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March 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 January 31, 2021.
The Office of Policy and Management (OPM) is projecting that the General Fund will end Fiscal Year 2021 with a surplus of $131.4 million, a decrease of $6.2 million from last month�s estimate. This projected surplus represents 0.7 percent of net General Fund appropriations. The change from last month is due to revised net expenditure requirements. OPM�s revenue schedule is unchanged and continues to reflect the consensus forecast reached with the Office of Fiscal Analysis (OFA) on January 15, 2021.
OPM is projecting that the Special Transportation Fund (STF) will end Fiscal Year 2021 operations with a $60 million deficit, $0.5 million higher than last month due to a net increase in anticipated expenditures. The current projections would leave a positive STF balance of $108.4 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, which have not changed significantly from last month. However, due to the unpredictable nature of the pandemic and its impact on the state economy, my office will continue to monitor both expenditures and revenue collections closely and revise these projections as necessary. Examples include ongoing testing costs for COVID-19 and funding for the vaccination roll-out, both essential to enhance public health outcomes, but also to achieve a full economic recovery.
A new federal relief bill will soon be debated in Congress that would provide vital funding for these efforts as well as much needed support for the unemployed, struggling businesses and local governments, including for schools. Additional federal aid will relieve pressure on the General Fund both for the balance of the current fiscal year and into the next biennium. On the revenue side, the next major milestone will be the April tax filing period and the subsequent consensus revenue forecast that is scheduled for April 30th. If additional federal relief is not forthcoming, or if anticipated tax collections fall short, these FY 2021 projections will need to be revisited.
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 $3,404.9 million for estimated and final income tax payments and revenue from the Pass-through Entity (PET) tax. If current projections are realized, a $355.1 million volatility transfer would be made to the BRF.
The balance of the BRF presently stands at $3,012,941,643. Adding the estimated $355.1 million volatility transfer, plus the projected FY 2021 surplus of $131.4 million would bring the year-end balance of the BRF to just under $3.5 billion, or approximately 17.4 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.
Connecticut�s budget results are ultimately dependent upon the performance of the national and state economies. Recent economic indicators include the following trends:
Throughout January and February, the nation continued seeing high levels of initial unemployment insurance (UI) claims. For the week ending February 20th, the U.S. Bureau of Labor Statistics (BLS) reported that seasonally adjusted initial claims totaled 730,000. This represented a sharp decrease of 111,000 from the previous week's revised level of 841,000 and was lower than economists predicted. However, analysts noted the labor market continues to face significant challenges, including a possible increase in claims related to the recent storms that hit Texas and the surrounding region. In addition, the current level of initial UI claims is nearly three and half times higher than totals seen before the coronavirus hit. Prior to the pandemic, initial UI claims averaged closer to 210,000 per week.
The most recent jobs information available from the Connecticut Department of Labor is from December 2020. The next scheduled release is Friday, March 12, 2021, which will include preliminary January 2021 and revised 2020 data on the new benchmark. Over the year ending in December 2020, the DOL reported that nonagricultural employment in the state decreased by 102,700 jobs, a reduction of 6.2 percent. Connecticut's official unemployment rate stood at 8.0 percent in December 2020, down from 8.2 percent a month ago, but significantly higher than the 3.8 percent rate a year ago. Among the major job sectors, all ten experienced significant losses in December 2020 versus December 2019 levels. The leisure & hospitality sector remained particularly hard hit, having lost nearly one-fifth of its jobs for the period, followed by the other services and the government sectors.
According to a February 25th report from the Bureau of Economic Analysis (BEA), U.S. Real Gross Domestic Product (GDP) increased at an annual rate of 4.1 percent in the fourth quarter of 2020, according to BEA�s second estimate. This represents a slight upward revision from the 4.0 percent advance estimate released last month. BEA reported the fourth-quarter growth in real GDP reflected increases in exports, business investment, consumer spending, housing investment, and inventory investment. These categories were partially offset by a decrease in government spending, primarily related to state and local governments.
For the full 2020 calendar year, real GDP decreased 3.5 percent after increasing 2.2 percent in 2019. Analysts noted 2020 was the worst year for economic growth since 1946 as the nation demobilized after World War II. The decrease in consumer spending for 2020 was concentrated in the service sector, reflecting the nation�s response to the coronavirus pandemic, and was led by declines in food services and accommodations, health care, and recreation services.
The Conference Board reported that the Consumer Confidence Index improved in February, the second month in a row after January�s modest increase. The index now stands at 91.3, up from 88.9 in January and was higher than economists expected. Despite two consecutive months of improvement, consumer confidence remains below pre-pandemic levels and those reached in the early fall before COVID-19 cases began rising again. The index is closely watched by economists because consumer spending accounts nearly 70 percent of U.S. economic activity.
According to a February 25th report by the U.S. Department of Commerce, new orders for manufactured durable goods increased $8.5 billion or 3.4 percent in January to $256.6. This increase was well above the level forecasted by economists. January also represented the ninth consecutive month of growth and December�s increase in durable goods orders was revised upward to 1.2 percent.
Last month the Commerce Department reported that U.S. advance retail sales in were $568.2 billion in January 2021, a significant improvement of 5.3 percent from the previous month. Analysts attributed much of the growth to $600 stimulus checks that were sent out as part of the December Federal relief bill.
Continuing a recent trend, Berkshire Hathaway HomeServices reported another month of strong results for the Connecticut housing market in January 2021 compared with January 2020. Sales of single-family homes grew 24.83 percent, with the median sale price increasing by 24.42 percent. New listings were down 23.44 percent this January versus last year, but the median list price up 21.31 percent. At the same time, average days on the market decreased 34.83 percent in January 2021 compared to the same month in the previous year (58 days on average compared with 89 in January 2020).
For the U.S. housing market, the National Association of Realtors (NAR) reported existing-home sales rose in January 2021, the second consecutive month of growth. The four major U.S. regions had mixed results in terms of month-over-month sales, but each region experienced significant year-over-year growth. Total existing-home sales increased 0.6 percent from December to a seasonally adjusted annual rate of 6.69 million in January. Sales in total rose year-over-year, up 23.7 percent from a year ago (5.41 million in January 2020).
Nationally, home prices have remained strong during the pandemic. NAR reported the median existing-home price for all housing types in January was $303,900, up 14.1 percent from January 2020 ($266,300), as prices increased in every region. January's national price jump marks 107 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 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