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May 2, 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 in accordance with CGS, Section 3-115 for the General Fund and the Transportation Fund through March 31, 2016.
The Office of Policy and Management (OPM) reported in their revised May 1st letter that a General Fund deficit of $259.1 million is projected for Fiscal Year 2016. The deficit estimate is based on the April 29th consensus revenue forecast. I am in general agreement with this forecast.
The major reason for the continued deterioration in the fiscal position of the General Fund is the underperformance of income tax receipts. The payroll driven withholding portion of the income tax has posted positive year-to-date growth of 3 percent compared to last fiscal year. However, the more volatile estimated and final payments portion of the income tax, which is highly dependent on capital gains and bonus payments, is down by 2 percent from last fiscal year.
Based on the current consensus forecast, total income tax receipts are expected to fall $559.4 million, or 5.7 percent short of the initial budget plan. That revenue shortfall combined with other revenue adjustments that are detailed on Exhibit C of this letter, result in projected General Fund revenue that is $430 million short of the budget plan.
The General Fund revenue shortfall for Fiscal Year 2016 is partially offset by spending that is $170.1 million below the budget plan. After accounting for legislative action and your mitigation efforts, appropriation lapses are expected to total $436.7 million in the General Fund. The changes to planned spending by agency are detailed on Exhibit D of this letter.
The Transportation Fund is expected to close Fiscal Year 2016 with a balance $164.8 million. This is an erosion of $15.2 million in the fund's starting balance of $180 million. Again, a decline in projected revenue is the primary cause of the deterioration in the fund's position.
Connecticut's economy continues to experience moderate growth. The Department of Labor reported preliminary payroll job numbers for March that showed a gain of 300 positions. This brought the seasonally adjusted job total to 1,685,600. In February 2016, Connecticut added 4,100 jobs. For the twelve month period ending in March, the state has added 15,000 jobs. U.S. employment has been advancing at a rate of 2.0 percent over the twelve-month period ending in March; Connecticut's employment growth was 0.9 percent for the same period.
Connecticut's unemployment rate was 5.7 percent in March; the national unemployment rate was 5.0 percent. Connecticut's unemployment rate has continued to decline from a high of 9.5 percent in October 2010. There were 107,600 unemployed job seekers in Connecticut in March. A low of 36,500 unemployed workers was recorded in October of 2000. The number of unemployed workers hit a recessionary high of 177,200 in December of 2010.
The Department of Labor reported that average hourly earnings at $30.06, not seasonally adjusted, were up $1.02, or 3.5 percent, from the March 2015 hourly earnings estimate. The resultant average private sector weekly pay was calculated at $997.99, up $22.25, or 2.3 percent higher than a year ago.
According to an April 4th release by the Warren Group, single family home sales in Connecticut grew by 29.9 percent in February from the same month last year. Connecticut recorded 1,788 single-family home sales in February 2016, the most sales in the month of February since 2007. Condominium sales were also strong growing 18.2 percent from last February.
Single-family home prices in Connecticut dropped 1 percent in February to a median price of $222,750. Condominium prices fell 2 percent to a median of $150,000. Prices have dropped or remained flat in Connecticut over the past 26 consecutive months.
According to the April 28th advance estimate, U.S. GDP in the 1st quarter of 2016 grew 0.5 percent. In the 4th quarter GDP expanded by 1.4 percent. This low level of economic activity had been expected based on other economic indicators. The deceleration in real GDP in the 1st quarter reflected a larger decrease in nonresidential fixed investment, a deceleration in personal consumption, a downturn in federal government spending, an upturn in imports, and larger decreases in private inventory investment and in exports that were partly offset by an upturn in state and local government spending and an acceleration in residential fixed investment.
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