May 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 March 31, 2024. The Office of the State Comptroller (OSC) is projecting the General Fund will end Fiscal Year 2024 with a $256.7 million surplus and the Special Transportation Fund will end Fiscal Year 2024 with a $280.6 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 $256.7 million, which is $148.0 million higher than last month’s projection and $143.1 million lower than budgeted.
The April consensus forecast between OPM and the Office of Fiscal Analysis (OFA) increased General Fund revenues by a net $170.3 million from the previous month’s estimate. The largest increase in projected revenues were in Personal Income Tax – Estimated & Finals, and Pass-Thru Entity Tax of $500 million and $145 million, respectively. These adjustments were made to reflect higher than anticipated trends in collections and are likely the result of the positive stock market performance year-to-date and consumers’ ability and willingness to spend. These increases, along with other smaller upward revisions, were largely offset by an increase in the transfer to the Budget Reserve Fund. Amounts transferred in excess of the statutory limit of this fund will be used to pay down pension liabilities in the State Employees’ and Teachers’ Retirement systems.
Additionally, net expenditures were revised upward by $22.3 million. These increases are primarily in estimated Medicaid expenditures, and anticipated payments for settlements of wrongful incarceration claims against the State that were not budgeted for.
Special Transportation Fund
The Special Transportation Fund (STF) is projected to end the fiscal year with a $280.6 million surplus, $51.1 million larger than the prior month’s projection and $76.4 million higher than budgeted. The increase was the result of upward projections to net revenues and reductions to net expenditures. Net revenues were adjusted upwards by $34.4 million, primarily in Motor Fuels Tax of $6.3 million and Interest Income of $13.8 million. Transfers out were also reduced by $8.0 million, which has a positive impact on revenues. Projections for net expenditures were reduced by a total of $16.7 million. The current forecast would result in a positive balance of $959.8 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 $256.7 million, the BRF balance is anticipated to be slightly less than $4.7 billion or 21.2 percent of net General Fund appropriations, before statutorily required transfers, by the end of Fiscal Year 2024.
Economic Indicators
As we move further into 2024, the U.S. economy has remained resilient, fueled by a robust labor market, real wage growth, and consumers’ ability and ongoing willingness to spend. However, rising consumer debt and elevated interest rates continue to weigh on economic growth. These factors coupled with continued uncertainty about the US economy are likely drivers in the recent decline in consumer confidence.
The national labor market continues to show strength, adding 303,000 jobs in March, above the average monthly gain of 243,917 over the past 12 months and better than economist had expected. In Connecticut, nonfarm payroll was up 4,900 jobs in March, for a total increase of 13,300 jobs in the first three months of 2024.
Consumer confidence declined slightly in March, which was likely a reflection of the continued uncertainty about the US economy. Moreover, events such as the ongoing war between Israel and Hamas, rising prices in general, and high interest rates continue to have many Americans feeling concerned.
The Federal Reserve left rates unchanged at the March Federal Open Market Committee meeting, holding rates steady at a target of 5.3 percent to 5.5 percent. Year-on-year headline inflation rose from 3.2 percent in February to 3.5 percent in March, 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. In recent weeks, policy makers have indicated increased hesitation to easing monetary policy anytime soon.
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 6.8 percent in March, up from 6.5 percent a year ago.
In Connecticut, year-over-year sales of single-family homes decreased 8.7 percent in March while new listings were up 26.7 percent according to Berkshire Hathaway HomeServices. At the same time the median sales price increased 33.3 percent and average days on the market increased to 78 days, compared to 77 days a year ago. On average, houses were selling at 101.2 percent above 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 “advance” estimate of U.S. real Gross Domestic Product, which increased at an annual rate of 1.6 percent in the first quarter of 2024. 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