COMPTROLLER LEMBO SAYS
BI-PARTISAN BUDGET PUTS CT ON PATH TO $721-MILLION DEFICIT AND CONTINUES
RELIANCE ON THE RAINY DAY FUND
Comptroller Kevin Lembo today released his latest monthly financial projection, reporting that Connecticut is on track to end the current fiscal year with a $721-million deficit that reflects the results of the recent bi-partisan budget agreement.
In a letter to Gov. Dannel P. Malloy, Lembo said that Public Act 18-81, An Act Concerning Revisions to the State Budget for Fiscal Year 2019 and Deficiency Appropriations for Fiscal Year 2018 - signed into law on May 15 - has increased the budget deficit projection this year by $334.3 million over the prior month.
The increased projection has little to do with changes to revenue trends. Lembo said it’s largely due to adjustments made through the bipartisan budget law that shifts certain funding from Fiscal Year 2018 to Fiscal Year 2019 to address future shortfalls. These “carry-forwards” include $299.2 million in payments to hospitals, $21 million for Medicaid and $21.5 million for retiree health insurance.
Meanwhile, just as Connecticut’s newly effective revenue volatility law was about to send more than $1.29 billion to the Budget Reserve Fund (also known as the “rainy day fund”), most of that income will instead be diverted at the end of the fiscal year to close this year’s deficit. Lembo projects that approximately $552.9 million will be left to transfer to the Budget Reserve Fund at the end of the fiscal year.
“This projection reflects the bi-partisan budget agreement approved last month – an escalated deficit and Connecticut’s continued reliance on its reserves to cover its shortfalls,” Lembo said. “While many important state and municipal programs were preserved through the use of this funding, a large portion of it represents revenue that is one-time in nature. My office has traditionally recommended the Budget Reserve Fund reach a level of 15 percent of General Fund expenditures to protect against a future downturn.”
After the anticipated transfer from the rainy day fund, Lembo said he expects the Budget Reserve Fund balance to go from the current $212.9 million to $765.8 million, which represents about four percent of the Fiscal Year 2019 General Fund budget.
“Connecticut’s overall budget results are ultimately dependent upon the performance of the national and state economies,” Lembo said. “Recent indicators show that the State of Connecticut continues to lag behind the nation’s economic recovery in key areas.”
Lembo pointed to the latest economic indicators from federal and state Departments of Labor (DOL) and other sources that show:
• Through the first 10 months of FY 2018, withholding receipts were up a nominal 5.7 percent compared with last fiscal year. However, this growth is somewhat overstated due to revenue accruals related to FY 2017 year-end. Accounting for this activity, the FY 2018 year-to-date growth in withholding collections is closer to 4.5 percent, which likely reflects a strong bonus season for the financial industry and some modest job growth over the course of the fiscal year.
• On May 17, Connecticut DOL reported the preliminary Connecticut nonfarm job
estimates for April 2018 from the business payroll survey administered by the US
Bureau of Labor Statistics (BLS). DOL’s Labor Situation report showed the state
lost 1,400 net jobs (0.1 percent) in April, to a level of 1,687,100, seasonally
adjusted. March’s originally-released job loss of 2,000 was revised down to a
loss of 3,500 over the month. April’s decline was the second consecutive month
of job losses, following four months of gains from November through February.
Payroll Employment Trend
• On a positive note, Connecticut remains a wealthy state overall.
Preliminary BEA estimates for 2017 rank Connecticut first in the nation in
annual per capita personal income at $70,121, which represents 139 percent of
the national average.
• The performance of the stock market has a significant impact on State of
Connecticut revenues. In a typical year, estimated and final income tax payments
account for approximately 35 to 40% of total state income tax receipts, but can
be an extremely volatile revenue source. Both estimated and final payments had
negative growth rates in Fiscal Years 2016 and 2017.
• Initially, the revenue volatility adjustment contained in Section 704 of
Public Act 17-2, June Special Session, required that any estimated and final
payment collections amount above $3.15 billion would be transferred to the
Budget Reserve Fund (BRF). Current projections have estimated and final income
tax collections totaling $4.44 billion for FY 2018, or $1.29 billion over the
Report on the Economic Well-Being of U.S. Households in 2017
In May 2018, the Board of Governors of the Federal Reserve System issued its annual Report on the Economic Well-being of U.S. Households. The latest findings for 2017 underscore the overall economic recovery and expansion over the last five years of the survey. However, alongside the improvements in the years following the Great Recession, several areas of concern remain. Disparities in economic well-being and outcomes are common among minorities, those with less education, and those living in lower-income neighborhoods. Small emergency expenses would still challenge a troubling number of households, and the opioid crisis appears to have touched many families. Individuals also point to financial struggles across a lifetime—from repaying college loans to managing retirement savings.
Highlights from the report include:
Economic Well-Being - A large majority of individuals (74%) report that financially they are doing “okay” or living comfortably, and overall economic well-being has improved over the past five years. Even so, notable differences remain across various subpopulations, including those of race, ethnicity, and educational attainment.
Income - Changes in family income from month to month remain a source of financial strain for some individuals. Financial support from family or friends is also common, particularly among young adults.
• Three in 10 adults have family income that varies from month to month, and 1 in 10 adults experienced hardship because of monthly changes in income.
• Nearly 25 percent of young adults under age 30, and 10 percent of all adults, receive some form of financial support from someone living outside their home.
Employment - Most workers are satisfied with the wages and benefits from their current job and are optimistic about their future job opportunities. Even so, challenges, such as irregular job scheduling, remain for some. Three in 10 adults work in the “gig economy,” though generally as a supplemental source of income.
• One-sixth of workers have irregular work schedules imposed by their employer, and one-tenth of workers receive their work schedule less than a week in advance. For many, stability of income is valued highly. Three-fifths of workers would prefer a hypothetical job with stable pay over one with varying but somewhat higher pay.
• Three in 10 adults participated in the gig economy in 2017. This is up slightly from 2016 due to an increase in gig activities that are not computer or internet-based, such as child care or house cleaning.
Dealing with Unexpected Expenses - Self-reported financial preparedness has improved substantially over the past five years. However, a sizeable share of adults says that they would struggle with a modest unexpected expense.
• Four in 10 adults, if faced with an unexpected expense of $400, would either not be able to cover it or would cover it by selling something or borrowing money.
• Over one-fifth of adults are not able to pay all of their current month’s bills in full. In addition, over one-fourth of adults skipped necessary medical care in 2017 due to being unable to afford the cost.
Student Loans – Over half of college attendees under age 30 took on some debt to pay for their education. Most borrowers are current on their payments or have successfully paid off their loans, although those who failed to complete a degree and those who attended for-profit institutions are more likely to have fallen behind on their payments.
• Among those making payments on their student loans, the typical monthly payment is between $200 and $300 per month.
• Nearly one-fourth of borrowers who went to for-profit schools are behind on their loan payments, versus less than one-tenth of borrowers who went to public or private not-for-profit institutions.
Retirement - Many adults feel behind in their savings for retirement. Even among those who have some savings, people commonly lack financial knowledge and are uncomfortable making investment decisions.
• Less than two-fifths of non-retired adults think that their retirement savings are on track, and one-fourth have no retirement savings or pension whatsoever.
• Three-fifths of non-retirees with self-directed retirement savings
accounts, such as a 401(k) or IRA, report having little or no comfort in
managing their investments.
• Consumer spending is the main engine of the U.S. economy, accounting for
more than two-thirds of total economic output.
• In comparison to a year ago, the Commerce Department reported that retail sales were 4.7 percent above April 2017 levels. In addition, gas station sales were up 11.7 percent from April 2017, while non-store retailers were up 9.6 percent from last year.
Consumer Debt and Savings Rates
• According to the Federal Reserve Bank of New York, aggregate household debt
balances rose to another new peak in the first quarter of 2018. Household debt
has now grown in 15 consecutive quarters. As of March 31, 2018, overall debt –
including mortgages, auto loans, student loans and credit card debt – hit a
record $13.21 trillion. This represented a $63-billion (0.5 percent) increase
from the fourth quarter of 2017.
• In the first quarter, aggregate delinquency rates improved, as rates on mortgage and HELOC (home equity lines of credit) debt declined further, while delinquency on auto and credit card debt increased.
• In its May 31 release, the Bureau of Economic Analysis (BEA) reported the
personal-saving rate was 2.8 percent in April, down from 3.0 percent in March
and the third consecutive monthly decline. This savings level is less than half
of the recent peak of 6.3 percent in October 2015 and remains close to
• Despite the overall improvement in the nation’s economy, income inequality continues to widen as wage growth remains modest. A number of economists see the dramatic decline in the personal savings rate as a red flag as consumers borrow more to fuel spending. This will leave little margin for error in case of a downturn, especially for families who are living from paycheck to paycheck.
• The U.S. consumer confidence index (CCI), published by the Conference
Board, is an indicator designed to measure consumer confidence. This is defined
as the degree of optimism on the state of the economy that consumers are
expressing through their activities of savings and spending.
Business and Economic Growth
• In a May 4 report, the Bureau of Economic Analysis released Real Gross
Domestic Product (GDP) results by state for both the fourth quarter of 2017 and
preliminary annual GDP results for 2017. For the 4th quarter of 2017,
Connecticut experienced a seasonally adjusted annual growth rate of 2.4 percent,
which ranked 30th in the nation overall. This growth rate was slower than the
national average of 2.7 percent and ahead of only Vermont for the New England
states for the period. It also represented a deceleration of growth from the 3rd
quarter, when Connecticut’s GDP grew by a seasonally adjusted annual growth rate
of 4.6 percent.
• The state’s annual GDP results for 2017 were less encouraging. Connecticut
ranked 49th in the nation, with Real GDP change of -0.2 percent. The main cause
was a very weak first quarter of 2017 (-5.5 percent seasonally adjusted annual
rate). Despite growth for the rest of 2017, this represented the third time in
four years that Connecticut experienced negative annual GDP growth.
• According to a May 25 report by the U.S. Department of Commerce, new orders
for durable goods decreased $4.2 billion in April, or 1.7 percent, to $248.5
billion. This decrease, down after two consecutive monthly increases, followed a
2.7 percent increase in March.
• The decline was primarily due to a decrease in transportation equipment,
specifically orders for commercial airplanes, which fell 29 % in April.
Excluding transportation, new orders increased 0.9 percent in April.
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