Connecticut continues to earn higher marks from Wall Street credit ratings agencies, Gov. Ned Lamont announced Wednesday, hailing the latest upgrades as further evidence that his administration has reversed the state’s once-floundering fiscal outlook.

The upgrades by Moody’s Investors Service and Fitch ratings and the improved pension fund performance also are likely campaign fodder for a Democratic governor widely expected to announce a bid for a third term soon.

“Let there be no doubt that Connecticut is back,” said Lamont, who joined Treasurer Erick Russell at the Capitol to outline how the state has doubled its pension assets in the past decade. “This is the result of sound fiscal management, a growing trust in Connecticut by businesses and residents, which is reflected in our improved economic statistics, and a historic run in the stock market.”

Connecticut failed to save adequately for more than seven decades prior to 2011 for pensions promised to retired state workers and teachers. By failing to do so, it effectively forfeited billions of dollars in potential investment earnings, leaving future generations of taxpayers to cover these obligations.

This mounting debt, in turn, drove up minimum required payments the state had to make annually to these retirement programs in the 2000s and 2010s, a trend that contributed to major state tax hikes in 2009, 2011 and 2015 while still leeching resources away from education, health care, municipal aid and other core programs.

Connecticut’s fortunes started to shift in 2011 when then-Gov. Dannel P. Malloy closed loopholes that had allowed the state to short-change its pensions for decades. Malloy also twice secured major benefit concessions from state employee unions.

And in 2017, legislators from both parties adopted controversial budget caps that have forced huge annual savings. Since 2020, the state has dedicated more than $8.5 billion in surplus to its pensions and could deposit nearly $2 billion more later this fall. Those payments, coupled with a robust stock market and improved state investment policies, leave Connecticut with roughly $63 billion in assets for its pensions for retired state employees and municipal teachers.

“If we continue the progress we have made, the state’s pension debt … will be fully funded within a generation,” the governor said. “This is the legacy we are leaving our children and grandchildren and one we should all be proud to reach.”

Moody’s elevated Connecticut’s score from Aa3 to Aa2. The “Aa” ratings bracket is Moody’s second-highest and is reserved for states and other entities whose bond offerings are “of high quality and are subject to very low credit risk.”

Similarly, Fitch upgraded Connecticut from AA- to AA.  For Fitch, “AA” is its second-highest ratings tier and is reserved for bond offerings “of very low default risk.”

The immediate impact of these upgrades should be lower interest rates for a state that borrows billions of dollars annually to build and renovate local schools, replace its aging transportation infrastructure and finance numerous capital projects at public colleges and universities.

But Russell said the upgrades mean much more than that.

Cheaper borrowing costs and minimum pension contributions that aren’t surging dramatically year after year “is going to allow us to … make really critical investments in education and in child care and [build] on so much of the work that has been done under the governor and the legislature’s leadership,” Russell said.

Required pension contributions this fiscal year will gobble up $3.4 billion of the budget’s General Fund, about $250 million more than last year. But that obligation would have grown by about $980 million had Connecticut not been pouring surplus into pensions since 2020.

“That’s money we can use to invest in our future, and/or cut taxes, both of which we have done,” Lamont added.

But many of the governor’s fellow Democrats, and other critics, say that’s not a fair description of the process.

The budget caps that generate huge annual surpluses are doing much more harm to education, municipal aid, and other core programs than any benefit these services are receiving from the limited growth in mandatory pension payments, they say.

State budget surpluses, since 2017, have averaged more than $1.8 billion per year, or more than 8% of the General Fund.

Many Democratic legislators have called over the past year for Connecticut to scale back savings efforts, arguing even a modest adjustment still would allow the state to attack pension debt while also preserving core programs.

Democratic legislative leaders were forced this spring to scrap plans for a state income tax credit for middle-class families with children and dramatically scale back new investments in Medicaid rates for doctors who accept low-income patients. Connecticut hadn’t adjusted its rates in broad-based fashion since 2007, leaving many patients unable to find doctors willing to treat them.

The Connecticut Conference of Municipalities launched an ad campaign in March attacking Lamont. Though grants to towns, on paper, have risen since he took office in 2019, CCM estimates education funding alone, once adjusted for inflation, has declined by more than $400 million.

Republican legislators have praised Connecticut’s efforts to reduce pension debt.

But House Minority Leader Vincent J. Candelora of North Branford said “the governor and Democrats [also] have made strides to undermine the money that has been paid into pensions.”

The GOP has criticized Lamont for allowing too many accounting gimmicks and other maneuvers to work around budget caps to accommodate frustrated Democrats.

The administration agreed in June to move $350 million outside of the traditional budget to finance a major expansion in child care service by the early 2030s.

CT Mirror reporter Mark Pazniokas contributed to this story.

Keith M. Phaneuf is a reporter for the Connecticut Mirror. Copyright 2025 @ CT Mirror (Ctmirror.org).