When Connecticut’s budget makes news, the same four or five terms keep coming up: the spending cap, the volatility cap, the rainy day fund. They are the state’s fiscal guardrails, rules that limit how fast spending can grow and force savings when revenue surges. This explainer follows the Office of Legislative Research’s November 25, 2025 report on the guardrails (OLR 2025-R-0142) and describes what each one does. For the budget itself, read our budget basics guide.
The spending cap
The spending cap limits how much General Fund spending can grow from year to year. It appears in Article III, section 18(b) of the state constitution and in Connecticut General Statutes §2-33a. Allowable growth is the greater of the five-year compound growth in personal income or inflation. OLR gives the allowable growth rates as 4.0% for FY25, 5.1% for FY26 and a projected 5.9% for FY27.
The legislature can exceed the cap only if the governor declares that extraordinary circumstances exist and at least three-fifths of the members of each house vote to do so.
The revenue cap
A separate rule, the revenue cap, limits General Fund appropriations to 98.75% of estimated revenue, a figure that has applied beginning in FY23, according to OLR. It is intended to keep the budget balanced with a small margin.
The volatility cap
Some revenue, such as income tax receipts tied to capital gains, can swing sharply from year to year. The volatility cap sets a threshold for that kind of revenue: money above it cannot simply be spent on ongoing programs and is directed to savings and other statutory purposes. OLR lists the thresholds as:
- FY24: $3.78 billion
- FY25: $4.08 billion
- FY26: $4.73 billion
From FY27 on, the threshold is adjusted by five-year personal income growth. The legislature can change the thresholds by a three-fifths vote.
What happened in FY2026
The governor’s office said in May 2026 that revenue exceeded the volatility cap by more than $2 billion in FY2026, and that $813.7 million was invested under an extraordinary-circumstances declaration. The money was directed to schools, municipalities, the Federal Response Fund and Medicaid. Our budget explainer has the breakdown. OLR also reports that extraordinary circumstances were declared on November 12, 2025, in connection with $500 million going into the Budget Reserve Fund beyond its cap (Special Act 25-1).
The Budget Reserve Fund (the rainy day fund)
The Budget Reserve Fund is the state’s main savings account for economic downturns. It can hold up to 18% of net General Fund appropriations. Before Public Act 23-1, the limit was 15%. When the fund is at its maximum, additional surplus can be used for other purposes, subject to state law.
The bond cap and debt limit
Connecticut also limits borrowing. OLR reports a bond cap of $2.6 billion for FY26 and a statutory debt limit of 1.6 times net General Fund tax receipts. A “bond lock” limits changes to the borrowing rules through FY33 unless a resolution is adopted in 2028.
Why the rules matter
How tight these rules should be is a recurring subject of debate at the Capitol. This explainer does not take a side: it describes the rules as OLR does and links to the source so you can read them yourself.
Numbers are as of the OLR report date and may be updated by later legislation. If you find an error, tell us through our corrections page.
Sources
- Connecticut fiscal guardrails, OLR Report 2025-R-0142, November 25, 2025
- Governor Lamont signs FY 2027 state budget, May 26, 2026
Frequently asked questions
What is Connecticut’s spending cap?
A limit on growth in General Fund appropriations, set by the constitution and by statute. Allowable growth is the greater of five-year compound personal income growth or inflation, according to the legislature’s research office.
What is the rainy day fund?
The Budget Reserve Fund, which can hold up to 18% of net General Fund appropriations. Before Public Act 23-1 the limit was 15%.
Can the legislature exceed the spending cap?
Yes, but it takes a declaration by the governor that extraordinary circumstances exist, plus a vote of at least three-fifths of the members of each house.