May 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 March 31, 2019.
The Office of Policy and Management (OPM) is projecting that the General Fund will end Fiscal Year 2019 with a surplus of $580.9 million, an increase of $14.3 million from its April 22nd estimate. The change in OPM's surplus projection is due to a net improvement in revenues based on the consensus revenue forecast reached with the Office of Fiscal Analysis (OFA) yesterday.
OPM is projecting that the Special Transportation Fund (STF) will end Fiscal Year 2019 operations with a $59.1 million surplus, an $8.8 million decrease from its earlier April estimate. The change is the result of lower revenue estimates included in the consensus forecast. This would leave a positive STF balance of $304.8 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 and with the April 30th consensus revenue forecast.
The consensus forecast incorporated some significant changes that OPM had adopted in its earlier, April 22nd estimate. The most notable was a $100 million increase in the withholding portion of the Personal Income Tax as these receipts continue to trend above budget targets.
Additional changes in the April 30th consensus forecast included a reduction in the estimated and finals portion of the income tax and lower projected Federal grant revenue. Several tax categories were revised upward including collections for the Pass-through Entity tax, Corporation tax and Inheritance and Estate tax. Overall, revenues increased by a net $14.3 million over the April 22nd estimate, with no changes in projected expenditures.
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, an $885.5 million volatility transfer would be made to the BRF.
The current balance of the BRF is $1,185,259,428. Adding the estimated $885.5 million volatility transfer and the projected FY 2019 surplus of $580.9 million would bring the year-end balance of the BRF to $2.65 billion, or approximately 13.9 percent of FY 2019 General Fund expenditures. This result, if achieved, would represent a significant improvement over the recent past and move the BRF closer 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 1,300 net jobs in March, to a level of 1,693,400, seasonally adjusted. At the same time, February's originally-released job loss of 400 was revised upward by 800 to a gain of 400 jobs over the month. However, DOL noted that the March job losses have driven the three-month average employment growth negative for calendar 2019. Over the year, DOL reported that nonagricultural employment in the state grew by 7,300 jobs on a seasonally-adjusted basis. Construction, information and leisure & hospitality the fastest growing sectors in the state's labor market on a percentage basis. The professional & business services, transportation & public utilities and other services sectors experienced job losses.
Connecticut's unemployment rate stood at 3.9 percent in March, up one-tenth of a point from the revised February figure and down five-tenths of a point from a year ago when it was 4.4 percent. Nationally, the unemployment rate was 3.8 percent in March 2019, unchanged from February's revised estimate. Connecticut has now recovered 80.3 percent (96,600 payroll job additions) of the 119,100 seasonally adjusted jobs lost in the Great Recession (3/08-2/10). As of March, the job recovery was into its 110th month and the state needed an additional 23,700 new net jobs to reach an overall employment expansion.
In a May 1st report, the Bureau of Economic Analysis (BEA) released Real Gross Domestic Product (GDP) results by state for the fourth quarter of 2018. Connecticut experienced a seasonally adjusted annual growth rate of 1.8 percent, which ranked 27th in the nation overall. This growth rate was below the national average of 2.2 percent, but slightly above to the New England regional average of 1.7 percent. The percent change in real GDP in the fourth quarter ranged from 6.6 percent in Texas to 0.0 percent in Delaware. In the same report, BEA provided the full annual GDP results by state for 2018. On this measure, Connecticut fared worse, lagging both the national and New England regional average levels of growth. Connecticut's Real GDP grew by 1.0 percent in 2018, which ranked 44th in the nation.
According to an April 26th report from BEA, U.S. Real Gross Domestic Product grew at an annual rate of 3.2 percent in the first quarter of 2019. This represents a rebound from the slower 2.2 percent growth in the fourth quarter of 2018. Economists polled by Reuters had forecast U.S. GDP increasing at a 2.0 percent rate in the first three months of the year. A similar poll of economists by Dow Jones predicted U.S. GDP growth of 2.5 percent. This GDP report helped alleviate some analysts fears of a global slowdown pushing the U.S. closer to a recession in 2019.
Berkshire Hathaway HomeServices reported results for the Connecticut housing market for March 2019 compared with March 2018. Sales of single-family homes fell 4.56 percent, while the median sale price was essentially flat, declining by just 0.24 percent. New listings rose slightly by 0.42 percent in Connecticut and the median list price fell by 0.70 percent to $250,000 from a year ago. Average days on the market decreased 3.03 percent in March 2019 compared to the same month in the previous year (96 days on average, down from 99 days).
For the U.S. housing market, existing-home sales retreated in March, following a large jump in February, according to the National Association of Realtors (NAR). March sales were down 4.9 percent from February to a seasonally adjusted annual rate of 5.21 million. All four major U.S. regions saw decreases in sales, with the Midwest experiencing the largest decline last month. Compared with a year ago, U.S. sales were down 5.4 percent (5.51 million in March 2018).
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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