July 2, 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 May 31, 2018.
In its letter of June 20th, the Office of Policy and Management (OPM) projected that the General Fund will end Fiscal Year 2018 with a deficit of $601.0 million, an improvement of $116.5 million from its May 21st estimate. OPM is crediting both agency spending restraint and a net improvement in revenues for the change. Projected expenditures are $91.8 million lower through May and General Fund revenues have increased by a net $28.7 million compared with last month's estimate. The Corporations Tax (+$25 million) and Rents, Fines and Escheats (+$15 million) have exceeded revised budget targets while the Public Service Corporations Tax (-$10 million) has underperformed. Other revenue categories were reduced by a net negative $1.3 million.
The Office of the State Comptroller (OSC) is projecting a $594.5 million deficit in the General Fund. The $6.5 million variance with OPM is due to a lower projected deficiency in the Adjudicated Claims account. A settlement payment originally scheduled to be paid this year has been delayed in legal proceedings and will now be made in FY 2019.
In addition, OPM's forecast of the Estimated and Final portion of the income tax has increased by $60 million since last month based on strong June collections. OSC is seeing a similar trend, but my forecast for Estimated and Final Payments will be $100 million above last month's estimate. 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 $214.9 million, a $59.1 million improvement from its May forecast. Revenue projections have increased by $53.4 million. Most notably, the Oil Companies Tax collections are estimated to be $43.3 million higher, primarily due to higher fuel prices. Other net revenue improvements totaling $10.1 million and spending reductions of $5.7 million are responsible for the remaining difference from the previous month. My office is in general agreement with OPM's Transportation Fund estimates.
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). OSC's current projections have estimated and final income tax collections totaling $4.54 billion for FY 2018, or $1.39 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 $779.4 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 $992.3 million, which represents approximately 5.25 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 indicators show that the State of Connecticut continues to lag behind the nation's economic recovery in key areas.
Department of Labor (DOL) reported preliminary data for April showing the state gained 4,100 net jobs (0.2%) in May, to a level of 1,690,700, seasonally adjusted. April’s originally-released job loss of 1,400 was revised down by 500 to a loss of 1,900 over the month. May's increase followed two consecutive months of job losses.
Over the year, DOL reported that nonagricultural employment in the state grew by 11,500 jobs on a seasonally-adjusted basis. This marks an improvement from 2016 levels, but it still lags behind the last period of economic recovery where employment growth averaged over 16,000 annually.
Connecticut's unemployment rate is estimated at 4.5 percent in May, unchanged from April 2018 and down two-tenths of point from a year ago when it was 4.7 percent. Nationally, the unemployment rate was 3.8 percent in May 2018, down one-tenth of a point from April.
Connecticut has now recovered 81.0 percent (96,500 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 99th month and the state needs an additional 22,600 jobs to reach an overall employment expansion. DOL notes that private sector job growth has outpaced that of the government sector. Connecticut's private sector has recovered 102.3 percent (114,300) of private sector jobs lost in the same downturn.
On June 21st, the Bureau of Economic Analysis reported that Connecticut's personal income grew by a 4.6 percent annual rate between the fourth quarter of 2017 and the first quarter of 2018. This ranked Connecticut 27th nationally in first quarter income growth, somewhat higher than the national average of 4.3 percent. The change in personal income across all states ranged from 7.4 percent in Washington to 2.0 percent in Idaho. Connecticut's quarterly performance represents an improvement from the annual results for 2017. BEA reported that Connecticut's personal income grew by only 1.5 percent between 2016 and 2017, which ranked 44th nationally.
In its June 7th release, Berkshire Hathaway HomeServices reported results for the Connecticut housing market for May 2018 compared with May 2017. Sales of single family homes fell 9.99 percent, while the median sale price rose 0.88 percent. New listings decreased by 5.41 percent in Connecticut and the median list price increased modestly by 1.55 percent to $269,000. Average days on the market grew 15.38 percent in May 2018 compared to the same month in the previous year (90 days on average, up from 78 days). Finally, the list to sell price rose slightly to 97.6 percent, compared with 97.4 percent a year ago.
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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