March 1, 2023
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 January 31, 2023. The Office of the State Comptroller (OSC) is projecting the General Fund will end Fiscal Year 2023 with a $1.35 billion surplus and the Special Transportation Fund will end Fiscal Year 2023 with a $234.2 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.
The General Fund surplus is projected to be $1.35 billion which is an increase of $10.5 million from last month's projection. This month's estimate reflects the passage of H.B. 6671, which increased General Fund spending by $12.0 million, primarily to fund free school meals for students. This was more than offset by a downward revision of expenditure requirements of $22.5 million primarily due to several Personal Services accounts expected to lapse due to vacancies.
The Special Transportation Fund surplus is projected to be $234.2 million, a decrease of $3.5 million from last month's projection primarily due to a projected shortfall in the Insurance and Risk Management Operations account as a result of premium increases and the anticipated settlement of several large claims.
The statutory revenue volatility cap requires receipts above a certain level to be transferred to the Budget Reserve Fund (BRF). OSC is currently projecting approximately $3.2 billion would be available to reduce unfunded pension liability for the State Employee Retirement System (SERS) and the Teachers' Retirement System (TRS).
Initial optimism that the U.S. economy could achieve a soft landing (a cyclical downturn that avoids recession) by the Federal Reserve Board was quickly dashed with the January hot jobs report. Chair Jerome Powell acknowledged after the stronger-than-expected jobs report that the process of bringing inflation down would probably be "bumpy." Markets expect the Federal Reserve to raise rates again on March 22.
The most important U.S. economic data point for January was jobs report, with the economy adding more than half a million jobs in January, nearly triple what economists had estimated. This was led by employers in healthcare, education, leisure and hospitality and other services, which account for about 36% of all private-sector payrolls. By comparison, the tech-heavy information sector, which shed jobs for two straight months, makes up 2% of all private-sector jobs. Unemployment is at 3.4%, the lowest in more than 53 years.
The Bureau of Labor Statistics reported the Consumer Price Index (CPI) rose 0.5% in January on a seasonally adjusted basis. The index for shelter was by far the largest contributor to the monthly all items increase, accounting for nearly half of the monthly increase, with the indexes for food, gasoline, and natural gas also contributing. Personal Consumption Expenditures (PCE) increased $312.5 billion (1.8%), reflecting increases in both goods and services.
Existing-home sales decreased for the twelfth straight month in a row, down 0.7% from last month and 36.9% from last year. However, there are some signs that homes sales are bottoming out, as the inventory of unsold existing homes grew from the prior month to 980,000 at the end of January, or the equivalent of 2.9 months' supply at the current monthly sales price (5 months is the standard). National median rent declined for the fifth month in a row according to Apartment List. January's decline was sharper than the usual seasonal trend, signaling a continuation of a broader cooldown in market conditions.
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 $771.5 million as of June 30, 2022.
If you have any questions on this report, please do not hesitate to contact me.