June 3, 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 April 30, 2024. The Office of the State Comptroller (OSC) is projecting the General Fund will end Fiscal Year 2024 with a $181.5 million surplus and the Special Transportation Fund will end Fiscal Year 2024 with a $282.8 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 the fiscal year with a surplus of $181.5 million, which is $75.2 million less than last month’s projection and $218.2 million lower than budgeted.
The reduction in the projected surplus was largely due to downward revisions in revenues totaling $85.0 million. This was primarily the result of the passage of HB 5524, which increased the revenue transfer from FY 24 to FY 25 by $110.0 million, effectively reducing revenues. This reduction was slightly offset by an upward revision to estimated revenues for the Rents, Fines, and Escheats projection of $25.0 million. Additionally, net expenditures were revised downward by $9.8 million.
Special Transportation Fund
The Special Transportation Fund (STF) is projected to end the fiscal year with a $282.8 million surplus, $2.2 million larger than the prior month’s projection and $78.6 million higher than budgeted. The increase was the result of reductions in net expenditures projections. The current forecast would result in a positive balance of $961.9 million at fiscal year-end.
Budget Reserve Fund
Based on current estimates, $1.1 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 $181.5 million, the BRF balance is anticipated to be slightly more than $4.6 billion or 20.9 percent of net General Fund appropriations, before statutorily required transfers, by the end of Fiscal Year 2024.
Economic Indicators
While U.S. economic activity remains robust, momentum is gradually slowing as evidenced by the cooling labor market. In addition, larger interest burdens resulting from higher rates coupled with higher prices continue to put a strain on economic growth.
The national labor market continues to show strength, albeit with signs of a cooldown, adding 175,000 jobs in April, below the average monthly gain of 233,500 over the past 12 months. In Connecticut, nonfarm payroll was up 1,100 jobs in April to a level of 1,705,800, while the state’s unemployment rate declined to 4.4 percent.
The Federal Reserve continues to hold rates steady at a target of 5.3 percent to 5.5 percent. Year-on-year headline inflation fell from 3.5 percent in March to 3.4 percent in April, which remains above the Fed’s target rate of 2.0 percent. With inflation remaining higher than the Fed’s target rate, uncertainty has been growing as to when the Fed will begin to lower interest rates.
High interest rates, creating a high cost of carrying debt, and elevated home prices continue to create a drag on the housing market. Mortgage rates linger at the highest levels in more than two decades, and sales of existing homes have dropped while prices remain elevated. According to Freddie Mac, the 30-year fixed-rate mortgage averaged 7.0 percent in April, up from 6.3 percent a year ago.
In Connecticut, year-over-year sales of single-family homes decreased 52.6 percent in April while new listings were up 127.8 percent according to Berkshire Hathaway HomeServices. At the same time the median sales price increased 25.0 percent and average days on the market increased to 40 days, compared to 25 days a year ago. On average, houses were selling at 99.1 percent of the list price. Higher housing costs continue to be a major concern for low- and moderate-income families who are much more likely to rent than own.
The Bureau of Economic Analysis released the “second” estimate of U.S. real Gross Domestic Product, which increased at an annual rate of 1.3 percent in the first quarter of 2024. This is 0.3 percent lower than the “advance” estimate previously released, primarily due to a downward revision to consumer spending. In the fourth quarter of 2023, real GDP increased 3.4 percent.
The increase in real GDP primarily reflected increases in consumer spending, residential fixed investment, nonresidential fixed investment, and state and local government spending that were partly offset by a decrease in private inventory investment. Imports, which are a subtraction in the calculation of GDP, also increased.
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