August 1, 2018
The Honorable Dannel P. Malloy
Governor of the State of Connecticut
Dear Governor Malloy:
I write to provide you with financial statements for the General Fund and the Transportation Fund through June 30, 2018.
In its letter of July 20th, the Office of Policy and Management (OPM) projected that the General Fund will end Fiscal Year 2018 with a deficit of $504.6 million, an improvement of $96.4 million from its June 20th estimate. OPM is crediting a combination of spending restraint and an increase in revenues for the change from the previous month. Estimated General Fund lapses for the year totaled $972.4 million.
The Office of the State Comptroller (OSC) is in general agreement with these estimates.
Projected expenditures are $45.4 million lower through June and General Fund revenues have increased by $51.0 million compared with last monthís estimate. The withholding portion of the income tax (+$29.2 million) and the Corporation Tax (+$18.8 million) have exceeded revised budget targets. Other revenue categories were increased by a net $3.0 million.
In addition, OPM's forecast of the Estimated and Final portion of the income tax has increased by $110 million since last month based on strong June collections. Due to the statutory volatility cap provision, this change will result in a higher anticipated transfer to the Budget Reserve Fund (BRF) instead of reducing the General Fund deficit.
OPM is projecting that the Transportation Fund will end Fiscal Year 2018 operations with a balance of $224.0 million, a $9.1 million improvement from its June forecast. Revenue projections have increased by a net $3.8 million and spending reductions of $5.3 million are responsible for the remaining difference from the previous month. My office is in general agreement with OPMís Transportation Fund estimates.
The fiscal year-end process includes statutory revenue accruals that will continue through the first week of August. In addition, GAAP budget-related expenditure accruals will transfer expenses incurred in FY 2018 but paid in FY 2019 back into the previous fiscal year. Both categories of accrual adjustments may have a significant impact on year-end results. Preliminary reporting of unaudited operating results for FY 2018 will be presented in the September 28th monthly letter.
The initial revenue volatility adjustment contained in Section 704 of Public Act 17-2, June Special Session, would have required that any estimated and final payment collections amount above $3.15 billion would be transferred to the Budget Reserve Fund (BRF). OSCís current projections have estimated and final income tax collections totaling $4.61 billion for FY 2018, or $1.46 billion above the volatility threshold.
However, based on changes contained in Public Act 18-81, An Act Concerning Revisions to the State Budget for Fiscal Year 2019 and Deficiency Appropriations for Fiscal Year 2018, a significant portion of this revenue windfall will now be used to close the General Fund deficit for FY 2018 and provide additional resources for FY 2019. As a result, OSC is projecting $940 million will be transferred into the BRF after the close of the fiscal year. Currently the BRF has a balance of $212.9 million and the additional deposit would bring the total to $1.15 billion, which represents approximately 6.1 percent of the revised General Fund budget for FY 2019. My office has traditionally recommended the BRF reach a level of 15 percent of General Fund expenditures to protect against a future downturn.
Connecticut's budget results are ultimately dependent upon the performance of the national and state economies. Recent economic indicators include the following trends.
Department of Labor (DOL) reported preliminary data showing Connecticut gained 6,100 net jobs in June, to a level of 1,698,800, seasonally adjusted. In addition, May's originally-released job growth of 4,100 was revised up by 2,000 to a gain of 6,100 over the month. May and Juneís increases followed two consecutive months of job losses. The largest monthly job gains in June were in Leisure & Hospitality (+2,400), Education & Health Services (+1,900), Construction (+1,200) and Professional & Business Services (+1,100).
Over the year, DOL reported that nonagricultural employment in the state grew by 14,900 jobs on a seasonally-adjusted basis, with construction and manufacturing among the fastest growing sectors of the labor market.
Connecticut's unemployment rate is estimated at 4.4 percent in June, down one-tenth of a point from May 2018 and down three-tenths of point from a year ago when it was 4.7 percent. Nationally, the unemployment rate was 4.0 percent in June 2018, up two-tenths of a point from May.
Connecticut has now recovered 87.8 percent (104,600 payroll job additions) of the 119,100 seasonally adjusted jobs lost in the Great Recession (3/08-2/10). The job recovery is into its 100th month and the state needs an additional 14,500 jobs to reach an overall employment expansion.
In a July 24th report, the Bureau of Economic Analysis (BEA) released Real Gross Domestic Product (GDP) results by state for the first quarter of 2018. Connecticut experienced a seasonally adjusted annual growth rate of 1.6 percent, which ranked 23rd in the nation overall. This growth rate was somewhat slower than the national average of 1.8 percent. However, Connecticut was second only to Vermont in growth among the New England states for the period. BEA data indicated the sectors that contributed most to Connecticutís growth in the first quarter of 2018 were real estate and rental & leasing (+0.43%), finance & insurance (+0.42%), and information (+0.27%).
In its July 7th release, Berkshire Hathaway HomeServices reported results for the Connecticut housing market for June 2018 compared with June 2017. Sales of single family homes fell 7.99 percent, while the median sale price rose 4.69 percent. New listings decreased by 5.57 percent in Connecticut and the median list price increased by 6.82 percent to $299,000. Average days on the market grew 20.29 percent in June 2018 compared to the same month in the previous year (83 days on average, up from 69 days).
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 $821.1 million as of June 30, 2017.
To view the data in Excel format, click here:
General Fund: A-D Transportation Fund: E-H
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