Budget guardrails and breaking points: a Conversation with Meghan Portfolio
A native of the state, Meghan Portfolio is the manager of research and Analysis at the Yankee Institute in Wethersfield, Connecticut. Meghan worked in the private sector for two decades in various roles in management roles and sales. She covers policy issues for the Yankee Institute, with a particular focus on state budgets and the economic impact. She recently spoke with American Habits Editor Ray Nothstine.
I read your recent overview of the Connecticut budget, given that there is an excess of $215 million above the constitutional spending cap, I’m assuming you don’t feel like your state is ready for any potential reductions in federal dollars or appropriations coming in? Connecticut is close to 30 percent of revenue from the federal government – lower than most states but still significant.
How do you feel like Connecticut, from a fiscal and fiscal responsibility standpoint, is going right now?
Meghan Portfolio: On paper, we’re not so bad. Our rainy-day fund is one of the best in the country. The fund is projected to hit about $6.9 billion. We’re also one of the least reliant states on federal funding and structurally, the state is in a strong position.
We also have something called fiscal guardrails. Back in the early ’90s, after decades of underfunding pensions and retiree healthcare, the state introduced an income tax, which was unpopular. To offset it, voters approved a constitutional amendment to impose a spending cap. It passed overwhelmingly, with 80 percent support. But it wasn’t implemented until 2017 because it took that long to define the terms.
Since then, the system has worked well. It’s improved our credit rating and helped us pay down pension debt. The guardrails include a spending cap tied to inflation and income growth, a bond cap, and a volatility cap. That last one is especially important because Connecticut relies heavily on capital gains from Fairfield County, the so-called Gold Coast. In the past, we budgeted as if the stock market would always be strong. Now, the volatility cap limits how much of that income we can use. The rest goes into the rainy-day fund, and once that’s full, toward debt repayment.
This approach has allowed us to pay down hundreds of millions in unfunded liabilities. By doing so, we avoid interest and long-term costs. If we stay on this path, projections suggest we could be fully paid off by 2038.
But here’s the problem, we’re not staying on that path. When I wrote about this recently, we were already $215 million over our spending cap. Now, appropriations just voted out 132 bills not included in the original budget—adding another $1.8 billion. So, while we’ve built a solid framework, we’re actively undermining it. Instead of preparing for a downturn, we’re acting irresponsibly and moving in the wrong direction.
Federal dollars heavily support education and Medicaid spending in every state. Are any lawmakers in Connecticut raising concerns about the long-term sustainability of these expenditures given we’re closing in on $37 trillion in debt? Do you foresee any conversations related to that gaining any traction?
Portfolio: It’s hard to have any of those conversations. I’m in an extremely blue state that has a legislative supermajority that’s veto-proof. Even though our governor is slightly fiscally conservative and remains popular, his veto power is largely symbolic at this point.
The political climate is dominated by national rhetoric, and everything is framed in terms of doom and gloom, Trump, or “losing our freedoms.” It makes real policy discussions difficult.
Healthcare spending is a major issue. We have about a million people enrolled in Medicare and Medicaid, and costs continue to rise. We’re already spending between $50 and $60 million annually on undocumented migrants through these programs, and there’s ongoing momentum to expand that coverage.
Currently, the state covers some prenatal and postpartum care for undocumented individuals, as well as coverage for children up to age 15. But there’s been a sustained push to broaden that even further. Rather than reining in costs, we seem to be heading in the opposite direction with our Medicaid spending.
It’s a real challenge. While we may be able to weather it for now, it really depends on how things play out. At this point, from what I’ve seen, there’s no concrete plan—just discussions. And I’m not being naive; I know something could happen. But for now, it seems to still be in the talking stage.
I get it. There is a reality to the political situation. Many states are not thinking about curtailing any of their spending in this area. There’s a few that are, but most states, they’re just going to be status quo.
Portfolio: If we stopped trying to break our own guardrails or looking for ways around them, we’d be in a decent position to address it better.
What are a few key areas that you feel like lawmakers can find savings in the state budget? There’s likely many that you can point at. What are some of those top two or three greatest hits that when you look at the budget in Connecticut, you’re pulling hair out, or you’re exasperated to some degree? Where could lawmakers easily find some savings where they seem unwilling?
Portfolio: If we didn’t effectively have four branches of government—our unions being the fourth—we might be better equipped to rein in costs. With just the traditional three branches, like every other state, we’d have a clearer path. Right now, we’re calling for a two-year wage freeze for state employees. Since Governor Ned Lamont took office in 2019, state employee salaries have increased by a compounded 33 percent. To put that into perspective, someone making $100,000 in 2019 is now earning $133,000.
These employees also have one of the most generous healthcare plans in the country—second only to California—and they contribute almost nothing toward it. There’s room for immediate savings here. The state is currently in negotiations with the state employee unions, and Yankee Institute is calling for a two-year wage freeze. I’d go further and suggest increased contributions to both pensions and healthcare costs.
There was a recent report that Yankee cited over a month ago. It estimated that Connecticut is spending $1.3 billion annually on services for undocumented immigrants. The administration has pushed back on that figure, claiming it’s inaccurate. But when Republicans in the House introduced a bill simply to study the true cost, Democrats blocked it and wouldn’t even allow a public hearing. So far, no one has credibly refuted that number.
What I can confirm from our Office of Fiscal Analysis is that we’re spending $50 to $60 million annually on undocumented immigrants through our Medicaid program, known as HUSKY. And that’s just one piece of it. These individuals are also using legal aid, public education, and a range of other services. That $1.3 billion estimate covers all of it—and it’s a significant burden.
One of my personal pet peeves is the film tax credit. The Hallmark Channel loves filming here. Connecticut is a beautiful state but the incentive is costing us, and we need to take a hard look at its value.
That’s big here in North Carolina. On the Outer Banks, particularly. They love to film here and take in subsidies from the state government.
Portfolio: North Carolina is a great state. It’s beautiful and visually appealing, which is why Hollywood loves filming in these places. But we’re shelling out around $100 million a year in film tax credits just to attract these productions. My take? Hollywood should pay its own way. It’s not my job—or the taxpayers’ job—to subsidize made-for-TV Hallmark Christmas movies.
Another area that really bothers me—and where we could see immediate savings—is the money we’re spending on GLP-1 drugs, like Ozempic and Wegovy. These were developed for diabetes, but now they’re being used for weight loss. Our state employees have access to them, and that alone is costing us $35 million a year. I’m not trying to be heartless, but these shots are not a silver bullet for obesity. The studies are clear: once people stop taking them, they tend to gain the weight back.
And that’s not even the full picture. Through Medicaid, we’re spending another $85 million on these drugs.
Are there particular programs or budget areas that have grown substantially in recent years without producing measurable improvements in outcomes?
Portfolio: They have no intention of doing anything but continuing to grow this massive public education bureaucracy, even as enrollment declines. According to the latest data, we’re now fourth in the country in per-pupil education spending. Meanwhile, test scores are falling.
That disconnect alone is a red flag. At Yankee, we’ve found some bipartisan support around this issue. We’ve been advocating for tax credit scholarships. The idea is simple: if you’re a business, you can donate to a nonprofit organization that provides scholarships for low-income students. These students could then apply for a scholarship and attend a private school instead of being stuck in a failing public school.
It’s a huge burden on the municipal level because we don’t have county government here. We’re 169 towns and cities. Each one is its own entity, and they don’t have a source to generate revenue outside of the property tax. We have one of the highest property taxes in the country and it’s burdensome, which is putting it lightly. It really drives behavior. It not only drives where one lives, but can determine the ability to stay in the area long term.
I still have about 25 years left in the workforce, but where I’m living, I’m going to have to draw down my 401(k). I don’t know if I’ll have Social Security.
They’re trying to raise our property taxes again, mostly to cover education spending. While schools do receive some grants from the state, local municipalities are responsible for generating much of their own revenue, which usually means higher property taxes.
Special education is a serious issue now. Just finding appropriate placements for students is incredibly difficult. It’s heartbreaking. This is one of the things that really frustrates me about how our state operates.
When you’re building a budget, you’re not a business—you’re the government. That means you should prioritize based on need. Some people require more support than others. Able-bodied individuals don’t need the same level of assistance as people with disabilities. Those with the greatest needs—like special education students—should be at the top of the list.
But that’s not what happens. Instead, we prioritize the unions. They get their raises, they get their benefits, and what’s left over goes to everything else. As a result, we’re now in a position where we can’t afford special education. We can’t afford outplacements, and we don’t have enough staff to serve these students. It’s a serious problem.
This brings up a related question. Again, you’ve addressed it, but I was surprised that the income taxes in Connecticut were lower than I would have guessed when I looked it up. The overall tax burden, as you point out, is high. It’s top five nationally in nearly every ranking. How does that impact the budget in the state overall? What’s been the collective response by residents in the business community?
Portfolio: It’s a constant thorn in the side of the business community. This state seems to go out of its way to be anti-business. Right now, there’s a strike at Pratt & Whitney—one of our largest employers—and instead of staying out of it, some lawmakers are inserting themselves into the situation and siding with the workers.
To his credit, the governor took a more neutral stance, but it’s shocking to see legislators openly opposing one of the biggest job creators in the state. This kind of interference sends a strong message: we’re not business friendly. In fact, we do just about everything to discourage business investment.
Take Fairfield County, for example. It’s one of the wealthiest regions in the entire country. And yet we continue pushing tax-the-rich policies—gift taxes, estate taxes, capital gains taxes—you name it. There’s always another proposal aimed at high earners.
Heritage Foundation recently released a report titled “If You Tax Them, They Will Run,” and that’s exactly what’s happening. Between 2020 and 2023, we lost around 20,000 residents to lower-tax states. The environment here is hostile—not just to businesses, but to anyone who’s earning and contributing to the economy.
The other day we had a state rep, forgot that the microphones were on. She’s a rep for one of the wealthier towns in the state. She said, “Oh, tax my people. They won’t even notice.” Our go-to is to tax the high earners, to tax the businesses.
Sometimes, when I think of Connecticut I think of those rich folks, they may have an apartment in Manhattan and live in Connecticut. There are certainly people like that in the Southwestern part of the state. There’s a lot of working-class people in Connecticut, too, that are burdened.
Portfolio: Yes, and it’s almost like they want to eradicate us, the middle class.
Let’s end on a more positive note. What do you like most about living in Connecticut, and what would you most like to change?
Portfolio: One of the things I really like about Connecticut is its size. It’s a small state, and that gives us a strong sense of local control. If you ever drive through here, you’ll see just how much character our towns have. We get all four seasons, and it’s a beautiful place to live.
I lived in Boston for a while when I was younger, and the big-city life had its time and place—but as I’ve gotten older, I appreciate the quieter life. I want a yard, so I can be that guy who yells, “Get off my lawn!” Connecticut just feels like home. I don’t want to leave. My friends and family are here.
Looking ahead, I’d love to retire here in 25 years. I want a comfortable retirement. I don’t want to be scraping by. Hopefully, we can turn things around a bit so that staying here remains a real option.
