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April 3, 2017
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 for the General Fund and the Transportation Fund through February 28, 2017.
The Office of Policy and Management (OPM) is projecting that the General Fund will end Fiscal Year 2017 operations with a surplus of $22 million, which is $0.9 million lower than last month's estimate. The Transportation Fund is projected to end Fiscal Year 2017 with a balance of $125.5 million, after accounting for the Fiscal Year 2016 retained balance in the fund of $142.8 million. This represents an erosion of $17.3 million dollars through operations in this fiscal year.
I am projecting a General Fund deficit of $44.6 million for Fiscal Year 2017. I am in general agreement with OPM's Transportation Fund numbers. The General Fund deficit is the result of a $60 million reduction in my income tax projection from last month, and an adjudicated claims payment estimate that is $6.6 million higher than OPM.
I am in agreement with the income tax projection from the Office of Fiscal Analysis, which is $60 million below the January consensus forecast that is being used in the OPM surplus estimate. The withholding portion of the income tax, which accounts for over 60 percent of total income tax receipts, has been weakening in recent months. This is consistent with the U.S. Bureau of Labor Statistics benchmark revisions to Connecticut's job number that indicated that the state lost 200 jobs in calendar year 2016. After strong first quarter of employment growth, the job numbers became more erratic. Over the twelve month period ending in February 2017, the state has added a below average 2,100 payroll positions.
In addition, estimated income tax payments through February were below last fiscal year's receipts. Typically, final April payments trend in the same direction as estimated payments. However because of stock market corrections and subdued bonus payments in the 2015 tax year, a large number of taxpayers may be eligible to utilize safe harbor provisions of the tax code. The safe harbor provisions allow taxpayers to delay the payment of their full 2016 tax liability until April of 2017 (rather than incorporating the payment into their 4th quarter 2016 estimated payments). I am concerned that these delayed payments may not be sufficient to reach the OPM estimate.
The final income tax receipts will be available later in April. As in past fiscal years, it is likely that the final April payments will alter the current General Fund projections.
OPM's current projection calculates Fiscal Year 2017 General Fund revenue for to be $10.8 million above the original budget estimate. My revenue number is $49.2 million below initial budget expectations. OPM anticipates that net spending will exceed the budget plan by $11.5 million. Due to the adjudicated claims variance, my estimate of spending in excess of the budget plan is $18.1 million. However, it should be noted that total General Fund spending through February was trending below both of these spending projections. If this trend holds through the remainder of the fiscal year, expenditures should be at or below the budget target thus reducing the deficit projection.
Connecticut's overall budget performance is ultimately dependent upon the performance of the national and state economies.
Coming into 2017, Connecticut gained 6,500 jobs in January and lost 1,600 jobs in February. This brought the total payroll employment level to 1,682,400, which totals 30,900 jobs below the pre-recession peak. U.S. employment has been advancing at a rate of 1.6 percent over the twelve-month period ending in February; Connecticut's employment growth has been 0.1 percent over that same period. The state?s unemployment rate was 4.7 percent in February; the national unemployment rate was also 4.7%. Connecticut's unemployment rate has continued to decline from a high of 9.5% in October 2010.
According to a March 28th release from the Bureau of Economic Analysis, Connecticut's personal income grew by 3 percent between 2015 and 2016. This ranked Connecticut 33rd nationally in 2016 income growth. Connecticut had the slowest rate of growth in New England. However, Connecticut ranked number one nationally in per capita personal income in 2016 with income of $71,033. Connecticut?s fourth quarter results for 2016 were better than the full year results. The fourth quarter growth annualizes to a rate closer to 4%, which ranked the state at 21 nationally for growth that quarter.
Connecticut single-family residential home sales decreased by 4.2 percent in
February 2017 compared to the same month a year earlier. The median sales price
of a home declined by 2.2 percent to $225,000. This is a single month reversal
to a prevailing trend. Connecticut has been in a sustained period of sales
volume gains since 2012; prices were also rebounding in recent months. Townhouse
and condominium sales also declined with the median price remaining flat in
February.
The overall U.S. economy as measured by real GDP was growing at a rate of 2.1 percent in the fourth quarter of 2016. The growth rate in the third quarter was 3.5 percent. The economy has not attained a national growth rate over 3 percent since the recovery began, marking one of the weakest economic recoveries on record.
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 unassigned fund balance in the General Fund was a negative $998.9 million as of June 30, 2016.
Sincerely,
Kevin Lembo
State Comptroller
To view the data in Excel format, click here:
General Fund: A-D
Transportation Fund: E-H