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February 1, 2016
The Honorable Dannel P. Malloy
Governor of the State of Connecticut
State Capitol
Hartford, Connecticut
Dear Governor Malloy:
I write to provide you with financial statements for the General Fund and the Transportation Fund through December 31, 2015.
The Office of Policy and Management (OPM) and Office of Fiscal Analysis (OFA) released updated consensus revenue figures on January 15th. The consensus revenue numbers have been included in OPM's January budget projections, which has resulted in a Fiscal Year 2016 General Fund net revenue decline of $26.8 million from December's estimate.
OPM is currently projecting a General Fund deficit of $7.1 million for Fiscal Year 2016. It should be noted that on January 25th OFA issued a Fiscal Year 2016 General Fund deficit projection of $72.2 million. The difference between the OPM and OFA estimate is entirely on the expenditure side of the budget. OFA's expenditure estimate is $65.1 million higher than OPM. With respect to $46.5 million of the spending differential, OFA notes that this "savings may yet be achieved pursuant to the Governor's expanded authority (per PA 15-1,DSS) to hold back funds".
As I have noted in past letters, historically OPM has been successful in achieving budgeted savings targets. Nevertheless, I understand OFA's concern. It has become increasingly difficult for OPM to find transfers sufficient to cover budget shortfalls that are not addressed through deficiency appropriations. However, OPM's current lapse estimate of $346.7 million is not unreasonable. I am therefore in general agreement at present with the OPM General Fund projection.
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 of the 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.
To date, General Fund revenue for Fiscal Year 2016 is projected to fall
$108.5 million short of initial budget projections. The largest revenue
adjustments have been to the income tax and the sales tax. The income tax is
estimated to be $264.4 million under budget. The sales tax is projected to be
$109.2 million over original budget projections, which is the result of delaying
transfers to the Transportation Fund and the Municipal Revenue Sharing Account.
A complete listing of revenue adjustments is provided in Exhibit C.
OPM is attempting to achieve $100.6 million in General Fund savings that are
above the original budget plan. This savings target includes the spending
reductions contained in PA 15-1 (DSS) as well as other forced lapses. These
savings are partially offset by $45.5 million in agency deficiencies. It should
also be noted that the Adjudicated Claims account has exceeded budget
expectations due largely to settlement related to wrongfully incarcerated
individuals. At this point it is not clear if these increases can be covered
through transfers. If they cannot, the deficiency appropriations will increase.
The Transportation Fund is expected to end Fiscal Year 2016 with a balance of $180 million. This is the same balance that the Fund held at the end of Fiscal Year 2015. Complete statements for the Transportation Fund are contained on Exhibits E through H.
Despite the revenue reductions this month, Connecticut's economy continues to experience moderate growth. 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 increased nonfarm employment by 22,600 (1.35%) in calendar year 2015 averaging 1,883 jobs per month during the year.
Connecticut's average hourly earnings at $29.64, not seasonally adjusted, were up $1.17, (4.1%), from the December 2014 hourly earnings estimate. The resultant average Private Sector weekly pay was calculated at $995.90, up $36.46, (3.8%) higher than a year ago. The state is beginning to experience a slight upward movement in wage growth.
According to a January 12th 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 to $229,000.
Nationally, GDP grew 0.7 percent in the fourth quarter of 2015 based on advance estimates from the Bureau of Economic Analysis. In the third quarter GDP grew at a 2 percent rate. The fourth quarter growth was slightly below most forecasts.
I also issue a Comprehensive Annual Financial Report (CAFR) as an accounting
supplement to the budgetary report. The CAFR 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 shortfall or unreserved fund balance in the General Fund was $793.2 million
as of June 30, 2015.
Sincerely,
Kevin Lembo,
State Comptroller
To view the data in Excel format, click here:
General Fund: A-D
Transportation Fund: E-H