September 1, 2022
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 July 31, 2022. The Office of the State Comptroller (OSC) is projecting the General Fund will end Fiscal Year 2023 with a $299 million surplus and the Special Transportation Fund will end Fiscal Year 2023 with a $267 million surplus. OSC is in general agreement with OPM’s General Fund and Special Transportation Fund projections. The following analysis of the financial statements furnished by the Office of Policy and Management (OPM) is provided pursuant to Connecticut General Statutes (CGS) Section 3-115.
General Fund
In the first forecast for Fiscal Year 2023, the General Fund surplus is projected to be $299 million, which is 1.3% of General Fund appropriations and remains unchanged from the FY23 budget. Projected FY23 revenue has been revised upwards by $21 million reflecting legislative and administrative changes. These include a $12 million transfer from the General Fund to the Tobacco and Health Trust Fund, a $125 million reduction in refunds of taxes, and a transfer of $92 million to support the Child Tax Rebate.
The $21 million increase in projected revenue is offset by a $21 million increased expenditure requirement for the adjudicated claims account to support several large claims.
Special Transportation Fund
In the first forecast for Fiscal Year 2023, the Special Transportation Fund surplus is projected to be $267 million, which is an increase of $1.3 million from FY23 budgeted amounts. Projected FY23 revenue has been revised upwards by $1.3 million reflecting a legislative change in registration fees for electric vehicles contained in P.A. 22-25 while expenditures remain unchanged.
Budget Reserve Fund
The statutory revenue volatility cap requires receipts from the Estimated and Final Income Tax payments and the Pass-through Entity Tax above a certain level to be transferred to the Budget Reserve Fund (BRF). Due to responsible fiscal planning and a continued positive recovery from the COVID-19 pandemic, the BRF is filled to its statutory maximum of 15% of General Fund appropriations ($3.1 billion). Adding the projected FY22 revenue volatility transfer of $3 billion and the projected FY22 surplus of $1.3 billion would bring the BRF balance to $7.4 billion or 34 percent of net General Fund appropriations for FY23. Approximately $903.6 million will be used to reduce unfunded pension liability for the Teachers’ Retirement System and approximately $3.3 billion will be used to reduce unfunded pension liability for the State Employees Retirement System.
Economic Indicators
The U.S. labor market remained incredibly strong in July, officially recovering 100% of jobs lost during the Covid-19 recession. The U.S. added 528,000 jobs while the unemployment rate dropped to 3.5%. Unemployment claims have creeped up on a national and state level, however people are remaining unemployed for shorter periods of time due in part to the abundance of job openings. Connecticut added 6,500 jobs in July while the state’s unemployment rate fell to 3.7%. The state has recovered 86% of the jobs lost during the Covid-19 recession and 3 industry sectors have recovered over 100% of job lost.
Inflation remained flat in July mostly due to a decrease in energy prices. The slowdown was welcome, however high prices remain the largest roadblock to a fully recovered economy. Second quarter GDP was revised upwards to -0.6% from -0.9%, indicating the decline was less severe than originally calculated. However, this still represents two quarters of negative growth. Consumer spending increased slightly in July as private wages increased, indicating cooling demand. Consumer confidence increased in August for the first time in three months due to lower gas prices and a strong labor market. More detailed economic data can be found in the monthly economic outlook.
My office also issues an Annual Comprehensive Financial Report as an accounting supplement to the budgetary report. This annual report 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 $660,749 as of June 30, 2021.
If you have any questions on this report, please do not hesitate to contact me.
Sincerely,
Natalie Braswell
State Comptroller