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October 1, 2020
The Honorable Ned Lamont
Governor of the State of Connecticut
State
Capitol
Hartford, Connecticut
Dear Governor Lamont:
I write to provide you with financial statements for the General Fund and the Transportation Fund through August 31, 2020.
The Office of Policy and Management (OPM) is projecting that the General Fund will end Fiscal Year 2021 with a deficit of $2.024.9 million, an improvement of $45.8 million from last month�s estimate. This shortfall represents 10.1 percent of net General Fund appropriations and is primarily due to significant revenue reductions related to the impact of the ongoing coronavirus pandemic. The change from last month�s forecast reflects lower net expenditure requirements. My office is projecting a General Fund deficit that is lower by $150 million for the reasons described below.
OPM is projecting that the Special Transportation Fund (STF) will end Fiscal Year 2021 operations with a $65.9 million deficit, largely due to a $192.5 million downward revision of revenues from the adopted budget, again based on the impact of COVID-19 on the state�s economy. This represents an improvement of $10.1 million, primarily based on higher estimated lapses for debt service payments. The current projections would leave a positive STF balance of $102.5 million at year-end. My office is in general agreement with OPM�s STF forecast.
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 projecting a General Fund deficit of $1,874.9 million, $150 million lower than OPM�s estimate. The difference in OSC�s forecast is an improvement in the estimated and final payments portion of the income tax. This upward revision is based on the generally strong performance of the stock market and better than anticipated estimated payment collections through September. I should caution it is still early in the fiscal year and approximately 85 percent of receipts in this category have yet to be collected. Therefore, my projections will be refined and updated as more information becomes available in the coming months.
OSC is in general agreement with the rest of OPM�s revenue schedule, which is appropriately cautious due to uncertainty around the COVID-19 pandemic and its influence on economic activity. For example, unemployment remains persistently high in Connecticut and its impact on withholding receipts will require close monitoring. In addition, the expiration of federal relief programs, including the $600 weekly supplemental unemployment benefits, could reduce consumer spending, leading to lower sales tax collections and slower economic growth.
As reported in the recent year-end letter for FY 2020, the Budget Reserve Fund (BRF) has surpassed the 15 percent threshold and its balance currently stands at $3,035,853,798. The state has made enormous progress in building the BRF balance over the past three years. Now, as the state faces this unprecedented public health and economic crisis, Connecticut is better positioned to meet the challenge.
Connecticut�s budget results are ultimately dependent upon the performance of the national and state economies. Virtually all economic measures look back at past periods. In the present situation, therefore, some economic indicators presented below may appear inconsistent with more recent developments in the rapidly changing response to the COVID-19 pandemic.
Throughout August and into September, the nation continued seeing high levels of initial unemployment insurance (UI) claims. For the week ending September 19th the U.S. Bureau of Labor Statistics (BLS) reported that seasonally adjusted initial claims totaled 870,000. This represents an increase of 10,000 from the 860,000 initial UI claims reported in the previous week and is four times higher than before the coronavirus hit. Prior to the pandemic, initial UI claims averaged closer to 210,000 per week. Continuing UI claims, for those who have been collecting for at least two weeks, declined by 167,000 to 12.58 million for the week ending September 12th. This measure gives a clearer picture of how many workers are still unemployed.
Connecticut has also experienced historic levels of employment losses this spring, although has recently reversed that trend and began recovering jobs. On September 17th, Connecticut Department of Labor (DOL) reported the preliminary Connecticut nonfarm job estimates for August 2020 from the business payroll survey administered by the U.S. Bureau of Labor Statistics (BLS). DOL�s Labor Situation report showed the state gained 20,400 net jobs (1.3 percent) to a level of 1,566,600 seasonally adjusted. At the same time, the July 2020 job gain of 26,500 was revised upward by an additional 5,800 jobs.
Despite recent gains, Connecticut�s employment level is still significantly down on a year-over-year basis. Compared with August 2019, nonagricultural jobs in the state fell by 118,700 (-7.0 percent) seasonally adjusted. Among the major job sectors, all ten experienced significant losses in August 2020 versus August 2019 levels. The leisure & hospitality sector remains particularly hard hit, losing almost a quarter of its jobs for the period, followed by the other services and the information sectors.
Connecticut's official unemployment rate stood at 8.1 percent in August, but DOL cautioned that figure continues to be significantly understated due to ongoing data collection and classification issues with this month�s Current Population Survey (CPS). DOL�s Office of Research estimates Connecticut�s unemployment rate to be much higher, in the range of 14-15 percent for the mid-July to Mid-August period. By comparison, the official US jobless rate in August 2020 was 8.4 percent, although analysts noted that rate was likely understated due to the data collection issues noted above. One estimate by the Peterson Institute of International Economics put the US�s �realistic unemployment rate� at 9.9 percent for August.
According to a September 30th report from the Bureau of Economic Analysis (BEA), U.S. Real Gross Domestic Product (GDP) decreased at an annual rate of 31.4 percent in the second quarter of 2020, according to BEA�s third estimate. This represents the steepest quarterly decline on record, reflecting the significant economic fallout of the coronavirus pandemic. By comparison, the worst quarter during the Great Recession was an 8.4 percent drop in GDP in the fourth quarter of 2008. In the first quarter of 2020, real GDP decreased 5.0 percent.
The historical level of unemployment and GDP results illustrate the depth of the hole from which the nation is attempting to emerge. By some measures, the economic recovery has begun to stagnate as federal relief efforts expire and coronavirus infection rates rise in other regions of the country. A wide variety of sources, ranging from Federal Reserve Chairman Jerome Powell to the Center for Budget and Policy Priorities, are noting the downturn has not fallen equally on all Americans and those least able to bear the burden have been affected most severely, including lower income workers, Black and Latino households, women, and households with children. Despite coming from different ends of the political spectrum, they are making similar calls for Congress to enact substantial relief measures to prevent long-term damage to the economy and alleviate hardships like hunger, eviction, and homelessness.
The Conference Board reported that the Consumer Confidence Index increased to a post pandemic high in September, after two consecutive months of decline. The Index now stands at 101.8, up from 86.3 in August. This increase was better than economists expected. Consumers had a more favorable view of current business and labor market conditions in September, coupled with renewed optimism about the short-term outlook. The Conference Board noted greater optimism about short-term financial prospects may help keep consumer spending from slowing down further in the months ahead.
Berkshire Hathaway HomeServices reported very strong results for the Connecticut housing market in August 2020 compared with August 2019. Sales of single-family homes increased by 21.53 percent, with the median sale price increasing by 17.97 percent. Continuing a trend from the last two months, new listings were up 18.59 percent in Connecticut. The median list price rose 16.92 percent to $344,900. At the same time, average days on the market decreased 8.45 percent in August 2020 compared to the same month in the previous year (65 days on average compared with 71 in August 2019).
For the U.S. housing market, the National Association of Realtors (NAR) reported existing-home sales continued its upward trend in August 2020, representing three consecutive months of sales gains. Each of the four major regions experienced month-over-month and year-over-year growth, with the Northeast seeing the most improvement from the prior month. Total existing home sales rose 2.4 percent from July to a seasonally adjusted annual rate of 6.00 million in August. Nationally, home prices have remained strong during the pandemic. NAR noted the median existing-home price for all housing types in August was $310,600, up 11.4 percent from August 2019 ($278,800), as prices rose in every region of the country. August�s national price increase marks 102 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 $771.4 million as of June 30, 2019.
If you have any questions on this report, please do not hesitate to contact me.
Sincerely,
Kevin Lembo
State Comptroller
To view the data in Excel format, click here:
General Fund: A-D
Transportation Fund: E-H