscal management of pensions. That’s because some important things happened after the decades of pension mismanagement — but before Lamont became governor. Dannel P. Malloy and Ned Lamont, the governor and governor-elect at the time, in December 2018. Credit: ctmirror.org Despite inheriting the largest projected deficit in state history — a $3.7 billion gap equal to almost one-fifth of the General Fund — new Gov. Malloy took office in 2011 and drew his own line in the pension sand. The Stamford Democrat tore up contracts that had allowed his predecessors to easily short-change required pension contributions and leave the mess for future generations to clean. By Malloy’s second year, annual pension expenses were almost 70% greater than pre-recession levels, further straining a budget that already had lost close to $2 billion in yearly revenue due to a sagging economy. He twice negotiated wage freezes and benefit givebacks from unions, shrank the Executive Branch workforce by 10% and signed two of the largest tax hikes in state history, frustrating not just his labor base but much of the electorate. Malloy crisscrossed the state during his first few months in office, holding 17 town meetings to explain the fiscal ticking time bomb represented by unfunded pension obligations. Four years later, he commissioned a report from the Center for Retirement Research at Boston College, which traced the state’s poor savings habits back to 1939. Malloy, who generally has avoided commenting on election-year politics since becoming the chancellor of the University of Maine, declined to be interviewed for this story. “He took an issue that was [behind] closed doors … and really put it out there for people to understand the level of the problem,” said Joe Aresimowicz, the House speaker during the last two years of Malloy’s tenure and first two of Lamont’s. “It takes a different kind of human being to stand up in front of hundreds of people night after night, knowing that they disagree with you, knowing that they’re angry, knowing that they’re going to yell at you, and you keep doing it anyway,” said Roy Occhiogrosso, a senior adviser and campaign strategist for Malloy. “And it was because he believed deeply that you cannot fix the massive problems that he inherited unless you educate people about them first.” Legislative proposals to defer pension contributions, a common sight during challenging fiscal times, were a thing of the past by the time Lamont took office in January 2019. “In Dan Malloy’s defense, he was the first guy to at least make the current [pension] payments,” the governor said, “and I respect him for that.” Former Gov. Dannel P. Malloy shakes hands with Susan Johnson in 2011 after announcing a budget deal that raises the income and sales taxes but avoids tax increases that Malloy proposed previously. Credit: Mark Mirko / Hartford Courant Malloy’s tax hikes forced high earners to pay more Even so, Lamont notes that state finances weren’t entirely rosy when he took over for Malloy. Nonpartisan analysts projected the budget, unless adjusted, was on pace for a nearly $2 billion deficit, a 10% gap, unless adjustments were made. But Malloy, who had inherited no rainy day fund and $1 billion in operating debt to pay off, left $1.2 billion in the budget reserve for Lamont and no IOUs to cover. Lamont ultimately closed his deficit by raising some business taxes and by canceling some sales tax exemptions and previously approved tax cuts that hadn’t taken effect yet. He was spared from increasing the state income tax, which carried the biggest political risk. A key reason for that, though, was the income tax hikes Malloy signed into law, measures he used to reshape Connecticut’s tax structure significantly. Enacted in 1991, the income tax largely was flat at the onset. All filers and their earnings initially were taxed at 4.5%, though legislators built in some personal exemptions to ease burdens somewhat on lower-income households. Even after the 1995 legislature created a new credit to offset a portion of local property taxes paid by the middle class, that group and the wealthy both paid very similar effective rates for most of the income tax’s first two decades. But under Malloy, it evolved into a seven-tiered system, with rates ranging from 3% to 6.99%. Different portions of a filer’s earnings would be taxed at different rates, with higher percentages applied as income increased. Connecticut also established a “recapture” system that ensured the wealthiest filers didn’t fully benefit from the lower rates and paid close to 6.99% on all their income. The income tax became far more progressive under Malloy, meaning the effective rate grew along with a filer’s ability to pay. But it also became a more powerful revenue engine for Connecticut. The stock market has enjoyed robust growth during Lamont’s tenure, especially since the COVID pandemic, and those higher rates have allowed his administration to take maximum advantage of the surge. Quarterly income tax receipts, which are tied heavily to the investment earnings of Connecticut’s wealthiest, are estimated to have topped $4.3 billion last fiscal year, which ended June 30. That’s up almost 40% in just five years. “Ned Lamont thinks that the reason Connecticut is in good fiscal shape is because of him,” said Rep. Josh Elliott of Hamden, who is challenging Lamont in an Aug. 11 primary for the Democratic gubernatorial nomination. But the hard work of raising revenue “was all done before him,” Elliott added. The Republican gubernatorial nominee, Sen. Ryan Fazio of Greenwich, said the key to Lamont’s fiscal track record stems from steps lawmakers took nine years ago, when Republicans had more seats and more influence. Legislative leaders share a light moment as they announce a budget deal in 2018. From left, Senate Republican leader Len Fasano, Senate President Pro Tem Martin Looney, House Minority Leader Themis Klarides, Senate Majority leader Bob Duff and House Majority Leader Matt Ritter. Behind Klarides is House Speaker Joe Aresimowicz. Credit: Clarice Silber / CTMirror.org After a Democratic majority failed to enact a new budget despite nine months of negotiations in 2017, minority Republicans were brought into the talks. The final compromise included strict new budget caps that have helped generate unprecedented surpluses averaging more than 8% of the annual budget. In the two decades prior to these caps, the annual budget closed, on average, 1/10th of 1% in the black. “I think Democrats would agree those [fiscal] guardrails would never have been in play but for the Republicans’ insistence on them,” said House Minority Leader Vincent J. Candelora, R-North Branford. “I thought the [2017] guardrails made some sense,” Lamont said, “and I’m glad they did it.” Fazio added Lamont has been more focused in recent years working around these caps to spend more. “The governor inherited the most important and better economic policy in Connecticut in my lifetime,” Fazio said, “and after eight years in office has virtually destroyed them.” Lamont and majority Democrats in the General Assembly did compromise in May and shift more than $800 million from a mandatory savings program into the General Fund. Still, Fazio’s claim that the budget caps are effectively nullified is debatable, at best. The governor notes much of that was done to accommodate key investments to help low- and middle-income families. The new state budget sends $280 million extra in grants to cities and towns this fiscal year while depositing more than $410 million into a new trust to expand affordable childcare. And even with those investments, Connecticut will reduce its unfunded pension obligations this year by a level that nearly matches prior supplemental debt payments Lamont has made. In fact, Elliott’s challenge is based in large part on his argument that Lamont has been too tight-fisted. And while Elliott supports raising taxes more on Connecticut’s wealthy to finance tax relief for the middle class, the governor says the income tax rate cuts and other changes he signed in 2023 already save those households $300 to $400 per year. Then-Gov. Dannel P. Malloy, left, greets Connecticut’s then-governor-elect Ned Lamont at the Governor’s Residence in Hartford, Conn., Thursday, Nov. 8, 2018. Credit: Jessica Hill / AP Lamont: Saving money requires more than budget caps Connecticut’s coffers have swelled before, thanks to economic booms and budgetary spending caps. But before Lamont, that didn’t translate into billions removed from state debt totals. In other words, the governor said, leadership is necessary, too. “I have to remind people every day how dire our circumstance was” in decades past, Lamont said. “Today we’re in a very different place.” The governor added that “We had a spending cap going back to the early ’90s, and everyone winked at it.” For example, Republican governors and Democratic-controlled legislatures ran up $3.6 billion in potential surpluses between 2003 and 2008, according to records from the comptroller’s office and the legislature’s nonpartisan Office of Fiscal Analysis. Almost two-thirds of it was spent. Aresimowicz added that while he’s very proud of the reforms lawmakers enacted in 2017, Lamont’s “firm belief that we have to stick with it” was a driving factor behind the state’s greatly improved financial standing. “Malloy set the foundation for it, made the public more aware and the legislators more aware,” the former speaker said. But “in the absence of Gov. Ned Lamont, I don’t know that we would have gotten to the place we are now.” CT Mirror Capitol Bureau Chief Mark Pazniokas contributed to this story. ...read more read less