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July 1, 2016
The Honorable Dannel P. Malloy
Governor of the State of Connecticut
State Capitol
Hartford, Connecticut
Dear Governor Malloy:
I write to provide you with financial statements in accordance with CGS, Section 3-115 for the General Fund and the Transportation Fund through May 31, 2016.
The Office of Policy and Management (OPM) reported a projected Fiscal Year 2016 General Fund deficit of $315.8 million in June, an increase of $56.7 million from last month. The Transportation Fund is expected to close Fiscal Year 2016 with a balance of $153.2 million. I am in general agreement with these projections. Revenue and expenditure accruals related to Fiscal Year 2016 will continue to be recorded through July and August.
The most significant single adjustment to the General Fund this month was a reduction in projected income tax payments of $75 million. Anticipated income tax collections have been revised downward throughout this fiscal year as capital gains related income tax receipts were constrained by market volatility and payroll related tax gains were hampered by lower than anticipated labor market activity. The total General Fund shortfall in the income tax for Fiscal Year 2016 is currently estimated to be $634.4 million.
Sales tax projections were also lowered in June by $28.2 million as actual receipts fell short of estimates. Anticipated revenue from the federal government was increased by $50 million in June due to a higher projected drawdown of federal dollars in Fiscal Year 2016. Complete revenue detail for the General Fund is presented in Exhibit C.
As General Fund revenue projections fell during Fiscal Year 2016, cost cutting measures were implemented including allotment reductions made under your authority and additional legislative actions contained in PA 15-1 of the December Special Session. The aggregate result of these actions reduced anticipated spending by $156.6 million. Budget adjustment details are presented in Exhibit D.
The Budget Reserve Fund holds a balance of $406 million. At present, prior to accrual activities, this appears sufficient to offset the General Fund shortfall.
The Connecticut economy, like the national economy, continues to experience below normal post-recession growth rates. The Department of Labor reported that the state lost 1,400 jobs in May 2016, falling to a level of 1,688,100. This is only the second employment decline posted to date in Fiscal Year 2016, and it?s the first job decline of calendar year 2016. The initial announcement of a 3,500 job gain for April 2016 was revised down to 3,200.
Connecticut?s unemployment rate was 5.7 percent in May; the national
unemployment rate was 4.7 percent. Connecticut?s unemployment rate has continued
to decline from a high of 9.5% in October 2010.
Connecticut ranked 36th nationally in income growth for the first quarter of 2016 based on personal income statistics released by the Bureau of Economic Analysis on June 22nd. The state?s personal income was growing at an annualized 3.1 percent rate in the first quarter of the year. This is the same growth level recorded in calendar year 2015.
A bright spot in the state?s economy has been the number of housing sales. According to a June 7th release by the Warren Group, single family home sales in Connecticut grew by 16.2 percent in April from the same month last year. Connecticut recorded 2,340 single-family home sales in April 2016, the most sales in the month of April since 2007. Condominium sales were also up growing 18.7 percent from last April with 659 new purchases.
Single-family home prices in Connecticut continued to be soft. The sales price rose by 0.8 percent in April to $240,000 compared to $238,200 a year ago. This is the first price gain after twelve consecutive months of price drops on a year-over-year basis. Condominium prices continued to fall in April from $163,450 to $157,000, a 3.9 percent drop from last April.
Nationally, consumer spending data released this month has pointed to a continuation of solid household spending. The Commerce Department reported that May retail sales advanced 0.5 percent over April. Nine of 13 major categories showed increases in demand in May from the prior month. Gains were led by gasoline stations, on-line retailers and hobby and entertainment stores. Department stores and building supply and gardening stores posted declines. Sales for April were unrevised at a 1.3 percent gain, the strongest advance since March 2015.
According to the June 28th third estimate by the Bureau of Economic Analysis, the national economy as measured by GDP in the first quarter of 2016 grew at a 1.1 percent annual rate. This is an upward revision from the 0.8 percent second estimate. In the fourth quarter GDP expanded by 1.4 percent.
I also issue a Comprehensive Annual Financial Report (CAFR) as an accounting
supplement to the budgetary report. The CAFR 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 shortfall or unreserved fund balance in the General Fund was $793.2 million
as of June 30, 2015.
Sincerely,
Kevin Lembo
State Comptroller
To view the data in Excel format, click here:
General Fund: A-D
Transportation Fund: E-H