Connecticut, Hit Hard by Last Recession, Is Ready for Next One

(Bloomberg) -- If there’s a recession next year, Connecticut is going to be better prepared than most.

The state on Tuesday projected it will have $2.9 billion in its rainy-day fund at the end of the current fiscal year on June 30, 2020, enough to cover about 15% of its annual budget. That’s twice the buffer that states overall would have under the spending plans governors proposed this year, according to the National Association of State Budget Officers.

The reserve provides a welcome cushion for Governor Ned Lamont, who was able to close a $3.7 billion deficit without raising personal-income taxes. The extra yield that investors demand to hold Connecticut’s general-obligation bonds maturing in 10 years has shrunk to 0.43 percentage point, the lowest since May 2015.

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Still, the state has largely avoided confronting the rising costs of debt service, pensions and health care that eat up more than 30% of spending. Connecticut’s $62 billion unfunded pension liability as a percentage of its economy is the highest among U.S states after Illinois, according to Moody’s Investors Service.

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