July 3, 2023
The Honorable Ned Lamont
Governor of the State of Connecticut
Dear Governor Lamont,
I write to provide you with financial statements for the General Fund and the Transportation Fund through May 31, 2023. The Office of the State Comptroller (OSC) is projecting the General Fund will end Fiscal Year 2023 with a $745.9 million surplus, a decrease of $854.0 million from last month, and the Special Transportation Fund will end Fiscal Year 2023 with a $260.2 million surplus, an increase of $9.1 million from last month.
The following analysis of the financial statements furnished by OPM is provided pursuant to Connecticut General Statutes (CGS) Section 3-115. The Office of the State Comptroller is in general agreement with OPM’s General Fund and Special Transportation Fund projections.
The $845.0 million decrease in General Fund surplus is the result of a $323.9 million decrease in revenue projections and a $530.1 million increase in projected expenditures, both a result of the passage of the budget act, H.B. 6941 of the 2023 regular session. The $323 million decrease in revenue projections is primarily due to the elimination of the use of American Rescue Plan Act (ARPA) funding for General Fund revenue replacement. The $530.1 million increase in projected expenditures is driven by reducing projected lapses by more than $350 million as a result of carryforwards identified in the act, and increasing debt service expenditures by more than $211.7 million in order to effectuate the cancelation of the GAAP financing bonds issued in 2013.
The statutory revenue volatility cap requires receipts above a certain level to be transferred to the Budget Reserve Fund (BRF). OSC is currently projecting approximately $2.1 billion would be available to reduce unfunded pension liability for the State Employee Retirement System (SERS) and the Teachers’ Retirement System (TRS).
Despite economic uncertainties such as interest rates and inflation, Connecticut’s economy remains strong. Connecticut employers added 5,000 jobs in May, and April numbers were revised up to 1,200 added jobs after initially reporting that payroll was down 900 in April. Year-to-date Connecticut has gained 18,400 jobs in 2023. In May, Connecticut unemployment dropped to 3.7%, which was equal to the national unemployment rate (as opposed to higher) for the first time since June of 2020. Connecticut continues to see very low benefits filing with approximately 20,000 weekly unemployment claims, while employers currently have more than 100,000 jobs available.
There are several positive economic indicators at the national level as well.
The Federal Reserve paused the aggressive string of interest rate hikes it began in early last year to try to halt fast-rising prices. This pause offers a hint of relief for consumers who are grappling with pricier mortgages, credit cards and other loans after 10 consecutive rate hikes. The Federal Open Market Committee is next scheduled to meet July 25-26.
The Consumer Price Index (CPI) inflation report showed that inflation continued to moderate sharply on an overall basis in May. The Bureau of Labor Statistics reported the CPI rose 0.1% in May on a seasonally adjusted basis, after increasing 0.4% in April. Over the last 12 months, the all items increased 4.0%, down from 4.9% in April.
After several months of decreases, the Conference Board reported the U.S. consumer confidence index increased in June, and now stands at 109.7, up from 102.5 in May. The Expectations Index, which is based on consumers’ short-term outlook for income, business, and the job market, rose to 79.5 from 71.5 in May. The Expectations Index has remained below 80 – the level associated with recession within the next year – every month since February 2022 (with the exception of a brief uptick in December 2022). However, June’s reading is up sharply from last month.
From a balance sheet perspective, the GAAP unassigned fund balance in the General Fund was a negative $771.5 million as of June 30, 2022.
If you have any questions on this report, please do not hesitate to contact me.