In the 2025 legislative session, the Connecticut General Assembly voted to exceed the state’s constitutional spending cap, a fiscal guardrail that limits how much the state budget can grow each year to address agency cost overruns, including a $284 million Medicaid shortfall. While this was a legally defined and procedurally valid step, it is one that does not happen often and was the first time the cap had been exceeded since 2007. Debating this action during session raised many questions about how the spending cap works, when it can be exceeded, and what it means for the state’s budget process. Let’s take a closer look at what the state spending cap is, how it works, its purpose, and why it was exceeded this year.
What Is the State Spending Cap?
The spending cap is a limit on how much the state budget is allowed to grow each year. It was created in 1991, during a time of major economic uncertainty, and was written into the state constitution. The purpose was to restrain spending by tying growth in the budget to how well the economy was doing.
In practice, the cap says that the state can’t increase spending faster than the greater of two things:
- Growth in personal income in the state, or
- The rate of inflation
Certain expenses, like federal grants, debt payments, or pension contributions, are excluded from this cap. But the bulk of the state budget is subject to it. There are times when the state will change how something is funded trying to remove that expense from being counted as part of the cap.
Can the Cap Be Exceeded?
Yes, although it is rare Connecticut does permit it under specific conditions outlined in state law.
To go over the cap:
- The Governor must declare an emergency or extraordinary circumstance.
- Three-fifths of the members in both the House and the Senate must vote to approve it.
What Happened in 2025?
During the 2025 legislative session the state is tasked with setting a biennial state budget, Connecticut was facing an extraordinary Medicaid budget shortfall of $284 million, this shortfall along with a plea from non-profit providers to increase Medicaid reimbursement rate made the budget process extremely difficult. Medicaid is a vital program that provides healthcare coverage for low-income families, seniors, and individuals with disabilities. Without action, services would have been disrupted or lost, with providers acknowledging that without an increase they may not be able to continue providing services.
On May 20, 2025, the legislature voted to exceed the spending cap to cover this shortfall with the passage of the state budget.
- The House voted 98 to 46.
- The Senate voted 24 to 10.
Has This Happened Before?
Yes, but not often. The legislature has only voted to exceed the cap eight times since it was created in 1991.
Some past examples:
- 1998: To fund a tax rebate and state IT upgrades ahead of Y2K.
- 2005: For stem cell research and nursing home care.
- 2007: To spend surplus funds on multiple General Fund projects.
What This Means for the Budget Process Going Forward
Connecticut’s spending cap is a key part of how the state manages its budget. It helps tie spending growth to the state’s economic performance, while still allowing flexibility under clearly defined circumstances. Votes to exceed the cap are one way the state can respond to fiscal challenges, and they are part of the broader process of balancing long-term budget discipline with immediate public needs. Understanding how this process works, including the conditions that allow for exceeding the cap, helps to stay informed about how financial decisions are made at the state level.
As part of the agreement, approximately $255-$260 million of the state’s current-year operating surplus will be carried forward into the next biennial budget cycle for FY26-FY27. Because these funds were already appropriated under the current year’s spending cap, they do not count as new spending in the upcoming cycle.
In other words, when Connecticut carries surplus funds from one fiscal year into the next, those dollars are treated as part of the prior year’s budget and therefore do not apply toward the cap in the new fiscal year.
This approach increases the amount available for future appropriations without exceeding the spending cap threshold again. It offers added flexibility to fund areas such as:
- Health care (e.g., Medicaid, nursing home support)
- Education (e.g., special education, early childhood programs)
- Municipal aid (e.g., local government and school district funding)
- Human services (e.g., developmental disabilities, mental health care)
These examples reflect current policy priorities, but they do not represent an exhaustive list. The flexibility afforded by carryforward funds is not limited by law to specific categories, though in practice, allocation decisions are often guided by stated legislative and executive priorities for the upcoming budget cycle.
Connecticut’s current spending cap structure, updated in 2017, remains in place by statute and agreement until July 1, 2028. The 2025 vote did not alter those rules, rather, it utilized a provision within the cap framework that allows the cap to be exceeded if:
- The governor declares a fiscal emergency or extraordinary circumstance, and
- At least three-fifths of both legislative chambers approve the action.This process remains available to future administrations and legislatures under similar conditions.
This process remains available to future administrations and legislatures under similar conditions.
The 2025 cap vote reflects the state’s use of existing legal tools to address short-term budget needs while remaining within the broader fiscal framework in place through 2028. As budget development continues, both the spending cap and available surplus resources will remain central to how the state balances long-term planning with emerging priorities.
