Connecticut is in a pretty good financial spot overall.

That was part of the message from State Treasurer Erick Russell, who visited Newtown two weeks ago to offer a State of the State address ahead of opening the floor for Q&A. Approximately 45 people gathered in a meeting room at Newtown Senior Center, including First Selectman Jeff Capeci, Selectmen Michelle Embree Ku and Dan Cruson, and members of the Board of Finance and Legislative Council.

Russell opened his July 28 presentation by offering an overview of his work in the state capital. “The most common question that I get is, ‘We know you manage money, but what else do you do?’” he said, drawing laughs.

Core functions of his office, he explained, include cash management, “which speaks for itself”; debt management, or bonding programs, which funds a lot of school construction, housing, childcare facilities, transportation infrastructure, and similar programs across the state; safeguarding and returning unclaimed property to rightful owners; and pension funds management, or the administration of Connecticut Retirement Plans and Trust Funds (CRPTFs), six state pension funds and 12 trusts.

Russell also briefly touched on some of the programs his office oversees, including CHET, the state’s tax-advantage college and education savings program; ABLE, a similar savings program for those living with disabilities; and CT Baby Bonds, a program launched July 1, 2023, and which he later covered in more detail.

Before taking questions, Russell also highlighted key accomplishments of his office this year including new CHET tax credit for state businesses and the expansion of ABLE; the establishment of the CT Safe Harbor Fund, and the growing coalition with other states to have similar funds for individuals who need to travel from states where access to reproductive health care or gender affirming care are restricted, to help them travel “to Connecticut or other states that allow for that care so that they can get the safe and compassionate care that they need”; growth of the CT Baby Bonds Trust Fund and initial outreach to 33,000 families; and making the cap and payment for the Special Transportation Fund (STF), which is used for all highway and road infrastructure and bridge repairs.

“We have a lot of extra money in that fund,” he explained of the STF. The state last year instituted a cap that allows only 18% access to funds in STF. Anything over that is used to pay down special transportation debt.

“The reason that’s important is we paid off $570 million in debt last year, which is going to save taxpayers over $700 million over the next ten years,” he said. “This is all about making sure we continue to invest in transportation infrastructure while doing so in a way that’s really efficient for folks in our state.”

The Office of the Treasurer has also strengthened consumer protections in towing laws, put unclaimed property into the hands of rightful owners faster than previous years, expanded access to the Firefighter Cancer Relief Fund, which assists firefighters and their families in the event a firefighter gets cancer; and what Russell said he was most excited about: the launch and investment of $300 million into the Early Childhood Education Endowment.

“This was an initiative that was led by the governor and the Legislature, that we worked very closely on,” he said. “The idea is we will be investing those funds and we will continue to add surplus money to this endowment every year, with the goal of having quality, affordable childcare for everyone in our state over time.”

The expectation is that by 2028 any family in Connecticut making under $100,000 a year will have access to the endowment, he said. The fund is not only about providing access to childcare for families struggling with the decision to return to the workforce or care for children, “it is also about growing the economy and getting people back to work.”

Russell’s office differs from other state Offices of the Treasurer, he later explained, because his serves as the principal fiduciary for the state’s pension assets. His office also differs from most others at the state level because of its focus on the long run.

“It’s a forward-looking office. Where a lot of government and elected offices are focused on one budget cycle at a time, or one election cycle at a time, a lot of the decisions I’m making won’t bear fruit until 10 or 15 years down the road,” he said. “I like to approach the broader work we’re doing and I think that there’s a real role for government to start thinking longer term.

“The idea with this childcare account is that it self sustains,” he continued. “When we get to a spot where that endowment has reached a point where there’s a billion and a half dollars in that endowment, what we’re spending off from that endowment is going to fund universal pre-K and childcare. That’s something that’s going to be sustainable and going to help build this state out for the future and make it more equitable.”

State Finances, Federal Cuts

Russell added to his opening statement Monday evening by saying the state’s finances are “strong, and it puts Connecticut in a stronger position than most other states to deal with volatility at the federal level.

“We’ve had seven balanced budgets with surpluses, we have a full Rainy Day Fund at 18% of our budget, so there is over $4 billion dollars sitting in the Rainy Day Fund right now in the event that we experience an economic downturn or some challenge.

“We’ve cut taxes in recent history,” he continued. “At the end of this fiscal year, once we close the books, we’ll likely have another billion-plus dollar transfer into our pension fund, as an additional contribution, which will bring us close to $10 billion in extra contributions into our pension fund over the last few years.”

There is a lot of progress being made, Russell said. Connecticut has a volatility cap “which is where some of that is coming from,” he said. The state can look at the federal budget and determine what it needs to do with those additional resources “to backfill some of the anticipated cuts that we expect to see coming,” he added.

In thinking about the state budget and overall fiscal health, Russell said, “we can’t lose sight of the fact that we’ve been making really significant contributions into the state and into people, and thinking about programs that are creating more opportunity, that are lifting folks up who are struggling, really focusing on affordability as we think about what we want the future of the state to look like.”

Russell cautioned that while those notes were positive, the federal budget will “hit really hard. Unfortunately, the budget that’s being rolled is most directly impacting the most vulnerable folks in our state and across the country.”

Cuts are coming to what he called “core safety net programs,” including Medicaid, food assistance programs, and access to housing assistance. At the same time, “massive” tax cuts will be offered to “wealthy folks and large corporations.” Many costs, either through direct budget cuts or administrative cuts that are also being passed down to states, he added.

The proposed federal budget adds $4 trillion to the deficit, Russell said.

“I see that as swiping the credit card for young people in the future generations in this country, who will ultimately be the ones tasked with having to pay this back,” he said. A lot of the policies have been presented in fits and starts, he also noted, leading to questions on how programs will be run. Terming it “dangerous” to offer “a general chaos and uncertainty” surrounding any economics, Russell pointed toward recent federal healthcare coverage announcements.

“We’re expecting about 17 million people to be stripped of healthcare benefits, with over $1 trillion cuts to Medicaid across the board,” he said. “When you think about food assistance programs, we’re at a time right now where inflation remains high. It is more expensive than ever for people at the grocery store, and we are eliminating food benefits to over 3 million people in food assistance programs.

“We’re seeing, again, the folks who are most directly impacted by these programs are going to be the people who are most in need in our state,” he said. Massive cuts to education and housing assistance programs is going to impact over 2 million people who are currently receiving vouchers for housing assistance, he said.

Those cuts tie directly in to Connecticut. Connecticut currently receives approximately $6.5 billion from the federal government for Medicaid support. Russell believes the incoming federal budget will reflect a $1.5 billion cut to that figure.

Children and senior citizens on Husky or Medicaid programs will be impacted, as will the majority of nursing home residents. Russell said 75% of Connecticut’s senior home residents rely on Medicaid for their housing and care.

In addition to covering the costs of those cuts, Connecticut will also be required to administer the programs, “which is adding a very significant cost just in terms of technology and personnel.

“It’s a really difficult time,” he admitted. “We’re in a spot where we’re going to be able to backfill, with particular focus to make sure we’re protecting the most vulnerable in our community, but it’s going to be a tough challenge and we’re certainly not going to be able to cover everything.”

Three key points at the federal level — tariffs, deportations, and the deficit — have reached Connecticut’s inflation at different rates. The state has not yet been affected by tariffs, he said, thanks to a lot of pre-buying of imports.

While many companies continue to report earnings, there is also a slowdown on hiring and postponing the launch of new projects. The drive in costs will be seen in the third and fourth quarter of this year and beyond, he said.

The deportation policy, and even the detainment of people who are here legally as well as those who are undocumented, “is having a huge chilling affect on business and is driving up costs, which ultimately will be inflationary, which in turn adds to the deficit,” he said.

Russell believes Connecticut is in a strong position overall, he reiterated, before cautioning “we’re going to see some of these impacts, and we’re trying to make sure from the Treasurer’s Office and the State more broadly that we are positioning ourselves to withstand some of this volatility in the short term but also the next couple of budget cycles, which we’re going to be impacted by.”

CT Baby Bonds

Any child in Connecticut born into poverty, which Russell said is any child born whose birth is covered by HUSKY, automatically has $3,200 invested in a trust on their behalf. The funds then grow through the life of that child, said Russell, who manages that trust. The funds can be accessed by the trust’s namesake between the ages of 18 and 30, for wealth building purposes.

“They can use that to help purchase a home here in Connecticut, to start or invest in a Connecticut business, to help pay for post-secondary education or job training, or to roll into a retirement savings account,” he explained.

At the program’s two year point, over 33,000 children have been born into CT Baby Bonds.

“Half the children born in Connecticut are born at or below the poverty level,” he stated.

The program sparked much interest from those in attendance last week, with multiple questions by attendees.

CT Baby Bonds, Russell explained, is part of the state’s broad CRPTFs portfolio. Investments can be a little more aggressive, he said. Liquidity is not a big concern, he added, which allows stronger returns.

“That being said, we are not being hyper-aggressive with those funds,” he said. “We still have it based on a 6.9% rate of return, just like our pension funds. We’ve been significantly outperforming that.”

Another attendee asked Russell to confirm the number he’d mentioned earlier concerning the number of this state’s children born into poverty.

“There are children born into this program from all 169 communities in Connecticut,” he said. “Poverty isn’t always what you think it looks like.

“It’s startling, and it’s not just a Connecticut problem,” Russell added.

A similar program at the federal level, he pointed out, “is not CT Baby Bonds. If you’re giving the same amount to everyone, that further exacerbates the problem. The federal program is passing on wealth to those who already have resources. The wealth gap is widening.”

Answering another question, Russell said CT Baby Bonds does not go with a child born into the program if they move out of state.

“You have to be a Connecticut resident to access funds, and you need to attend financial education before you can access them,” he said.

Questions From The Floor

Attendees also asked about the prospect of the Fed lowering of interest rates and what that would do to inflation, whether Connecticut has any investments in cryptocurrency, what can be done to address Medicaid cuts, whether the state is prepared for the costs of future natural disasters, and utility costs.

One of the first questions was what would happen to the state education department if federal funding is cut.

“Do any of those tax dollars come back or are they going to keep those tax dollars and then we’re on our own,” one woman asked. Russell’s response was the reiteration that many programs are being cut, “programs that a lot of people count on, while they’ve put more money into defense budgets and ICE, while also adding trillions of dollars to the deficit. It’s not even a balanced budget as they are cutting some of these core programs,” he said.

Calling Connecticut a donor state — “We send a lot more money to the federal government than we get back from the federal government because we subsidize a lot of other states,” he said to explain the term — Russell said this is where it is important for people to step up and push back.

“Make sure we have budgets that reflect what people are actually looking for,” he said.

Noting that the Northeast, and Connecticut, has an aging population, First Selectman Capeci asked about the state pension funding.

“I don’t know what the ratios of workers to retirees are today, but I’m sure they’re much lower than they were a generation ago, so what are you planning to ensure the solvency of the pension program that you oversee?” he asked.

Russell said he and others have done “a lot of work to make sure that we are set up for long-term success with the funds.” In 2019 the state re-amortized the Teachers Retirement Fund, he said, which, similar to refinancing a mortgage, “leveled out how much we have to pay annually to meet our fully funded status 30 years down the road. We have that flat re-amortization, but we are making our contributions on an annual basis. That, combined with performing well, makes sure we are solvent and stable as a fund and then we’ll reach that fully funded status in 2048,” he said.

The state makes additional contributions, he added, which lowers how much needs to be paid in on annual basis. Those contributions free up other money in the budget, allowing the funds to be used for other programming and services “for things like tax cuts, which happened a few years ago.”

Changes to the system also mean the entire program looks different from predecessors.

“Tier one employees from decades ago with retirement packages look nothing like what I had as a tier four employee, which is essentially a 401k program,” Russell said. “It’s the combination of all of those things that are putting us on track where the pension fund will be solvent and fully funded as long as we continue our commitments from a budget perspective.”

A follow-up question was posed from another audience member, who wanted to know if the fund would be touched if the state takes a downtown and needs to access its Rainy Day Fund.

“Do you then start to go into those pension and retirement funds?” asked the man, who said he is a teacher who will not have access to the funds for decades.

Russell assured him the funds would not be touched.

“There is no interest” in touching them, he stated. “These are benefits that are owed and obligated to people. We don’t have a choice as to whether or not we’re going to pay out those ultimate benefits … There is really strong support across the legislature and across state government to make sure that we do not turn back to the ways of old,” getting into a position where pension funds are looked at or accessed for anything other than what they are meant for, he said.

Connecticut’s pension fund asset returns have outperformed those of peer states “pretty significantly,” another attendee noted. “That’s awesome,” the man said, before asking “What do you see as your ‘secret sauce’ there?”

Russell acknowledged “the great team” he works with, and said one of his first goals in office was to build an investment culture, “a culture of excellence and having the right people to deliver on the strategies that we laid out.”

He and his team built and work with an investment advisory council, “really experienced investment folks that help us to advise our investment strategy,” among other guidelines, he said.

Russell said there is still “plenty of work to do,” but he feels he and others are starting to see the impacts of many changes that have already been instilled. Returning to an earlier point, Russell again said his work is to make sure people will be set 50 years from now, not just a year or two.

“It’s making sure we’re setting up for long-term success,” he said. “There’s going to be years the market’s down, and we’re going to perform at 2%. It’s why chopping up these 11 and 12% years, it’s all about balancing out those years over long-term periods of time.”

As questions wound down Russell offered his thanks again to those who hosted the program, including the League of Women Voters, and everyone in the room who attended. He offered to stay to speak directly with anyone who had additional questions. Many accepted that invitation, including three women from Norwalk who quickly asked if he would do a similar presentation in their city.

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Managing Editor Shannon Hicks can be reached at shannon@thebee.com.