March 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 January 31, 2018.
The Office of Policy and Management (OPM) is projecting that the General Fund will end Fiscal Year 2018 with a deficit of $194.8 million, a decrease of $45.4 million from last month. The reduction in the deficit estimate is due to revisions contained in Public Act 17-1 of the January Special Session and updated expenditure projections. My office is currently projecting a somewhat higher deficit of $198.5 million for reasons explained below. The projected operating results included in the OPM financial statements continue to forecast a deficit greater than one percent of net General Fund appropriations. As required by Connecticut General Statutes, Section 4-85, your office submitted a deficit mitigation plan to the Connecticut General Assembly on December 13, 2017 that is awaiting action by the legislature.
OPM is projecting the Transportation Fund will end Fiscal Year 2018 operations with a balance of $149.2 million, a $5.3 million deterioration from last month?s forecast due to a net increase in expenditures.
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 Comptroller's (OSC) higher deficit forecast is on the expenditure side of the budget. My office is projecting a $28.7 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. A separate settlement for $6.25 million has been submitted to the legislature, but has not yet been approved. Therefore, it was not included in OSC's deficit estimate this month. 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 revenue projections included in the General Fund deficit estimate, which largely reflect the January 16th consensus forecast. Budgeted and estimated revenues increased by $17.8 million this month based on a change due to Public Act 17-1 of the January 2018 Special Session, which canceled a transfer of resources from FY 2018 into FY 2019 that was part of enacted budget plan. As noted last month, the consensus forecast projects a significant increase in estimated and final income tax payments.
Due to the new revenue volatility adjustment contained in the Section 704 of Public Act 17-2, June Special Session, any estimated and final payment collections amount above $3.15 billion will be transferred to the Budget Reserve Fund (BRF). If the consensus forecast totals are realized, $664.9 million will be deposited in the BRF, bringing the balance to $877.8 million, approximately 4.7 percent of General Fund expenditures.
A positive development on the expenditure side was the recent implementation
of the Medicare Advantage Program for retired state employees and eligible
dependents over the age of 65. Adopting Medicare Advantage was part of the SEBAC
2017 agreement and is currently saving approximately $11 million a month. The
program is projected to save $135 million in FY 2019.
Overall, General Fund expenditures through January are a modest 2.1 percent higher than last year?s spending to this point. With five months remaining in FY 2018, the aggressive savings targets included in the adopted General Fund budget will continue to pose serious challenges. A combination of active budget management and legislative action will be needed to close the deficit prior to fiscal year-end.
Connecticut's overall budget results are ultimately dependent upon the performance of the national and state economies. The January labor situation report for Connecticut will not be released by the Department of Labor until March 9th. Therefore, my office continues to report December labor data in this month?s letter.
Preliminary data for December showed the state gained 6,000 net jobs during the month, to a level of 1,685,200, seasonally adjusted. Bright spots in the report included job growth in manufacturing and the financial sector. In addition, November?s originally-released job loss of 3,500 was revised down by the Bureau of Labor Statistics to a loss of 1,800 for the month.
For the year, the Connecticut Department of Labor reported that Connecticut gained 7,700 jobs on a seasonally-adjusted basis and 6,200 jobs on an annual average basis. This compared favorably with 2016, which saw annual average growth of 5,000 jobs. However, this level of increase is still lower than the last period of economic recovery where employment growth averaged over 16,000 annually. Connecticut's unemployment rate remained at 4.6 percent in December, unchanged from November 2017. Nationally, the unemployment rate was 4.1 percent in December 2017.
Connecticut has now recovered 76.4 percent (91,000 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 94th month and the state needs an additional 28,100 jobs to reach an overall employment expansion.
In a January 24th report, the Bureau of Economic Analysis released Real Gross Domestic Product (GDP) results by state for the third quarter of 2017. Connecticut experienced a seasonally adjusted annual growth rate of 3.9 percent, which ranked 8th in the nation overall. This was a significant improvement from the second quarter of 2017, when Connecticut ranked 44th in the nation with annualized growth of 1.9 percent. The sectors that contributed most to Connecticut?s strong third quarter performance were finance and insurance, durable goods manufacturing, and information services.
In its February 7th release, Berkshire Hathaway HomeServices reported mixed results for the Connecticut housing market for January 2018 compared with January 2017. Sales of single family homes declined 10.62 percent. However, the median sale price rose 8.70 percent. New listings in Connecticut decreased by 15.36 percent, but the median list price increased 8.34 percent to $259,900. Average days on the market increased 14.29 percent in January 2018 compared to the same month in the previous year (104 days on average, up from 91 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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