January 4, 2021
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, 2020.
The Office of Policy and Management (OPM) is projecting that the General Fund will end Fiscal Year 2021 with a deficit of $640.2 million, an improvement of $239.2 million from last month’s estimate. This shortfall represents 3.2 percent of net General Fund appropriations. The change from last month is primarily due to improvements in projected revenues totaling a net $180.9 million. This was combined with $58.3 million in lower anticipated net spending requirements. My office is projecting a General Fund deficit that is lower by $25 million for the reasons described below.
OPM is projecting that the Special Transportation Fund (STF) will end Fiscal Year 2021 operations with a $60.6 million deficit, an improvement of $1.2 million from last month. The current projections would leave a positive STF balance of $107.8 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 $615.2 million, $25 million lower than OPM’s estimate, representing 3.1 percent of net General Fund appropriations. The difference in OSC’s forecast is an improvement in the withholding portion of the income tax. This upward revision is based on stronger than expected collections through December. Despite the number of jobs yet to be recovered from pandemic-related closures, withholding receipts are now outpacing FY 2020 results year-to-date. One possible explanation is that the employment losses have largely been concentrated in the service sector, such as leisure and hospitality jobs, which tend to have lower wages. OSC is in general agreement with the rest of OPM’s revenue schedule. I should caution these projections are subject to change as the Office of Fiscal Analysis and OPM are scheduled to release an updated consensus revenue forecast on January 15, 2021.
The other revenue changes made by OPM are reasonable based on collection trends observed by my office to date. This month the Corporation Tax was raised by $100 million due to stronger than expected estimated payment receipts in the September and December quarterly filings. I should note that despite this improvement, the current estimate for the Corporation Tax is still seven percent below the realized revenue total for FY 2020 and further below the initial target in the FY 2021 budget plan. The projection for the Sales and Use Tax increased by $90.9 million as collections continue to exceed revised budget targets. The strongest performer on a percentage basis has been the Real Estate Conveyance tax, which grew by another $25 million consistent with the strength of the housing market in recent months. These improvements were offset by higher than expected tax refunds, which were increased by $25 million. The remaining changes to the revenue schedule net to a negative $10 million.
The $58.3 million improvement on the expenditure side of the budget is due to a net increase in lapse targets, primarily within the budget of the Department of Social Services (DSS). The largest change was an increased lapse for Medicaid, which rose from $300 million to $350 million. OPM reports this is due to a combination of higher federal reimbursements and lower levels of service utilization. The coronavirus public health emergency declaration has been extended, which allows for an additional quarter of enhanced federal reimbursements through March 31, 2021. This, in turn, relieves pressure on the state’s General Fund Medicaid appropriation.
Based on current law, any General Fund for FY 2021 deficit would be closed through a transfer from the Budget Reserve Fund (BRF). The BRF balance currently stands at $3,012,941,643, which represents 15 percent of net General Fund appropriations. As the state continues to face an unprecedented public health and economic crisis, Connecticut is better positioned to meet the challenges due to the strong position of the BRF. Factoring in the FY 2021 deficit projection of $615.2 million, the BRF balance would be reduced to approximately $2.4 billion or 11.9 percent of net General Fund appropriations if current projections hold.
Connecticut’s budget results are ultimately dependent upon the performance of the national and state economies. In recent months, as Federal relief programs have expired and coronavirus cases have increased nationwide, the recovery has begun to slow. While the recently enacted Federal COVID relief package is smaller and less comprehensive than needed, it should help strengthen the economy in the early months of 2021 as the coronavirus vaccine roll out begins. Recent economic indicators include the following trends:
Throughout November and into December, the nation continued seeing high levels of initial unemployment insurance (UI) claims by historical standards. For the week ending December 26th the U.S. Bureau of Labor Statistics (BLS) reported that seasonally adjusted initial claims totaled 787,000. This represents a decline of 19,000 from the previous week. Still the jobs picture looking forward remains uncertain as coronavirus cases rise and states adopt more restrictions to combat the pandemic. The current level of initial UI claims is over three and a half times higher than totals seen before the coronavirus hit. Prior to the pandemic, initial UI claims averaged closer to 210,000 per week. In the same release, BLS reported the number of individuals receiving unemployment benefits (all programs) was approximately 19.6 million for the week ending December 12th. The corresponding figure for the prior year was 1.8 million.
Connecticut also experienced historic levels of employment losses this spring, although has reversed that trend in recent months and began recovering jobs in the early months of FY 2021. On December 17th, Connecticut Department of Labor (DOL) reported the preliminary Connecticut nonfarm job estimates for November 2020 from the business payroll survey administered by BLS. DOL’s Labor Situation report showed the state lost 1,600 net jobs (0.1 percent) to a level of 1,596,000 jobs seasonally adjusted. At the same time, the preliminary October 2020 job gain of 14,100 was revised downward by 2,600 jobs. To date, the state has regained 64.5 percent of the jobs lost in March and April.
November represented the first monthly job losses following six months of gains after April’s drop due to the COVID-19 lockdown. DOL noted that among the employment losses seen in November, approximately 1,000 were related to temporary federal census jobs ending, along with a decrease in leisure and hospitality jobs in accommodation and food service sector. One bright spot was in transportation and warehousing, which includes delivery services. This sector saw gains in November and now employs more people than it did one year ago.
Despite improvements in recent months, Connecticut’s employment level is still significantly down on a year-over-year basis. Compared with November 2019, nonagricultural jobs in the state fell by a net 96,500 positions (-5.7 percent) below one year ago seasonally adjusted. All ten major job experienced significant losses in November 2020 versus November 2019 levels. The leisure & hospitality sector remains particularly hard hit, losing one-fifth of its jobs for the period, followed by the other services and the government sectors. Connecticut's official unemployment rate stood at 8.2 percent in November 2020, up from 6.1 percent a month ago, but significantly higher than the 3.8 percent rate a year ago.
On December 17th, the Bureau of Economic Analysis (BEA) reported that U.S. state personal income decreased at an annual rate of 10.0 percent in the third quarter of 2020, after increasing 35.8 percent in the second quarter. Personal income decreased in every state and the District of Columbia, ranging from –29.9 percent in West Virginia to –0.6 percent in Georgia. By comparison, Connecticut’s personal income decreased by a 4.4 percent annual rate for the period. Based on this result, Connecticut ranked 3rd in the nation for third quarter income growth, ahead of both the national average (-10.0 percent) and New England regional average (-13.0 percent).
Last month BEA also reported updated state level GDP data in a December 23rd release. Real gross domestic product (GDP) increased in all 50 states and the District of Columbia in the third quarter of 2020, with the nation growing at an annual rate of 33.4 percent. Connecticut fared slightly worse than the nation and the New England region, with its GDP growing 32.6 percent, which ranked 32nd overall. The Connecticut industries experiencing the largest gains on a percentage basis were health care and social assistance (+5.41%), durable goods manufacturing (+5.21%) and accommodation and food services (+4.26%).
The Conference Board reported that the Consumer Confidence Index (CCI) declined in December, after decreasing in November. The index is closely watched by economists because consumer spending accounts nearly 70 percent of U.S. economic activity. If expectations for the future drop, consumers become more reluctant to spend. The CCI now stands at 88.6, down from 92.9 in November. This is the lowest confidence rating since August, representing a four-month low. Analysts noted rising COVID-19 cases and delays in approving another relief package as reasons behind the decline.
Continuing a trend from recent months, Berkshire Hathaway HomeServices reported another month of very strong results for the Connecticut housing market in November 2020 compared with November 2019. Sales of single-family homes increased by 40.76 percent, with the median sale price increasing by 23.35 percent. In addition, year-to-date sales through November 2020 are now in positive territory, up 17.84 percent compared with 2019 results. New listings were up 16.42 percent this November versus last year, with the median list price up 21.90 percent. At the same time, average days on the market decreased 30.38 percent in November 2020 compared to the same month in the previous year (55 days on average compared with 79 in November 2019).
For the U.S. housing market, the National Association of Realtors (NAR) reported existing-home sales fell in November 2020 following five consecutive months of sales gains. Each of the four major U.S. regions either took a step or held steady back in terms of month-over-month sales, but each region experienced significant year-over-year growth. Total existing-home sales decreased 2.5 percent from October to a seasonally adjusted annual rate of 6.69 million in November. However, sales in total rose year-over-year, up 25.8 percent from a year ago (5.32 million in November 2019).
Nationally, home prices have remained strong during the pandemic. NAR reported the median existing-home price for all housing types in November was $310,800, up 14.6 percent from November 2019 ($271,300), as prices increased in every region. November's national price increase marks 105 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. I will report the new unassigned fund balance figure for Fiscal Year 2020 no later than February 28, 2021 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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