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July 1, 2021
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 May 31, 2021.
The Office of Policy and Management (OPM) is projecting that the General Fund will end Fiscal Year 2021 with a surplus of $157.0 million, a decrease of $312.5 million from last month�s estimate. This projected surplus represents 0.8 percent of net General Fund appropriations. The change from last month is due to a combination of factors, including an increase of expenditures of $528.4 million related to legislative actions discussed below, in part offset by a net $214.8 million improvement in revenues.
OPM is projecting that the Special Transportation Fund (STF) will end Fiscal Year 2021 operations with a $41.7 million surplus. This represents a $36.2 million improvement from last month, primarily due to a $39.4 million upward revision to revenues. Anticipated expenditures increased by $3.2 million since last month�s forecast. An improving economy boosted the STF Sales and Use Tax by $10.5 million and the DMV Sales Tax by another $10.0 million. In addition, rising fuel prices and higher levels of consumption led to a $16.3 million increase in the Oil Companies Tax. The current projections would leave a positive STF balance of $210.1 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 OPM�s General Fund and Transportation Fund projections through May 31, 2021.
The significant increase in expenditures this month is primarily due to carry forward provisions contained in the recently enacted budget bill, Special Act No. 21-15, as amended by Senate Bill 1202 of the June Special Session. OPM reports that carryforwards of $492.3 million will reduce appropriation lapses in FY 2021. In turn, those funds will be reserved for use during the FY 2022-2023 biennium. This month�s projection also includes higher anticipated spending of $25.3 million in the current fiscal year.
On the revenue side, several categories were revised upward in this month�s forecast. This projection matches trends my office has been monitoring and coincides with the general improvement in Connecticut�s economy as it emerges from the pandemic. The Sales and Use tax was raised by $107.6 million as the state continued to reopen, bolstered by another round of Federal stimulus payments. Based on strong June receipts, the estimated and final payment portion of the income tax and the Pass-Through Entity Tax (PET) were both increased by $100 million. Since these two categories are subject to the revenue volatility cap, the additional $200 million will not add to the General Fund surplus, but rather increase the expected year-end transfer to the Budget Reserve Fund as discussed below. In addition, the target for the Corporation Tax was raised by $65 million as collections outpaced budget targets in June. Refunds of taxes were lowered by $95 million based on fewer refunds issued to date. On the downside, OPM noted projections for the Health Provider Tax were decreased by $40 million due to lower occupancy rates in nursing homes. All other revenue changes netted to a negative $12.4 million. The full General Fund revenue schedule is attached in Exhibit C.
The statutory revenue volatility cap requires receipts above a certain threshold to be transferred to the Budget Reserve Fund (BRF). For FY 2021, the cap is just over $3.4 billion for estimated and final income tax payments and revenue from the Pass-through Entity (PET) tax. If current trends hold, the anticipated volatility transfer to the BRF will be approximately $1.2 billion.
The balance of the BRF presently stands at $3,012,941,643. Adding the estimated $1.2 billion volatility transfer, plus the projected FY 2021 surplus of $157.0 million would bring the year-end balance of the BRF to $4.37 billion, or approximately 21.8 percent of net General Fund appropriations. Based on current law, any balances above the 15 percent threshold would result in additional contributions to either the State Employees Retirement Fund or the Teachers� Retirement Fund, depending on what the State Treasurer decides is in the best interest of the state. A significant additional contribution towards unfunded pension liability would be a welcome reversal from decades of underfunding and create more budgetary flexibility in future years. Initial projections from the SERS actuary indicate an additional contribution of $1.25 billion to the State Employee Retirement System would save approximately $2.75 billion over the remaining amortization schedule or an average of $110 million per year for 25 years.
Connecticut�s budget results are ultimately dependent upon the performance of the national and state economies. Recent economic indicators include the following trends:
The Bureau of Labor Statistics (BLS) reported the U.S. added 559,000 jobs in May, somewhat lower than analysts had expected, but still an improvement over April�s revised job growth of 278,000. For the week ending June 19th, BLS reported that seasonally adjusted initial claims totaled 411,000. While still high by historical standards, this represented a decrease of 7,000 from the previous week's level of 418,000.
On June 22, the Connecticut Department of Labor (DOL) reported the preliminary Connecticut nonfarm job estimates for May 2021 from the business payroll survey administered by BLS. DOL�s Labor Situation report showed the state gained 7,800 net jobs (0.5%) in May to a level of 1,589,100 jobs seasonally adjusted. This follows job growth of 1,200 positions in April and represents five consecutive months of employment gains.
DOL noted that four of the ten major industry sectors experienced improvement while six experienced declines in May. Education & health services lead the way (+5,300 jobs), followed by professional & business services (+2,200) and leisure & hospitality (+1,900). The sectors that lost jobs in May included government (-800 jobs), construction& mining (-600), financial activities (-400) and other services (-300).
In terms of COVID-19 job losses, Connecticut reached its pandemic-related employment low in April of 2020. Thirteen months later, the state�s total payroll employment is now 151,600 positions higher, representing an increase of 10.6 percent. Connecticut has now recovered 63.3 percent of the 292,400 jobs lost in March and April 2020 due to the COVID-19 lockdown. Connecticut's official unemployment rate stood at 7.7 percent in May 2021, down from 8.1 percent a month earlier and 11.4 percent from a year ago. The U.S. jobless rate in May was 5.8 percent, down three-tenths of a percentage point from the previous month, but down significantly from the 13.3 percent rate in May 2020.
According to a June 25th report from the Bureau of Economic Analysis (BEA), U.S. Real Gross Domestic Product (GDP) increased at an annual rate of 6.4 percent in the first quarter of 2021, according to bureau�s third estimate. This follows a 4.3 percent real GDP increase in the fourth quarter of 2020. BEA noted the first quarter results reflected continued economic recovery, the reopening of business establishments and the impact of the federal government�s ongoing response to COVID-19. The first-quarter growth in real GDP resulted from increases in consumer spending, business investment, government spending, and housing investment. These gains were partially offset by decreases in inventory investment and exports. Imports, a subtraction in the calculation of GDP, increased.
BEA also reported state level GDP data for the first quarter of 2021. Real GDP increased in all 50 states and the District of Columbia in the first quarter of 2021. The percent change in real GDP in the first quarter ranged from 10.9 percent in Nevada to 2.9 percent in the District of Columbia. Connecticut�s GDP growth rate of 6.0 percent ranked 34th in the nation and came in below the New England regional average of 6.7 percent and U.S. average of 6.4 percent. The Connecticut industries experiencing the largest gains on a percentage basis were durable goods manufacturing (+1.30%), finance & insurance (+0.93%), and retail trade (+0.77%).
The Conference Board reported that the Consumer Confidence Index improved in June after holding steady in May. The Index now stands at 127.3, up from May�s revised reading of 120. Consumer confidence is currently at its highest level since the onset of the pandemic in March of 2020. The index is closely watched by economists because consumer spending accounts nearly 70 percent of U.S. economic activity.
Berkshire Hathaway HomeServices reported another month of strong results for the Connecticut housing market in May 2021 compared with May 2020. Sales of single-family homes grew 16.55 percent, with the median sale price increasing by 21.95 percent. New listings were up 14.24 percent this May versus last year. The median list price was up 15.26 percent while the average list price is up 30.37 percent pointing to a very robust market for higher priced homes. Average days on the market decreased 44.44 percent in May 2021 compared to the same month in the previous year (40 days on average compared with 72 in May 2020). Finally, on average sales prices came in above list prices in May, with the sales to list price ratio of 102.6 percent.
For the U.S. housing market, the National Association of Realtors (NAR) reported existing-home sales fell in May 2021, marking the fourth consecutive monthly decrease. Three of the four major U.S. regions had month-over-month sales declines in May, but all four experienced double-digit year-over-year gains. Total existing-home sales decreased 0.9 percent from April to a seasonally adjusted annual rate of 5.8 million in May. Year-over-year sales were up 44.6 percent from a year ago (4 million in May 2020), reflecting the COVID-19�s impact on the housing market during the early days of the pandemic.
Nationally, home prices have remained strong during the pandemic. NAR reported the median existing-home price for all housing types in May was $350,300, up 23.6 percent from May 2020 ($283,500), as prices increased in every region. May�s national price growth marks 111 straight months of year-over-year gains dating back to March 2012. All regions of the country experienced double-digit price growth from a year ago. The largest regional gains on a percentage basis were in the West (+24.3%), followed by the South (+22.6%). The Midwest increased 18.1 percent and the Northeast grew 17.1 percent.
My office also issues a Comprehensive Annual Financial Report as an accounting supplement to the budgetary report. The annual report for FY 2020 was published on February 19, 2021 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 $1,072.2 million as of June 30, 2020.
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