October 2, 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 August 31, 2023. The Office of the State Comptroller (OSC) is projecting the General Fund will end Fiscal Year 2024 with a $284.5 million surplus and the Special Transportation fund will end Fiscal Year 2024 with a $204.2 million surplus. OSC is in general agreement with OPM’s General Fund and Special Transportation Fund projections. The following analysis of the financial statements furnished by the Office of Policy and Management (OPM) is provided pursuant to Connecticut General Statutes (CGS) Section 3-115.
In the second forecast for Fiscal Year 2024, the General Fund surplus is projected to be $284.5 million, which is a $105.7 million reduction from last month’s projection and $115.2 lower than budgeted. The reason for this reduction is due to a correction in the accounting practice for the revised treatment of expenditures and reimbursements in the Higher Education Alternative Retirement System that was passed in last year’s budget.
In the second forecast for Fiscal Year 2024, the Special Transportation Fund surplus is projected to be $204.2 million and remains unchanged from last month and the FY24 budget.
On September 25, the State Treasurer transferred $1.3 billion of excess revenue from volatile sources (portions of the personal income tax and pass-through entity tax) to the state’s Budget Reserve Fund. $1.05 billion was directed to the State Employees Retirement System (SERS), and the remaining $272.8 million went to the Teachers’ Retirement System (TRS). Once the FY23 budget surplus is audited and finalized in December, it will also be directed to the TRS.
With this year’s transfers, over $7 billion have been used to pay down pension liabilities since the inception of the fiscal guardrails. In the second forecast for Fiscal Year 2024, a $683.2 million volatility transfer is projected.
While inflation has cooled from 9.1% last summer, the Federal Reserve is still anticipating an additional rate hike before the end of the calendar year. Inflation has cooled significantly but is still not at the Fed’s 2% long-term target. The central bank has already raised its benchmark interest rate from near zero in early 2022 to over 5.5% in the most aggressive series of rate hikes since the early 1980’s. The next Federal Reserve meeting is scheduled for November 1, 2023.
Rising interest rates and elevated home prices have taken a significant drag on the housing market. Mortgage rates have climbed to their highest level 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 7.2% in September, up from 6.1% a year ago.
In Connecticut year-over-year sales of single-family homes decreased 25.4% and new listings were down 15.42% in August. In addition, a report from the National Low-Income Housing Coalition analyzing the affordability of each state found that a minimum wage worker in Connecticut would have to work 69 hours a week, at $15 per hour just to afford a modest one-bedroom apartment.
However, on a positive note the state’s job market remains strong. Connecticut added 2,100 jobs in August and the unemployment rate has dropped to 3.6%-below the national average of 3.8%. The number of unemployed people is 67,300 which is the lowest since May 2019. â€œWhile major national issues such as interest rate increases and energy costs remain a concern, Connecticut’s economy has shown resilience and strength in recovery. Current numbers show that the private sector has added back all the jobs lost during the pandemic, the unemployment rate remains low, and job gains have been balanced across industry sectorsâ€”all indicators of continued economic stabilityâ€ said Patrick Flaherty, Director of the Office of Research as the Connecticut Department of Labor.
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 $771.5 million as of June 30, 2022.
If you have any questions on this report, please do not hesitate to contact me.