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December 1, 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 October 31, 2017.
The Office of Policy and Management (OPM) is projecting that the General Fund will end Fiscal Year 2018 with a deficit of $202.8 million. My office is currently projecting a slightly higher deficit of $207.8 million for reasons explained below. The projected operating results included in the OPM financial statements forecast a deficit greater than one percent of net General Fund appropriations. Therefore, my office is confirming the need for submission of a deficit mitigation plan by the Governor to the legislature pursuant to Connecticut General Statutes Section 4-85.
These projections reflect anticipated operating results compared with the expenditure and revenue plan contained in Public Act 17-2 of the June Special Session, as amended by Senate Bill 1503. The OPM deficit estimate also incorporates the consensus revenue forecast reached with the Office of Fiscal Analysis (OFA) on November 13, 2017 and includes revenue from the revised provider tax provisions contained in SB 1503.
OPM is projecting the Transportation Fund will end Fiscal Year 2018 operations with a balance of $141.1 million, which reflects a $38.2 million revenue reduction that was included in the November consensus forecast.
The following analysis of the financial statements furnished by OPM is provided pursuant to Public Act 17-2 June Special Session, Section 713.
My office concurs with the November consensus revenue forecast, which was responsible for the vast majority of OPM?s deficit projection. Please see Exhibit C, attached hereto, for the complete General Fund revenue schedule. In past months, my office has noted the underperformance of the Sales and Use Tax to date in FY 2018 and observed the lower than expected receipts in the estimated payment portion of the Personal Income Tax. In addition, as of this writing, Congress is considering significant modifications to Federal tax law that could have profound implications for Connecticut, depending on what specific provisions, if any, are enacted. Future revenue forecasts will need to evaluate the consequences of any tax changes on the Federal level.
The difference in OSC?s higher deficit forecast is on the expenditure side of
the budget. My office is projecting a $20-million deficiency in the
non-appropriated Adjudicated Claims account. This account is responsible for
paying SEBAC v. Rowland claims and related attorney?s fees, along with other
negotiated settlements. With seven months to go in the fiscal year, expenditures
to date already total over $12.5 million, an average of over $2.5 million a
month. Therefore, this deficiency has the potential to go higher. At the same
time, this account can be difficult to forecast due to the unpredictable nature
of the settlements involved. Therefore, my office will continue to monitor the
Adjudicated Claims account closely and revise these estimates as needed in the
coming months.
Another area of concern that will require close scrutiny is the aggressive
level of savings included in the adopted budget. Achieving these lapse targets
will be a significant budgetary challenge, especially in light of the high
levels of fixed costs for FY 2018, such as debt service payments, pension
contributions and the costs of retirement health insurance.
In recent years, Connecticut has not fully participated in the nation?s economic recovery. The national economy continues to exhibit growing signs of strength and resilience. However, Connecticut?s economy has experienced much more uneven results across a variety of key economic indicators.
Preliminary data for October 2017 show that Connecticut lost 6,600 net jobs during the month to a level of 1,680,600, seasonally adjusted. September?s originally-released job loss of 2,000 was revised upward by the Bureau of Labor Statistics (BLS) to a gain of 300 for the month. Over the year, nonagricultural employment in the state grew by only 1,400 jobs (0.1 percent). During the last period of economic recovery, employment growth averaged over 16,000 annually.
Connecticut's unemployment rate for October fell by one-tenth of a point from last month and now stands at 4.5 percent. The decrease in the unemployment rate was in part due to a decline in the size of the state's labor force. Nationally, the unemployment rate was 4.1 percent in October.
Earnings in Connecticut continue to show only modest growth. The Connecticut Department of Labor reported that October 2017 private sector average hourly earnings were $31.52, not seasonally adjusted, up $0.57, or 1.8 percent, from the October 2016 estimate. The resultant average weekly pay amounted to $1,071.68, up $13.19, or 1.2 percent higher than a year ago.
In a November report, the Bureau of Economic Analysis released Real Gross Domestic Product (GDP) results by State for the second quarter of 2017. Connecticut experienced a seasonally adjusted annual growth rate of 1.4 percent, which ranked 43rd in the nation overall. Connecticut?s growth rate was the lowest in the New England region, which had an average Real GDP annualized growth rate of 1.9 percent.
In its November 28th release, Berkshire Hathaway HomeServices reported mixed results in the Connecticut housing market for October 2017 compared with October 2016. Sales of single family homes declined 1.88 percent. However, the median sale price rose by 2.09 percent, from $245,000 to $250,121. New listings in Connecticut increased by 3.13 percent and the median list price grew by 3.84 percent. In addition, average days on the market increased 9.76 percent in October 2017 compared to the same month in the previous year.
My office also issues 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. The change in the GAAP balance for Fiscal Year 2017 will be available early in 2018.
Sincerely,
Kevin Lembo
State Comptroller
To view the data in Excel format, click here:
General Fund: A-D
Transportation Fund: E-H