Fixed Costs

Fixed costs are an increasing portion of the Connecticut state budget. Fixed costs are expenditures that the State is obligated to make. According to Connecticut’s Office of Policy and Management and the General Assembly’s Office of Fiscal Analysis, fixed costs include the State's contributions to its state employee and teacher pension systems, debt service payments on the State's prior years' bond allocations, Medicaid, and other post-employment benefits (OPEB) for retired state employees. Other post-employment benefits include: medical, dental, life insurance and prescription drug coverage for retirees.

Connecticut's fixed costs have risen from 35 percent of General Fund expenditures in fiscal year 2000 to 47 percent of General Fund expenditures in fiscal year 2016, an increase of 12 percentage points. Additionally, fixed costs have risen in terms of total dollars, from $5 billion in fiscal year 2000 to $8.6 billion in fiscal year 2016. This is a 72 percent increase in the whole-dollar amount of fixed costs.

Contributing to this increase have been the State's rising contributions to the State Employees Retirement System (SERS) and Teachers' Retirement System (TRS), as well as increases in debt service payments and Medicaid spending. Since fiscal year 2000, the State's contributions to SERS and TRS have increased by $814 million (270 percent) and $703 million (242 percent), respectively. While in fiscal year 2000 contributions to SERS and TRS accounted for 11.8 percent of Connecticut's total fixed costs, they accounted for 24.6 percent in fiscal year 2016.

Along with increased contributions to the State's pension systems, Connecticut's fixed costs have risen over the years as a result of larger debt service payments. Debt service payments are payments made to investors on bonds that have been previously issued to fund state and local building projects, equipment and information technology, and infrastructure construction. Since fiscal year 2000, debt service payments have increased from roughly $1.3 billion to $2 billion in fiscal year 2016 — an increase of $689 million or 52.4 percent. However, during that time period, debt service payments have gone from accounting for 26 percent in fiscal year 2000 of the State's total fixed costs to 23 percent in fiscal year 2016.

As the State's fixed costs are increasing, the amount of money available for the discretionary — or non-fixed — portion of Connecticut's General Fund is shrinking. While both fixed and non-fixed costs have increased overall since fiscal year 2000, fixed costs have increased at a much higher rate. From fiscal year 2000 to fiscal year 2016, Connecticut's non-fixed costs have increased by $350 million or 3.8 percent.

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