November 1, 2017
The Honorable Dannel P. Malloy
Governor of the State of Connecticut
Dear Governor Malloy:
I write to provide you with financial statements for the General Fund and the Transportation Fund through September 30, 2017.
The Office of Policy and Management (OPM) is projecting that the General Fund will end Fiscal Year 2018 operations with a deficit of $93.9 million, no change from last month's estimate. The Transportation Fund is projected to have a Fiscal Year 2018 ending balance of $130.0 million. Since no budget was in place at the end of the first quarter, these estimates were made under the provisions of Executive Order 58, as revised on August 18, 2017. My office is in general agreement with these projections through September 30th. Last week the Connecticut General Assembly passed a biennial budget for 2018-2019, which was signed into law by you yesterday. The newly enacted budget for FY 2017-18 will be the subject of future monthly letters.
Year-to-date expenditures are basically flat after the first quarter, comparing FY 2018 to the prior year. Spending decelerated significantly in September as payments for two large municipal grant programs were delayed due to the budget impasse. These grants include payments in lieu of taxes (PILOT) for state-owned property and for non-profit college and hospital property. However, expenditures for fixed costs grew substantially over FY 2017 levels, illustrating a challenge the State will face throughout the fiscal year. Fixed costs include categories such as debt service payments, pension contributions for state employees and teachers, and the costs of retiree health insurance. Growth in the latter areas should be mitigated somewhat as the provisions of SEBAC 2017 are more fully implemented as the year progresses. Spending has also increased from the Adjudicated Claims account, which is responsible for making payments related to the SEBAC-Rowland settlement.
On the revenue side, OPM expressed concern about the underperformance of
Sales and Use tax through the first quarter of FY 2018, which is running
approximately $45 million below projections. My office concurs that this is an
issue that requires close monitoring as the next scheduled consensus revenue
forecast approaches on November 13, 2017. Another area of concern is the
estimated payments portion of the Personal Income Tax. September 2017
represented the first significant collection period for quarterly estimated tax
filings and the initial results are not encouraging. Compared with the prior
fiscal year, FY 2018 first quarter estimated payment receipts came in 5.1
percent lower. Weaknesses in these two areas are partially offset by stronger
than projected receipts from the Inheritance and Estate Tax and an anticipated
$14.1 million settlement that is expected later in November.
While the national economy exhibits increasing signs of strength, Connecticut's economy continues to post mixed results across an array of key economic indicators.
Preliminary data for September 2017 show that Connecticut lost 2,000 net jobs during the month to a level of 1,684,900 seasonally adjusted. Augustís original preliminary job loss of 3,900 was revised down by the Bureau of Labor Statistics (BLS) to a loss of 4,200. The state experienced a total of 7,900 job losses since the end of June 2017, and over the past twelve-month period ending in September, the state has posted only 3,500 new payroll jobs. During the last period of economic recovery, employment growth averaged over 16,000 annually. Connecticut's unemployment rate for September fell by two-tenths of a point from last month and now stands at 4.6 percent. The decrease in the unemployment rate was in part due to a decline in the size of the state's labor force. Nationally, the unemployment rate was 4.2 percent in September.
A September 26th report from the Bureau of Economic Analysis showed Connecticut personal income increasing at an annualized rate of 3.1 percent in the second quarter of 2017. This ranked Connecticut 22nd nationally in personal income growth and slightly above the national average growth rate. Average hourly earnings at $30.92, not seasonally adjusted, were up $0.54, or 1.8 percent, from the September 2016 estimate. The resultant average Private Sector weekly pay amounted to $1,045.10, up $15.22, or 1.5 percent higher than a year ago.
According to an October 20th report from CT Realtors, the sale of single-family residential homes in Connecticut decreased by 7.0 percent in September 2017 from the same month a year earlier. The median sales price of a home decreased 1.6 percent to $249,950 from $254,000. The sale of townhouses and condominiums in the state posted a sales decrease of 6.0 percent, comparing September 2017 to September 2016. The median price was up 3.0 percent to $170,000.
The Bureau of Economic Analysis reported that U.S. Real Gross Domestic Product increased at an annual rate of 3.0 percent in the third quarter of 2017 based on BEAís advance estimate. The national economy continued to show resilience despite concerns that the major hurricanes in August and September would diminish economic output. In the second quarter, real GDP increased 3.1 percent.
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 unassigned fund balance in the General Fund was a negative $998.9 million as of June 30, 2016. The change in the GAAP balance for Fiscal Year 2017 will be available early in 2018.
To view the data in Excel format, click here:
General Fund: A-D Transportation Fund: E-H
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