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July 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 May 31, 2017.
The Office of Policy and Management (OPM) is projecting that the General Fund
will end Fiscal Year 2017 operations with a deficit of $107.2 million. This is
an improvement of $215.5 million in the General Fund's position from last month.
The improvement is in large part the result of deficit mitigation efforts. This
includes $93.3 million in revenue transfers in accordance with Public Act 17-51,
$67.9 million in spending reductions and $54.3 million in other net revenue
increases. The Transportation Fund is expected to retain a balance of $95.7
million at the close of Fiscal Year 2017. This is a reduction of $47.1 million
in the fund's balance from Fiscal Year 2016. I am in general agreement with
these estimates.
The Budget Reserve Fund has a current balance of $235,582,921. This fund will be used to eliminate any remaining General Fund deficit at the end of Fiscal Year 2017. Based on the current projection the Budget Reserve Fund Balance would be reduced to $128,382,921, or 0.7% of net General Fund spending.
Fiscal Year 2017 has seen continued revenue deterioration from initial budget estimates. Most notably, the income tax is expected to fall $532.2 million short of the budget plan, which will result in receipts that are more than 2 percent below last fiscal year. The sales tax is expected to close the fiscal year $136.8 million below budget expectations, which will leave it relatively flat against last fiscal year?s collections. Detailed General Fund revenue estimates are available on Exhibit C.
Some of the diminishment in income tax revenue from capital gains may result from uncertainty about the possibility of federal tax changes that would lower the capital gains rate. Investors may be reluctant to undertake transactions that generate taxable gains in light of the potential for future reductions in those tax liabilities. Investors may also be lowering taxable gains by using tax-advantaged vehicles such as Exchange Traded Funds (ETFs). Assets in these funds have grown from just over $150 billion in 2003 to almost $3 trillion today.
In addition, the state?s age 65 and over population has been growing. The
aging population has important implications for state tax revenue - especially
income and sales tax collections - because as the baby boom generation retires,
the labor force participation rate in states is expected to decline and, with
it, income and spending. In June, the Census Bureau reported that Connecticut?s
population age 65 and over grew from 14.2 percent to an estimated 16.2 percent
of the total population between 2010 and 2016. That?s an increase from about
508,000 to 577,000 people. Nationally, the 65 and over population represented
15.3 percent of the total.
Turning to the expenditure side of the General Fund in Fiscal Year 2017, net
expenditures are currently estimated to be $125 million below the budget plan.
Through May of Fiscal Year 2017, year-to-date expenditures were trending close
to last fiscal year's level. Notably, state General Fund payroll is running
almost 7 percent below last year's level and general agency operating
expenditures were down by more than 11 percent. OPM is presently estimating that
General Fund appropriation lapses will total $361.3 million in Fiscal Year 2017.
Connecticut?s overall budget performance is ultimately dependent upon the performance of the national and state economies.
The business payroll survey showed that the state added 6,700 jobs (0.4%) in May 2017, to a level of 1,688,300, seasonally adjusted. The April preliminary job loss numbers were revised downward from a loss of 1,500 positions to a loss of 3,100 jobs. Over the past twelve month period ending in May, the state has posted 11,000 new payroll jobs. During the last period of economic recovery, employment growth averaged over 16,000 annually.
Average hourly earnings in Connecticut at $30.92, not seasonally adjusted, were up $0.21, or 0.7 percent, from the May 2016 estimate ($30.71). The resultant average Private Sector weekly pay amounted to $1,038.91, down $5.23, or 0.5 percent below a year ago.
A June 28th report from the Bureau showed Connecticut personal income increasing at an annualized rate of 3.7 percent. This ranked Connecticut 37th nationally in personal income growth. This is the highest rate of growth since 2014.
CT Realtors reported that the sale of single-family residential homes in Connecticut increased by 10 percent in May 2017 from the same month a year earlier. The median sales price of a home also increased 4 percent from $249,900 to $260,000. The May numbers reverse the declines experienced in April. The sale of townhouses and condominiums in the state posted an increased by 25.4 percent in May 2017. The median price was up 3.6% to $170,875.
The Commerce Department said that U.S. retail sales fell 0.3 percent in May amid declining purchases of motor vehicles and discretionary spending after an unrevised 0.4 percent increase in April. May's decline was the largest since January 2016. Department stores saw a 1.0 percent decline, auto saw a 0.2 percent drop, and restaurants a 0.1 percent decline.
Real GDP grew at a rate of 1.4 percent in the first quarter of 2017, which is down from 2.1 percent growth in the prior quarter.
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