August 1, 2024
The Honorable Ned Lamont
Governor of the State of Connecticut
State Capitol
Hartford, Connecticut
Dear Governor Lamont,
I write to provide you with financial statements for the General Fund and the Transportation Fund through June 30, 2024. The Office of the State Comptroller (OSC) is projecting the General Fund will end Fiscal Year 2024 with a $329.3 million surplus and the Special Transportation Fund will end Fiscal Year 2024 with a $277.3 million surplus. OSC is in general agreement with the Office of Policy and Management’s (OPM’s) General Fund and Special Transportation Fund projections. The following analysis of the financial statements furnished by OPM is provided pursuant to Connecticut General Statutes (CGS) Section 3-115.
General Fund
The General Fund is projected to end Fiscal Year 2024 with a surplus of $329.3 million, which is $104.7 million more than last month’s projection and $70.4 million lower than budgeted.
The increase in the projected surplus is due to upward revisions in revenues totaling $46.2 million coupled with reductions to projected expenditures. On the revenue side, federal grant revenue was revised up by $33.6 million and all other revisions result in a net revenue increase of $12.6 million. Upward revisions to final and estimated income tax and the pass-through entity tax of $140 million and $50 million, respectively, will increase the volatility cap transfer from the General Fund to the Budget Reserve Fund by $190 million.
On the expenditure side, net expenditure projections were revised down by $58.5 million this month, increasing the surplus. Projected lapses increased by approximately $56.6 million and projected outlays for Adjudicated Claims decreased by $2 million. Total expenditures, including amounts to be carried forward into Fiscal Year 2025, are projected to exceed the adopted budget by $171.1 million.
Special Transportation Fund
The Special Transportation Fund (STF) is projected to end the fiscal year with a $277.3 million surplus, $0.3 million greater than the prior month’s projection and $73.1 million higher than budgeted. The slight increase is the result of upward revisions in revenues totaling $0.7 million, which were partially offset by an increase of $0.4 million in net expenditure projections. The current forecast would result in a positive balance of $956.4 million at fiscal year-end.
Budget Reserve Fund
Based on current estimates, $1.3 billion in volatile revenues from final and estimated income taxes as well as pass-through entity tax payments would be made to the Budget Reserve Fund (BRF) at fiscal year-end. After adding the projected General Fund surplus of $329.3 million, the BRF balance is anticipated to be approximately $4.9 billion or 22.4 percent of net General Fund appropriations, before statutorily required transfers, by the end of Fiscal Year 2024.
Economic Indicators
The U.S. economy is expected to grow moderately this year, with preliminary figures for second quarter growth coming in higher than expected at a 2.8 percent annual rate. Confidence has increased that inflation will continue to decline, setting up the Federal Reserve to cut interest rates at least once this year in response to labor market loosening. Consumers are being more cautious with their spending, but retail sales have not deteriorated. Businesses have been building up their inventories and making investments in equipment and software at a solid pace.
Home sales continue to slump, as high mortgage rates and increasing prices reduce affordability. Sales of existing homes fell 5.4 percent nationally year-over-year in June, while sales of new homes fell 7.4 percent. The median U.S. existing home sale price hit another all-time high of $426,900 in June. Nationally, inventories of unsold houses have begun increasing, which should ease price pressures; however, Connecticut continues to see fewer homes for sale year-over-year.
Inflation data has been encouraging. The Consumer Price Index (CPI) declined 0.1 percent in June, for an annual rate of 3.0 percent. Core CPI, which excludes volatile food and energy prices, increased only 0.1 percent over the month—the lowest such increase since August 2021. While price growth remains above the Fed’s two percent target, it is moving in the right direction again after some unexpected bumps this spring.
The still-strong U.S. labor market has shifted into a lower gear. The national unemployment rate ticked up to 4.1 percent (from 4.0 percent in May)—a level not seen since November 2021—as companies have slowed their hiring. The nation added 206,000 jobs in June, but the three months ending in June saw the lowest average job growth since early 2021. The number of U.S job openings in May was down 13 percent for the year.
Contrary to the national trend, the Connecticut unemployment rate fell for the third straight month to 3.9 percent in June, from 4.3 percent in May. Nonfarm payrolls added 3,300 jobs in June, with gains in five of the industry super-sectors more than offsetting net losses in four others. Job openings in Connecticut remain elevated compared to pre-pandemic levels.
The 2.8 percent growth rate in second quarter real gross domestic product (GDP) primarily reflected increases in consumer spending, private inventory investment, and nonresidential fixed investment. Imports, which are a subtraction in the calculation of GDP, also increased. In the first quarter of 2024, real GDP increased 1.4 percent.
My office also issues an Annual Comprehensive Financial Report as an accounting supplement to the budgetary report. This annual report 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 unassigned fund balance in the General Fund was a negative $643.9 million as of June 30, 2023.
If you have any questions on this report, please do not hesitate to contact me.
Sincerely,
Sean Scanlon
State Comptroller