COMPTROLLER LEMBO PROJECTS
$7.1-MILLION DEFICIT WITH POSSIBILITY OF FURTHER REVENUE EROSION
Comptroller Kevin Lembo today projected a $7.1-million deficit for the current fiscal year, agreeing that the state can achieve its targeted savings on spending, but warning that there is potential for continued erosion of revenue due to stock market declines and a slowdown in the global economy.
Both the Office of Policy and Management (OPM) and the legislature’s non-partisan Office of Fiscal Analysis (OFA) on Jan. 15 reached a consensus on revenue projections. However, the offices reported conflicting projections as to the administration’s ability to achieve savings on the expenditures side of the budget.
In a letter to Gov. Dannel P. Malloy, Lembo said he agrees with OPM’s position that it can achieve $346.7 million in General Fund savings because, as Lembo has noted in many previous reports, OPM has historically been successful in achieving budgeted savings targets.
"The disparity between OPM’s and OFA’s projections rest entirely on spending,” Lembo said. "With respect to budget risk factors for Fiscal Year 2016, my greatest concern is the potential for continued erosion in the General Fund revenue forecast.
"While the state has experienced a consistent pattern of job growth since the close of Fiscal Year 2014 and wages have accelerated slightly in recent months, stock market declines have had a large negative impact on estimated income tax collections. Some factors leading to the market decline and other secondary downward pressures on state revenue include a slowdown in the global economy, a strengthening dollar that has increased the price of exports, falling commodity prices and Federal Reserve policies to gradually raise interest rates.”
Lembo said General Fund revenue to date for the current fiscal year is projected to fall $108.5 million short of initial budget projections – the largest reduction related to the income tax. The income tax is estimated to fall $264.4 million under budget, while the sales tax is projected to be $109.2 million over original budget projections.
"Despite the revenue reductions this month, Connecticut’s economy continues to experience moderate growth,” Lembo said, pointing to some of the latest economic indicators from federal and state Departments of Labor and other sources that show:
• Through the third week in January, year-to-date income tax withholding
receipts were running 4.4 percent above the same period last fiscal year.
Through November, year-to-date withholding was up 2.3 percent. New tax rate
tables incorporating the higher rate structure as adopted in PA 15-244 were
required to be implemented by the end of August. Therefore, beginning in
September 2015 receipts have incorporated the higher tax rates.
• According to the Department of Labor, preliminary December nonfarm
employment estimates from the U.S. Bureau of Labor Statistics (BLS) payroll
survey (seasonally adjusted) indicated that Connecticut gained 300 jobs in
December, bringing payroll employment to a level of 1,700,700. November’s
original estimate of 5,100 job gains improved to a gain of 5,800 jobs.
Connecticut has now increased nonfarm employment by 22,600 (1.35 percent) in
calendar year 2015, averaging 1,883 jobs per month during the year.
• As the state’s employment recovery has progressed, an increasing number of job sectors have posted sustained employment gains. As this trend continues, improved wage growth and withholding receipts should occur.
• U.S. employment has been advancing at a rate of 1.9 percent over the
12-month period ending in December; Connecticut’s employment growth was 1.3
percent for the same period.
• Based on third-quarter data from the Bureau of Economic Analysis released on Dec. 21, Connecticut ranks 27th nationally in income growth for the quarter. The chart below shows the 12-month trend in Connecticut personal income, which has yet to attain its past expansionary strength.
• Per capita income does not provide information on income distribution or
relative income inequality. A report issued by the Economic Policy Institute in
2015 stated that New York and Connecticut had the largest gaps between the
average incomes of the top 1 percent and the average incomes of the bottom 99
percent. In both states, the top 1 percent earned average incomes more than 48
times those of the bottom 99 percent.
• According to a Jan. 12 release by the Warren Group, November single family
home sales in the state increased 16.4 percent from the prior year’s November.
But continuing a trend that has been seen in 23 out of the past 25 months in
Connecticut, home prices fell 8.4 percent in November from a median of $250,000
• According to a Jan. 29 report from the Commerce Department, household
purchases rose at a 2.2 percent annualized pace in the fourth quarter, compared
with a 3 percent rate in the previous period. Unseasonably mild weather cut into
spending on utilities. The full year pace of consumer spending for 2015 was 3.1
percent, which was the fastest pace in a decade.
Business and Economic Growth
• According to the Jan. 29 advance estimate by the Bureau of Economic
Analysis, GDP increased at an annual rate of 0.7 percent in the fourth quarter
of 2015. This follows growth of 2 percent in the third quarter.
• Estimated and final income tax payments account for approximately 40
percent of total state income tax receipts. These payments show a correlation to
activity in equity markets relating to capital gains.
Read the Comptroller's Full Letter |
View PDF for Economic Indicators|