August 1, 2019
The Honorable Ned Lamont
Governor of the State of Connecticut
Dear Governor Lamont:
I write to provide you with financial statements for the General Fund and the Transportation Fund through June 30, 2019.
The Office of Policy and Management (OPM) is projecting that the General Fund will end Fiscal Year 2019 with a surplus of $195.9 million, a net decrease of $505 million from last month’s estimate. The change in OPM’s surplus projection is primarily due to the impact of the newly enacted budget legislation, Public Act 19-117. Two provisions within PA 19-117 used $540.9 million in FY 2019 resources and thereby reduced the projected surplus for the year. The two items include $380.9 million to establish a special capital reserve fund for the Teachers’ Retirement System and $160 million to be used for a comprehensive hospital settlement.
OPM is projecting that the Special Transportation Fund (STF) will end Fiscal Year 2019 operations with a $67.5 million surplus, a $4.4 million increase from its June estimate. The change is the result of lower projected spending requirements and a small improvement in revenues. The current projection would leave a positive STF balance of $313.2 million at year-end.
The following analysis of the financial statements furnished by OPM is provided pursuant to Connecticut General Statutes (CGS) Section 3-115.
The Office of the State Comptroller (OSC) is in general agreement with OPM’s surplus projections for the General and Transportation Funds through June 30, 2019. The largest change from last month’s revenue schedule was related to $180 million in transfers to or from the General Fund. As noted above, transfers from the General Fund included $160 million reserved for the anticipated hospital settlement. The remaining $20 million represented sweeps from other funds to the General Fund that did not go forward during FY 2019.
In addition, there were adjustments in several tax categories. Overall the income tax was increased by $60 million due to strong June collections. This included a $20 million upward adjustment in withholding receipts and a $40 million increase in the estimated and finals payments. The latter revision will not impact the FY 2019 surplus, but rather will result in a larger volatility transfer to the Budget Reserve Fund. Estimated receipts for the Corporation Tax were reduced by $12.3 million based on recent trends. The full revenue schedule is shown in Exhibit C.
I should point out that FY 2019 year-end adjustments are still being processed and could have a significant impact on the final operating results. The fiscal year-end process includes statutory revenue accruals that will continue through August 7th. In addition, GAAP budget-related expenditure accruals will transfer expenses incurred in FY 2019 but paid in FY 2020 back into the previous fiscal year. Preliminary reporting of unaudited operating results for FY 2019 will be presented in the September 30th monthly letter.
The statutory revenue volatility cap requires revenues above a certain threshold to be transferred to the Budget Reserve Fund (BRF). For FY 2019, the cap is $3,196.8 million for estimated and final income tax payments and revenue from the Pass-through Entity tax. If current projections are realized, a $940.5 million volatility transfer would be made to the BRF.
The current balance of the BRF is $1,185,259,428. Adding the estimated $940.5 million volatility transfer and the remaining projected FY 2019 surplus of $195.9 million would bring the year-end balance of the BRF to just over $2.3 billion. This would represent approximately 12.0 percent of net General Fund appropriations for FY 2020. In order to help protect against future economic downturns, Connecticut must maintain financial discipline and continue building the BRF balance to the statutory target of 15 percent.
Connecticut’s budget results are ultimately dependent upon the performance of the national and state economies. Recent economic indicators include the following trends:
The state Department of Labor (DOL) reported preliminary data showing Connecticut lost 1,400 net jobs in June, to a level of 1,692,200, seasonally adjusted. In addition, May’s originally-released job loss of 1,500 was revised downward by 400 to a loss of 1,900 jobs over the month. With the May and June job losses, employment growth is in negative territory for calendar 2019. Over the year, DOL reported that nonagricultural employment in the state grew by 4,000 jobs on a seasonally-adjusted basis. Information, leisure & hospitality, and education & health services were the fastest growing sectors in the state’s labor market on a percentage basis. The other services, construction, and trade, transportation & utilities sectors experienced the largest job losses.
Connecticut's unemployment rate stood at 3.7 percent in June, down one-tenth of a point from the revised May figure and down four-tenths of a point from a year ago when it was 4.1 percent. Nationally, the unemployment rate was 3.7 percent in June 2019, up one-tenth of a point from May’s revised estimate. Connecticut has now recovered 79.3 percent (95,400 payroll job additions) of the 119,100 seasonally adjusted jobs lost in the Great Recession (3/08-2/10). As of June, the job recovery was into its 112th month and the state needed an additional 24,900 new net jobs to reach an overall employment expansion.
In a July 25th report, the Bureau of Economic Analysis (BEA) released Real Gross Domestic Product (GDP) results by state for the first quarter of 2019. Connecticut experienced a seasonally adjusted annual growth rate of 2.2 percent, which ranked 45th in the nation overall. This growth rate was below both the national average of 3.1 percent and the New England regional average of 2.5 percent. The percent change in real GDP in the first quarter ranged from 5.2 percent in West Virginia to 1.2 percent in Hawaii.
Berkshire Hathaway HomeServices reported results for the Connecticut housing market for June 2019 compared with June 2018. Sales of single-family homes fell 11.9 percent and the median sale price increased only slightly, by 0.87 percent. New listings were down 4.57 percent in Connecticut, while the median list price rose by a modest 1.39 percent to $299,000, compared with $294,900 a year ago. Average days on the market decreased 19.51 percent in June 2019 compared to the same month in the previous year (66 days on average, down from 82 days).
For the U.S. housing market, existing-home sales declined in June after rising the month before, according to the National Association of Realtors (NAR). June sales were down 1.7 percent from May to a seasonally adjusted annual rate of 5.27 million. There was a split in the regional results for the month with sales rising slightly in the Northeast and Midwest but decreasing in the South and West regions. Sales in all regions were still lower compared to one year ago, with the most significant declines in the Northeast and West. Median home prices rose in all regions, with the highest gains in the Midwest and South.
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 $241.1 million as of June 30, 2018.
If you have any questions on this report, please do not hesitate to contact me.
To view the data in Excel format, click here:
General Fund: A-D Transportation Fund: E-H
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