January 2, 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 November 30, 2019.
The Office of Policy and Management (OPM) is projecting that the General Fund will end Fiscal Year 2020 with a deficit of $22.9 million, an increase of $3.3 million from last monthís estimate. OPMís projection incorporates revenue and expenditure changes included in the recent settlement reached with the Connecticut Hospital Association and enacted into law in Public Act 19-1 and Special Act 19-1 of the December Special Session of the legislature.
OPM is projecting that the Special Transportation Fund (STF) will end Fiscal Year 2020 operations with a $4.0 million surplus, a $22.8 million reduction from last month. The change is due to higher net projected expenditures, including additional requirements of $16.6 million in the Department of Transportationís Rail Operations account and $1.7 million for active employee health insurance. The current projection would leave a positive STF balance of $324.2 million at year-end. The Office of the State Comptroller (OSC) is in general agreement with OPMís Transportation Fund forecast.
The following analysis of the financial statements furnished by OPM is provided pursuant to Connecticut General Statutes (CGS) Section 3-115.
OSC is projecting a General Fund deficit of $28.0 million for FY 2020, $5.1 million higher than OPMís current estimate. The difference with OPM is on the expenditure side of the budget and is due to a $24 million net deficiency in the fringe benefit accounts. As reported last month, OSCís projection includes a higher shortfall in the State Employee Health Services account.
OSC is in agreement with OPMís estimates on the revenue side of the budget, which continues to incorporate the November consensus forecast reached with the Office of Fiscal Analysis, updated with changes associated with the hospital settlement agreement. The next update of the consensus revenue forecast is scheduled for January 15, 2020.
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 $28.0 million would bring the year-end balance of the BRF to approximately $2.8 billion. This would represent 13.9 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 900 net jobs in November, to a level of 1,699,600, seasonally adjusted. Octoberís originally-released job loss of 1,500 was revised upward by 100 to a loss of 1,400 jobs over the month. DOL notes that the three-month moving average job growth remains positive since July, but the annual growth rate of jobs remains modest.
Over the year, DOL reported that nonagricultural employment in the state grew by 3,900 jobs on a seasonally-adjusted basis. Education & health services, manufacturing and leisure & hospitality were the fastest growing sectors in the stateís labor market on a percentage basis. The construction, other services, and trade, transportation & utilities sectors experienced the largest job losses.
Connecticut's unemployment rate stood at 3.7 percent in November, up one-tenth of a point from the revised October 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 November 2019, down one-tenth of a point from Octoberís revised estimate of 3.6 percent.
Connecticut has now recovered 85.5 percent (102,800 payroll job additions) of the 120,300 seasonally adjusted jobs lost in the Great Recession (3/08-2/10). As of November, the job recovery was into its 117th month and the state needed an additional 17,500 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 (106.2 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.
The Census Bureau has released population estimates by state as of July 1, 2019. Connecticutís population declined slightly between 2018 and 2019 and now stands at 3,565,287. This represents a decrease of 0.17% from the prior yearís estimate. Over the longer term, Connecticut has less population than it was nine years ago. While the decline is small (approximately 8,800), Connecticut is one of only four states to lose population since the 2010 Census, along with Illinois, Vermont and West Virginia.
On December 18th, the U.S. Bureau of Economic Analysis (BEA) reported that Connecticutís personal income grew by a 2.6 percent annual rate between the second and third quarters of 2019. Based on this result, Connecticut ranked 44th in the nation for third quarter income growth. This growth rate was below the national average of 3.8 percent and the New England regionís average growth rate of 2.9 percent. The percent change in personal income across all states ranged from 15.2 percent in South Dakota to 1.9 percent in West Virginia and Wyoming.
Berkshire Hathaway HomeServices reported results for the Connecticut housing market for November 2019 compared with November 2018. Sales of single-family homes declined 7.18 percent, with the median sale price increasing by 1.96 percent. New listings were down 7.15 percent in Connecticut, while the median list price rose 1.93 percent to $270,000. Average days on the market were unchanged in November compared to the same month in the previous year (75 days on average).
For the U.S. housing market, the National Association of Realtors (NAR) reported existing-home sales fell in November, taking a step back after Octoberís gains. November sales decreased 1.7 percent from October to a seasonally adjusted annual rate of 5.35 million. On the regional level there were mixed results with sales growth in the Northeast and Midwest and declines in the South and West. According to NAR, the median existing-home price for all housing types was $271,300, up 5.4 percent from November 2018 ($257,400) as prices rose in all regions. Novemberís price increase marks 93 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 later this month on January 15, 2020.
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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