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October 1, 2015
The Honorable Dannel P. Malloy
Governor of the State of Connecticut
State Capitol
Hartford, Connecticut
Dear Governor Malloy:
I write to provide you with financial statements for the General Fund and the Transportation Fund through August 31, 2015.
The Office of Policy and Management (OPM) is projecting that the General Fund, after accounting for $102.8 million in rescissions announced on September 18th, will close with a Fiscal Year 2016 balance of $0.6 million. The budget plan anticipated a General Fund balance of $0.8 million at the close of Fiscal Year 2016. After adjusting for Fiscal Year 2015 accrual activity, the Transportation Fund is expected to close Fiscal Year 2016 with a balance of $212.9 million.
OPM has revised the General Fund revenue projections for Fiscal Year 2016 downward by $96.1 million from last month. The largest adjustment is to the income tax, which is reduced by $86.4 million this month primarily reflecting the recent stock market correction. This coupled with $6.9 million in additional spending requirements resulted in the $102.8 million in rescissions intended to keep the budget in balance based on OPM's current estimates.
I believe that the OPM revenue projections fall within an acceptable estimation range. The revenue shortfall identified by OPM represents about one-half of one percent of anticipated Fiscal Year 2016 General Fund revenue. There is no question that current volatility in financial markets has complicated the budget outlook for Fiscal Year 2016. OPM is utilizing past historical trends to project the impact of the market decline on income tax receipts. This is an accepted and reasonable approach. However, I would note that there has been a dramatic decline in trading volume since the market crash of 2008-2009. Households have increasingly moved into index funds and Exchange Traded Funds (ETFs) that some analysts have attributed to the general decline in trading volumes. This decline may result in less volatile fluctuation in receipts going forward. I would also note that the fundamentals of the Connecticut economy are strengthening.
Past practice has been to delay implementation of rescissions until late November when a clearer picture of revenue receipts emerges through the consensus forecast. All three mitigation plans submitted in Fiscal Year 2015 came after November19th and totaled a cumulative $100 million. I understand the desire to avoid reacting too late and ending the year in deficit. However, this must be weighed against implementing large cuts to critical programs serving state residents, which may also have an adverse impact on Connecticut's economy as it finally begins to gain traction.
According to the Department of Labor, preliminary figures show that
Connecticut gained 3,200 payroll positions in August. This follows a revised
July gain of 3,800 jobs. Over the past twelve-month period ending in August, the
state has added 33,200 positions due to a steady acceleration in job growth.
Connecticut has now recovered 104,900 positions, or 88.2 percent of the 119,000 seasonally adjusted total nonfarm jobs that were lost in the state during the March 2008 - February 2010 employment recession. Connecticut's jobs recovery is now 66 months old and is averaging about 1,589 jobs per month since February 2010.
Connecticut's unemployment rate was 5.3 percent in August; the national unemployment rate was 5.1 percent. Connecticut's unemployment rate has continued to decline from a high of 9.5 percent in October 2010.
The Department of Labor reports that average hourly earnings at $29.24, not seasonally adjusted, were up $1.26, or 4.5 percent, from the August 2014 estimate. The resultant average private sector weekly pay was figured at $991.24, up $45.52, or 4.8 percent higher than a year ago. While this is an improvement over prior month gains, Connecticut, like the nation, has yet to establish a pattern of expansionary wage growth.
According to a report from the Warren Group released on September 9th, Connecticut single family home sales increased 11.9 percent in July from the prior year. The median sales price for single-family homes in Connecticut in July was $271,000, a 1.4 percent decrease from July 2014's median of $275,000. Sales varied significantly by county.
On September 25th, the Bureau of Economic Analysis reported that the third estimate of GDP in the 2nd quarter of 2015 showed growth of 3.9 percent (up from the second estimate of 3.7 percent). Growth in the 1st quarter of 2015 was 0.6 percent. Due to the poor economic performance in the winter, it may be difficult for GDP to attain a growth rate of 3% or better for the year.
I also issue a Comprehensive Annual Financial Report (CAFR) as an accounting
supplement to the budgetary report. The CAFR includes financial statements for
all state funds and component units prepared in accordance with Generally
Accepted Accounting Principles (GAAP). From a balance sheet perspective, the
GAAP shortfall or unreserved fund balance in the General Fund was $727.2 million
as of June 30, 2014. GAAP deficit reduction bonds in the amount of $598,500,000
were issued in Fiscal Year 2014 to reduce the shortfall. Results for Fiscal Year
2015 will be published at the beginning of the new calendar year.
Sincerely,
Kevin Lembo
State Comptroller
To view the data in Excel format, click here:
General Fund: A-D
Transportation Fund: E-H