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March 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 January 31, 2016.
The Office of Policy and Management (OPM) is currently projecting a General Fund deficit of $19.9 million for Fiscal Year 2016. The OPM revenue projections reflect the January 15th consensus forecast. The Transportation Fund is expected to end operations for Fiscal Year 2016 in balance with the budget plan, which will leave a cumulative fund balance of $180 million at the end of the fiscal year. The financial statements for January reflect these estimates.
On February 25th, The Office of Fiscal Analysis (OFA) issued a revenue briefing that reduced the January consensus income tax estimate for Fiscal Year 2016 by $200 million. I am in agreement with this adjustment. Therefore, my General Fund deficit estimate for Fiscal Year 2016 is $219.9 million. I cautioned last month that I was concerned with the potential for further erosion in consensus revenue forecast. Economic data now supports a downward adjustment in that projection.
The reduction in the income tax projection is largely driven by the negative year-to-date trend in the estimated payment portion of the tax. Through January, year-to-date estimated payment receipts were 4 percent below last fiscal year. In nine of the past eleven fiscal years, final payments have moved in the same direction as estimated payments. This historical pattern raises serious concerns regarding April final payment receipts.
The payroll withholding portion of the income tax, which contributes over 60 percent of total collections, continues to show moderate growth. However, recent market developments that impact both estimated and final income tax payments have increased the probability of negative year-over-year collections in these income tax components. The Federal Reserve reported that the stock market decline in the third quarter of 2015 contributed to a $1.2 trillion drop in American household wealth, which was one of the largest losses since the recession. Corporate equities lost $2.3 trillion during the quarter. At this writing, the stock market continues to post negative growth for 2016. The market driven decline in wealth has had a dampening effect on all states that rely on capital gains driven tax receipts.
I am in agreement with OPM's General Fund spending estimates for Fiscal Year
2016. OPM is controlling spending to hold outlays $87.8 million below the budget
plan. As I have noted in past letters, historically OPM has been successful in
achieving budgeted savings targets.
General Fund revenue for Fiscal Year 2016 is projected to fall $308.5 million short of initial budget projections. The largest revenue adjustments have been to the income tax and the sales tax. The income tax is estimated to be $464.4 million under budget.
The sales tax is projected to be $109.2 million over original budget projections, which is the result of delaying transfers to the Transportation Fund and the Municipal Revenue Sharing Account.
OPM is attempting to achieve $350.5 million in General Fund lapse savings, which is $149.9 million above the original budget plan. This savings target includes the spending reductions contained in PA 15-1 (DSS) as well as other forced lapses. These savings are partially offset by $62.1 million in agency deficiencies. It should also be noted that the Adjudicated Claims account has exceeded budget expectations due largely to settlement related to wrongfully incarcerated individuals. Exhibit D contains the detailed spending adjustments.
Despite the revenue reductions this month, Connecticut's economy continues to
experience moderate growth.
State labor market information for January and February is not due to be
released until later in March. Department of Labor data shows that Connecticut
increased nonfarm employment by 22,600 (1.35%) in calendar year 2015 averaging
1,883 jobs per month during the year.
Connecticut has now recovered 106,700 positions, or 89.7 percent of the
119,000 seasonally adjusted total nonfarm jobs that were lost in the state
during the March 2008 - February 2010 employment recession. The state needs to
reach the 1,713,000 job level to enter a nonfarm employment expansionary phase.
This will require an additional 12,300 nonfarm jobs. Connecticut's nonfarm jobs
recovery is now 70 months old and is averaging about 1,524 jobs per month since
February 2010.
According to a February 11th release by the Warren Group, Connecticut recorded 2,588 single-family home sales in December 2015, the largest sales total for the month since 2006. The December sales volume was 17.9 percent higher than the same month last year. The December 2015 median price for a home in the state was $235,000, a decrease of 2.1 percent from the median price of $240,000 in December 2014.
Nationally, GDP grew 1.0 percent in the fourth quarter of 2015 based on second estimates from the Bureau of Economic Analysis. In the third quarter GDP grew at a 2 percent rate. The one percent increase in real GDP in the fourth quarter reflected positive contributions from personal consumption expenditures (PCE), residential fixed investment, and federal government spending that were partly offset by negative contributions from exports, nonresidential fixed investment, state and local government spending, and private inventory investment. Imports, which are a subtraction in the calculation of GDP, decreased.
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