November 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 September 30, 2019.
The Office of Policy and Management (OPM) is projecting that the General Fund will end Fiscal Year 2020 with a surplus of $79.1 million, a net decrease of $5.2 million from last monthís estimate. The change in OPMís surplus projection is due to an upward revision to expenditure estimates, primarily in the non-appropriated adjudicated claims account.
OPM is projecting that the Special Transportation Fund (STF) will end Fiscal Year 2020 operations with a $38.8 million surplus, no change from the enacted budget plan. The current projection would leave a positive STF balance of $359 million at year-end. Based on expenditure trends, OPM warns that the Department of Transportationís Rail Operations account may require additional resources later in the fiscal year. However, at present, no adjustment has been made for the potential impact.
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 OPMís FY 2020 surplus projections for the General and Transportation Funds through September 30, 2019. I should note these results only reflect the first quarter of the fiscal year and my projections will be updated as more information becomes available in the coming months.
General Fund spending is currently exceeding the budget plan by a net $62.0 million. As a result, the initial surplus of $141.1 million that was built into the FY 2020 budget has been reduced to $79.1 million. This experience through the first quarter reinforces the wisdom of building an additional safety margin into the budget plan. OPM is projecting a $28 million shortfall within the Medicaid account, while the adjudicated claims deficiency has increased to $25 million. The remaining deficiencies are due to additional requirements projected for accounts within the Department of Correction and the Office of Early Childhood.
To date, FY 2020 revenues appear to be generally in line with the budget plan. OPM and the Office of Fiscal Analysis are schedule to release the first consensus revenue forecast of FY 2020 on November 12, 2019. Therefore, revenue projections could change significantly in the coming weeks.
Based on final FY 2019 operating results, the Budget Reserve Fund (BRF) balance is just over $2.5 billion, which represents 13.0 percent of FY 2020 net General Fund appropriations. The statutory revenue volatility cap requires revenues above a certain threshold to be transferred to the BRF. For FY 2020, the cap is $3,294.2 million for estimated and final income tax payments and revenue from the Pass-through Entity tax. If current projections are realized, a $318.3 million volatility transfer would be made to the BRF.
As noted, the balance of the BRF presently stands at $2,505,537,507. Adding the estimated $318.3 million volatility transfer and the projected FY 2020 surplus of $79.1 million would bring the year-end balance of the BRF to approximately $2.9 billion. This would represent approximately 14.5 percent of net General Fund appropriations for FY 2021. 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.
Connecticutís 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 gained 3,600 net jobs in September, to a level of 1,699,200, seasonally adjusted. DOL noted almost all the growth came from an unusually high increase in the education sector. At the same time, Augustís originally-released job gain of 2,800 was revised downward by 1,600 to a gain of 1,200 jobs over the month. September represents the third consecutive month of job growth for Connecticut.
Over the year, DOL reported that nonagricultural employment in the state grew by 8,800 jobs on a seasonally-adjusted basis. Information, education & health services and financial activities were the fastest growing sectors in the stateís labor market on a percentage basis. The construction, other services, and professional & business services sectors experienced the largest job losses.
Connecticut's unemployment rate stood at 3.6 percent in September, unchanged from the revised August figure and down three-tenths of a point from a year ago when it was 3.9 percent. Nationally, the unemployment rate was 3.5 percent in September 2019, down two-tenths of a point from Augustís revised estimate of 3.7 percent.
Connecticut has now recovered 85.1 percent (102,400 payroll job additions) of the 120,300 seasonally adjusted jobs lost in the Great Recession (3/08-2/10). As of September, the job recovery was into its 115th month and the state needed an additional 17,900 new net jobs to reach an overall employment expansion. Within the job recovery numbers, DOL points out a significant distinction. The private sector has recovered more than the total jobs lost in the recession (105.6 percent), which means the remaining employment losses are from the government sector. This sector includes all federal, state and local government employment, including public education, and Native American tribal government.
According to an October 30th report from the Bureau of Economic Analysis (BEA), U.S. Real Gross Domestic Product grew at an annual rate of 1.9 percent in the third quarter of 2019, based on BEAís advance estimate. This represents a slight slowdown from the 2 percent GDP growth recorded in the second quarter. However, the results were better than analysts predicted. Economists polled by Dow Jones had expected the economy to grow at a 1.6 percent rate. The third quarter GDP growth was largely the result of spending by consumers as well as by federal, state and local governments. On the downside, business investment declined in the third quarter as ongoing trade disputes added to uncertainty and continued to dampen growth.
Berkshire Hathaway HomeServices reported results for the Connecticut housing market for September 2019 compared with September 2018. Sales of single-family homes rose 7.44 percent, with the median sale price increasing slightly by 0.38 percent. New listings were up 4.08 percent in Connecticut, while the median list price remained basically flat at $269,900. Average days on the market decreased 4.05 percent in September 2019 compared to the same month in the previous year (71 days on average, down from 74 days).
For the U.S. housing market, the National Association of Realtors (NAR) reported existing-home sales experienced a decrease in September, following two consecutive months of growth. September sales fell 2.2 percent from August to a seasonally adjusted annual rate of 5.38 million. All four major regions experienced sales declines compared with August, with the largest drop coming in the Midwest. According to NAR, the median existing-home price for all housing types was $272,100, up 5.9 percent from September 2018 ($256,900). Septemberís price increase marks 91 straight months of year-over-year gains. However, despite historically low mortgage rates, sales have not increased proportionately, in part due to a low level of new housing inventory.
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. I will report the new unassigned fund balance figure for Fiscal Year 2019 no later than February of 2020 in accordance with U.S. Securities and Exchange Commission (SEC) requirements.
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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