February 3, 2020
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 December 31, 2019.
The Office of Policy and Management (OPM) is projecting that the General Fund will end Fiscal Year 2020 with a deficit of $58.8 million, an increase of $35.8 million from last monthís estimate. Most of the increase is due to a $32 million net reduction in General Fund revenue based on the January 15th consensus revenue forecast reached between OPM and the Office of Fiscal Analysis (OFA). The balance was due to a net $3.9 million in higher anticipated expenditures.
OPM is projecting that the Special Transportation Fund (STF) will end Fiscal Year 2020 operations with a $1.0 million surplus, a $3.0 million reduction from last month. Most of the change is related to the consensus revenue forecast, which reduced STF revenues by a net $2.4 million. Oil Companies Tax collections were revised downward by $5.0 million due to lower oil prices. This was offset somewhat by a $2.6 million increase in the Motor Fuels Tax, primarily associated with growth in gasoline consumption. The current projection would leave a positive STF balance of $321.2 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 OPMís FY 2020 projections through December 31, 2019, specifically a General Fund deficit of $58.8 million and a Special Transportation Fund surplus of $1.0 million.
As noted above, the primary reason for the increase in the General Fund deficit was a net $32 million downward revision to revenues based on the January 15th consensus forecast. Among the most notable changes was a $300 million reduction in the Estimated and Final Payments portion of income tax. However, that decrease was completely offset by a $300 million increase in the Pass-Through Entity Tax, which is consistent with the trend my office has been tracking in recent months. In addition, refunds of taxes increased by $65 million. The Inheritance Tax was raised by $15 million and casino gaming payments were increased $10 million as competition from Massachusetts casinos had less of an impact than initially forecast. Significantly, three large tax categories were left unchanged by the consensus forecast, including the withholding portion of the income tax, the Sales and Use Tax and the Corporation Tax.
The statutory revenue volatility cap requires receipts above a certain threshold to be transferred to the Budget Reserve Fund (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.
The balance of the BRF presently stands at $2,505,537,507. Adding the estimated $318.3 million volatility transfer, less the projected FY 2020 deficit of $58.8 million would bring the year-end balance of the BRF to approximately $2.76 billion. This would represent 13.8 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 100 net jobs in December, to a level of 1,700,400, seasonally adjusted. Novemberís originally-released job gain of 900 was revised upward by 700 to a gain of 1,600 jobs over the month. Despite gains in recent months, the job growth for the year has been quite modest. Connecticutís employment growth rate for the year was just 0.2 percent, second slowest in New England behind Vermont. On average the New England region grew by 0.9 percent in 2019.
Over the year, DOL reported that nonagricultural employment in the state grew by 3,600 jobs on a seasonally-adjusted basis. Education & health services, professional & business services and information were the fastest growing sectors in the stateís labor market on a percentage basis. The construction, trade, transportation & utilities and other services sectors experienced the largest job losses.
Connecticut's unemployment rate stood at 3.7 percent in December, unchanged from the revised November figure and down one-tenth of a point from a year ago when it was 3.8 percent. Nationally, the unemployment rate was 3.5 percent in December 2019, unchanged from November and down four-tenths of a point from a year ago.
Connecticut has now recovered 86.1 percent (103,600 payroll job additions) of the 120,300 seasonally adjusted jobs lost in the Great Recession (3/08-2/10). As of December, the job recovery was into its 118th month and the state needed an additional 16,700 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 (107.1 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.
In a January 10th report, the Bureau of Economic Analysis (BEA) released Real Gross Domestic Product (GDP) results by state for the third quarter of 2019. Connecticut experienced a seasonally adjusted annual growth rate of 2.1 percent, which ranked 25th in the nation overall. This growth rate was equal to both the national average and the New England regional average. The percent change in real GDP in the third quarter ranged from 4.0 percent in Texas to 0.0 percent in Delaware. Connecticutís performance in the third quarter was a vast improvement over the second quarter, where Connecticutís GDP grew at an annual growth rate of 1.0 percent, which ranked 47th in the nation overall.
On January 30th, BEA released U.S. GDP results for both the fourth quarter and the full year for 2019. U.S. GDP increased by 2.1 percent in the fourth quarter of 2019, which was in line with economistsí expectations and matched the third quarter growth rate. For the full year, U.S. GDP increased by 2.3 percent in 2019, the slowest growth in three years. In 2017, for example, the U.S. economy grew 2.4 percent, followed by a 2.9 percent increase in 2018.
Berkshire Hathaway HomeServices reported results for the Connecticut housing market for December 2019 compared with December 2018. Sales of single-family homes grew by 7.74 percent, with the median sale price increasing by 4.23 percent. New listings were down 10.91 percent in Connecticut, while the median list price rose 5.00 percent to $272,900. Average days on the market were down slightly in December 2019 compared to the same month in the previous year (81 days on average compared with 82 days).
For the U.S. housing market, the National Association of Realtors (NAR) reported existing-home sales rebounded in December, after taking a small step back in November. December sales increased 3.6 percent over November to a seasonally adjusted annual rate of 5.54 million. On the regional level, only the Midwest saw a sales decline, with the other three major regions reporting growth. According to NAR, the median existing-home price for all housing types was $274,500, up 7.8 percent from December 2018 ($254,700) as prices rose in all regions. Decemberís price increase marks 94 straight months of year-over-year gains.
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 28, 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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