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January 4, 2016
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 November 30, 2015.
The Office of Policy and Management (OPM) is projecting that the General Fund will close Fiscal Year 2016 with a small positive balance of $0.2 million. This is after adjusting for the deficit mitigation requirements of Public Act 15-1 of the December Special Session (PA 15-1). That act implements $214.3 million in spending reductions and $135.8 million in revenue enhancements.
The positive position of the Transportation Fund has decreased by $7.4 million from last month's estimate, which brings the current projected Fiscal Year 2016 balance to $180 million. PA 15-1 delays the transfer of $35.3 million of sales tax revenue to the Transportation Fund. Lapses are increased by $27.9 million this month.
The above estimates are reasonable based on the provisions of PA 15-1 and current economic conditions. To date, Fiscal Year 2016 revenues have failed to meet original budget targets resulting in policy changes that increase transfers to the General Fund and reduce planned spending.
At this time, General Fund revenues are estimated to close the fiscal year $81.7 million below the budget plan. The largest revenue reduction has been to the income tax, which has been revised down by $189.4 million. Slow wage growth and stock market volatility have caused the underperformance of the income tax. In Fiscal Year 2015, 44 percent of total estimated income tax payments were collected in December and January. Therefore, through January additional data will become available on the revenue impact of the August stock market downturn on income tax receipts. New consensus revenue forecasts are due on January 15th. A complete accounting of General Fund revenue adjustments is contained on Exhibit C of this letter.
After adjusting for future deficiency transfers, General Fund spending is
expected to fall $281.7 million below initial budget expectations. Active budget
management by OPM and the implementation of the provisions of PA 15-1 should
make this savings target attainable.
While the state has been adding jobs at a consistent pace since the middle of 2014, wages have not rebounded at the rate experienced during other periods of sustained employment growth. The slow advance in wages has been attributed to the composition of job growth by employment sector with lower paying sectors adding the most jobs, and to slow growth in worker productivity. Connecticut, like many other states, is likely to continue to experience significant budget pressure until both employment and wages return to normal expansionary growth patterns.
According to the Department of Labor, preliminary November nonfarm employment estimates indicated that Connecticut gained 5,100 jobs in November. October's original estimate of 2,200 job losses improved slightly to a loss of 1,700 jobs. Connecticut is now estimated to have added 26,800 nonfarm positions over the last 12 months. U.S. employment has been advancing at a rate of 1.9 percent over the twelve-month period ending in November; Connecticut's employment growth was 1.6 percent for the same period.
Connecticut's unemployment rate was 5.1 percent in November; the national unemployment rate was 5.0 percent. Connecticut's unemployment rate has continued to decline from a high of 9.5 percent in October 2010. There were 96,500 unemployed job seekers in Connecticut in November. A low of 36,500 unemployed workers was recorded in October of 2000. The number of unemployed workers hit a recessionary high of 177,200 in December of 2010.
The Department of Labor reports that average hourly earnings at $29.82, not seasonally adjusted, were up $1.16, or 4.0 percent from the November 2014 estimate. The resulting average private sector weekly pay was calculated at $1,010.90, up $30.73, or 3.1 percent higher than a year ago. There are some early signs that an improvement in wage growth may occur in 2016.
According to a December 3rd release by the Warren Group, October single family home sales in the state increased 9.2 percent from the prior year's October. This was the highest October single-family sales number since 2006. However, in October 2006 the median price of a single-family home in the state was $276,600. In October 2015 that price was $235,000, down 2.1 percent from October 2014 and down 16.8 percent from 2006. Condominiums have followed a similar pattern of rising sales numbers but falling prices.
The Bureau of Economic Analysis reports that GDP increased at an annual rate of 2.0 percent in the third quarter of 2015. In the second quarter, real GDP increased 3.9%. The deceleration in real GDP in the 3rd quarter primarily reflected a downturn in private inventory investment and decelerations in exports, in personal consumption expenditures, in nonresidential fixed investment, and in state and local government spending that were partly offset by a deceleration in imports.
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