One reason the enacted 2025–27 operating budget is not sustainable is that legislators ignored the shortfall in the state liability account, even though they knew that it faced a substantial deficit at the end of June 2025. As I wrote in July, net income to the account had been negative since FY 2015, despite a $217 million backfill from the general fund–state in 2022.

Now, the Department of Enterprise Services (DES) is saying that the liability account problems represent a “permanent cash deficiency in the account.” According to a 2026 budget request from DES, the shortfall at the end of the 2023–25 biennium was $569.5 million.

As the request notes, the account “is used to pay settlements, tort claims, and judgments arising from general liability for which the state is found to be wholly or partially negligent. The account also pays for legal defense costs and insurance premiums.” Indemnity payments have increased recently, driven by cases involving the Department of Children, Youth, and Families (DCYF).

For the 2026 supplemental budget, DES is requesting a one-time backfill of $569.5 million for the account and an ongoing increase to its funding model. Currently, agencies pay premiums through the state’s central service model, based on the state’s actuarially-estimated liabilities. The premiums are allocated to agencies based on their past six years of claim experience. In the enacted 2025–27 budget, liability account premiums total $330.8 million statewide. Of that, DCYF pays $205.8 million.

The DES budget request includes three potential scenarios for the ongoing increase. It is not clear from the request if the following amounts are the additional funding needed or the total funding needed. The request says, “the central service model should be updated to include the following amounts.”

• Under the best case, in which revenues and expenditures are similar to those in 2023–25: $738.2 million in 2025–27 and $766.7 million in 2027–29.
• Under the mid case, in which revenues are similar to those in 2023–25 but expenditures increase: $815.2 million in 2025–27 and $1.336 billion in 2027–29.
• Under the worst case, in which revenues are similar to those in 2023–25 but expenditures increase by even more, $833.3 million in 2025–27 and $1.858 billion in 2027–29.

If neither the one-time nor the ongoing funding requests are granted, DES estimates that the liability account shortfall could grow to:

• $1.308 billion in 2025–27 and $2.074 billion in 2027–29 in the best case;
• $1.385 billion in 2025–27 and $2.721 billion in 2027–29 in the mid case; and
• $1.403 billion in 2025–27 and $3.261 billion in 2027–29 in the worst case.