June 1, 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 April 30, 2021.
The Office of Policy and Management (OPM) is projecting that the General Fund will end Fiscal Year 2021 with a surplus of $470.5 million, an increase of $220.7 million from last monthís estimate. This projected surplus represents 2.3 percent of net General Fund appropriations. The change from last month is due to a net $176.2 million improvement in revenues combined with an additional $44.5 million in anticipated spending reductions.
OPM is projecting that the Special Transportation Fund (STF) will end Fiscal Year 2021 operations with a $5.5 million surplus. This represents a $29.5 million improvement from last month, primarily due to lower expenditure estimates totaling a net $25.6 million. Most of the spending reduction in the STF consists of a larger budgetary lapse in the State Treasurerís debt service account due to lower interest costs and delays in the timing of FY 2020 and FY 2021 bond sales. In addition, there was an upward revision of $3.9 million to Sales and Use Tax revenues over last monthís forecast. The current projections would leave a positive STF balance of $173.9 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 General Fund and Transportation Fund projections through April 30, 2021.
The delay in the income tax filing deadline until May 17, 2021 caused some uncertainty around the April 30th consensus revenue forecast. Normally state policy makers would have a clearer sense of the year-end revenue projections at the end of April. As it turns out, strong collections through May have resulted in upward revisions to several major tax categories. The most significant change is a $300 million increase in the estimated and final payments portion of the income tax. Of note, this category is now projected to come in above its original budget target by $101.8 million or 3.6 percent. Since final and estimated payments are subject to the revenue volatility cap, the additional $300 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.
Other positive revenue changes include increases in the withholding portion of the income tax (+$50 million), Corporation Tax (+$50 million) and Sales & Use Tax (+$41 million) all due to stronger than expected collections to date. In addition, the Inheritance & Estate Tax continues to exceed budget targets and was raised by $25 million. All other revenue changes net to a positive $10.2 million. The full General Fund revenue schedule is attached in Exhibit B.
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 $1.0 billion.
The balance of the BRF presently stands at $3,012,941,643. Adding the estimated $1.0 billion volatility transfer, plus the projected FY 2021 surplus of $470.5 million would bring the year-end balance of the BRF to $4.49 billion, or approximately 22.3 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 Teachersí Retirement Fund, depending on what the State Treasurer decides is in the best interest of the state. An additional contribution of that size towards unfunded pension liability would be a welcome reversal from decades of underfunding and create more budgetary flexibility in future years.
Connecticutís budget results are ultimately dependent upon the performance of the national and state economies. Recent economic indicators include the following trends:
Despite a pause in April for some aspects of the recovery, the nationís economy continued to strengthen as ongoing COVID-19 vaccination efforts progress and states lift restrictions on businesses due to lower positivity rates. The Bureau of Labor Statistics (BLS) reported the U.S. added only 266,000 jobs in April, much lower the one million some analysts had expected. For the week ending May 22nd, BLS reported that seasonally adjusted initial unemployment claims totaled 406,000. While still high by historical standards, this represented a decrease of 38,000 from the previous week's level of 444,000 and was the lowest since March 14, 2020, just before the pandemic shutdowns began.
On May 20th the Connecticut Department of Labor (DOL) reported the preliminary Connecticut nonfarm job estimates for April 2021 from the business payroll survey administered by BLS. DOLís Labor Situation report showed the state gained a modest 500 net jobs (0.03%) in April to a level of 1,580,600 jobs seasonally adjusted. This follows more robust job growth of 5,200 positions in March and represents four consecutive months of employment gains. DOL noted recoveries can be uneven and that was certainly reflected in Aprilís results. Six of the ten major industry sectors experienced improvement while four experienced declines. Professional & business services lead the way (+3,600), followed by leisure & hospitality (+1,800) and government (+1,100). The sectors that lost jobs in April included education & health services (-4,100), trade, transportation & utilities (-2,300), financial activities (-700) and manufacturing (-600).
In terms of COVID-19 job losses, Connecticut reached its pandemic-related employment low in April of 2020. A year later, the stateís total payroll employment is now 176,700 positions higher, representing an increase of 12.6 percent. Connecticut has now recovered 60.4 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 8.1 percent in April 2021, down from 8.3 percent a month earlier and 8.6 percent from a year ago. The U.S. jobless rate in April was 6.1 percent, up one-tenth of a point from the previous month, but down significantly from the 14.8 percent rate in April 2020.
According to a May 27th 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 bureauís second 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 governmentís 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.
The Conference Board reported that the Consumer Confidence Index held steady in May, following a significant rise in April. The Index now stands at 117.2, down marginally Aprilís revised reading of 117.5. The results came in lower than economists expected. Consumers were upbeat about the present situation, but optimism in the short-term retreated somewhat due to expectations of slowing economic growth and a softening labor market in the coming months.
On May 14th, the Commerce Department reported that U.S. advance retail sales were $619.9 billion in April 2021, virtually unchanged from the previous month. In March retail sales jumped a revised 10.7 percent as households received their $1,400 federal stimulus checks from the American Rescue Plan Act. April results were mixed, however. The biggest gainers on a percentage basis were restaurants and bars, which saw an increase of 3.0 percent, as additional COVID restrictions were lifted and more businesses re-opened. This was followed by motor vehicle & parts dealers (+2.9%) and electronics & appliance stores (+1.2%). Sectors that experienced a step back in April included clothing & accessory retailers (-5.1%), general merchandise stores (-4.9%), and sporting goods, hobby & musical instrument shops (-3.6%)
Continuing a trend from recent months, Berkshire Hathaway HomeServices reported another month of strong results for the Connecticut housing market in April 2021 compared with April 2020. Sales of single-family homes grew 14.58 percent, with the median sale price increasing by 21.53 percent. Reflecting a comparison from the beginning of the pandemic lock down, new listings were up 90.70 percent this April versus last year. The median list price was up 17.53 percent while the average list price is up 48.53 percent pointing to a very robust market for higher priced homes. Average days on the market decreased 29.87 percent in April 2021 compared to the same month in the previous year (54 days on average compared with 77 in April 2020). Finally, on average sales prices came in above list prices in April, with the sales to list price ratio of 101.6 percent.
For the U.S. housing market, the National Association of Realtors (NAR) reported existing-home sales fell in April 2021, marking the third consecutive monthly decrease. Three of the four major U.S. regions had month-over-month sales declines in April, but all four experienced double-digit year-over-year gains. Total existing-home sales decreased 2.7 percent from March to a seasonally adjusted annual rate of 5.85 million in April. Year-over-year sales were up 33.9 percent from a year ago (4.37 million in April 2020).
Nationally, home prices have remained strong during the pandemic. NAR reported the median existing-home price for all housing types in April was $341,600, up 19.1 percent from April 2020 ($286,800), as prices increased in every region. Aprilís national price growth marks 110 straight months of year-over-year gains. In its monthly report, NAR noted first time buyers are having trouble securing their first home in the current market for a number of reasons, including lack of housing inventory, competition with investors, a growing number of cash sales and properties leaving the market quickly.
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.
To view the data in Excel format, click here:
General Fund: A-D Transportation Fund: E-H
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