June 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 April 30, 2018.
In its letter of May 21st, the Office of Policy and Management (OPM) projected that the General Fund will end Fiscal Year 2018 with a deficit of $717.5 million, an increase of $335.7 million over its April 30th estimate. The latest OPM projection incorporates the impact of Public Act 18-81, An Act Concerning Revisions to the State Budget for Fiscal Year 2019 and Deficiency Appropriations for Fiscal Year 2018, which was signed into law on May 15th. The OPM projection continues to use the April 30th consensus forecast, so there were no changes to revenue from the prior month. My office is currently projecting a somewhat higher deficit of $721.0 million for reasons explained below.
The provisions of PA 18-81 are largely responsible for the change in the deficit from the previous month. The act authorizes the carry-forward of $341.7 million in resources from FY 2018 into FY 2019. Without the carry-forwards, these amounts would have lapsed, which would have a positive impact on the General Fundís year-end operating balance. The carry-forwards into FY 2019 include funding for hospital supplemental payments ($299.2 million), Medicaid expenses ($21.0 million) and retired state employee health insurance ($21.5 million). In addition, PA 18-81 authorizes a transfer of $16.1 million from the Budget Reserve Fund (BRF) to the Retired Teachersí Health Service Fund. Once these carry-forwards and transfers are taken into account, OPM is estimating a deposit of $556.4 million into the BRF, which would bring the total balance to $769.3 million.
OPM is projecting the Transportation Fund will end Fiscal Year 2018 operations with a balance of $155.8 million, a $2.5 million improvement from its April forecast. PA 18-81 provided deficiency appropriations that resolved shortfalls in the Department of Transportationís account for rail operations and the active employee health insurance account in the Transportation Fund.
The following analysis of the financial statements furnished by OPM is provided pursuant to Public Act 17-2 June Special Session, Section 713.
The difference in the Office of the State Comptrollerís (OSC) higher deficit forecast is on the expenditure side of the budget. My office is projecting a $41.5 million deficiency in the non-appropriated Adjudicated Claims account. This account is responsible for paying SEBAC v. Rowland claims and related attorneyís fees, along with other negotiated settlements. Due to the unpredictable nature of this account, my office will closely monitor Adjudicated Claims activity and revise these estimates as needed in the coming months.
My office concurs with the consensus revenue projections included in the General Fund deficit estimate. The full revenue schedule is presented in Exhibit C.
Initially, the revenue volatility adjustment contained in Section 704 of Public Act 17-2, June Special Session, required that any estimated and final payment collections amount above $3.15 billion would be transferred to the Budget Reserve Fund (BRF). Current projections have estimated and final income tax collections totaling $4.44 billion for FY 2018, or $1.29 billion over the volatility threshold.
As noted earlier, based on changes contained in PA 18-81, 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 approximately $552.9 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 $765.8 million,
which represents about 4 percent of the revised General Fund budget for FY 2019.
While many important state and municipal programs were preserved through the use
of this funding, a large portion of it represents revenue that is one-time in
nature. My office has traditionally recommended the BRF reach a level of 15
percent of General Fund expenditures to protect against a future downturn.
Connecticutís overall 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 nationís economic recovery in key areas.
Department of Labor (DOL) reported preliminary data for April showing the state lost 1,400 net jobs (0.1 percent), to a level of 1,687,100, seasonally adjusted. March's originally-released job loss of 2,000 was revised down to a loss of 3,500 over the month. Aprilís decline was the second consecutive month of job losses, following four months of gains from November through February.
Over the year, DOL reported that nonagricultural employment in the state grew by 8,700 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 for April, unchanged from March 2018 and down three-tenths of point from a year ago when it was 4.8 percent. Nationally, the unemployment rate was 3.9 percent in April 2018, down two-tenths of a point from March.
Connecticut has now recovered 78.0 percent (92,900 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 98th month and the state needs an additional 26,200 jobs to reach an overall employment expansion.
In a May 4th report, the Bureau of Economic Analysis released Real Gross Domestic Product (GDP) results by state for both the fourth quarter of 2017 and preliminary annual GDP results for 2017. For the 4th quarter of 2017, Connecticut experienced a seasonally adjusted annual growth rate of 2.4 percent, which ranked 30th in the nation overall. This growth rate was slower than the national average of 2.7 percent and ahead of only Vermont for the New England States for the period. It also represented a deceleration of growth from the 3rd quarter, when Connecticutís GDP grew by a seasonally adjusted annual growth rate of 4.6 percent.
The state's annual GDP results for 2017 were less encouraging. Connecticut ranked 49th in the nation, with Real GDP change of -0.2 percent. The main cause was a very weak first quarter of 2017 (-5.5% seasonally adjusted annual rate). Despite growth for the rest of 2017, this represented the third time in four years the state experienced negative annual GDP growth.
While overall income growth has been quite modest this fiscal year, Connecticut remains a wealthy state. Preliminary Bureau of Economic Analysis (BEA) estimates for 2017 rank Connecticut first in the nation in annual per capita personal income at $70,121, which represents 139 percent of the national average.
In its May 7th release, Berkshire Hathaway HomeServices reported results for the Connecticut housing market for April 2018 compared with April 2017. Sales of single family homes rose 3.89 percent and the median sale price rose 7.23 percent. New listings increased slightly by 0.75 percent in Connecticut and the median list price rose 6.00 percent to $264,900. Average days on the market increased 15.48 percent in April 2018 compared to the same month in the previous year (97 days on average, up from 84 days). Finally, the list to sell price rose slightly to 97.2 percent, compared with 96.9 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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