September 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 July 31, 2017. The General Ledger for August 2017 will be closed next week.
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. The Transportation Fund is projected to have a Fiscal Year 2018 ending balance of $135.3 million.
Due to the absence of a budget for Fiscal Year 2018, these estimates are made under the provisions of your Executive Order 58, as revised on August 18, 2017. Expenditures projections for Fiscal Year 2018 reflect the spending reduction authority that you have assumed under the executive order, which gives you untethered control of future spending in discretionary program areas. This power should allow you to meet your current targets. Revenue projections for Fiscal Year 2018 utilize the May 1, 2017 consensus forecast revised by Public Act 17-51 and your order. These adjustments to the consensus forecast combine to add a net $74.9 million to revenue.
Fiscal Year 2018 General Fund expenditures through July reflect the spending problem that the state will face throughout the entire fiscal year. July spending was 10.1 percent higher than last July. The double-digit increase was caused by rising fixed costs. Debt service outlays were up $90.6 million from last July, contributions to the Teachers Retirement Fund were up $69.1 million.
Your current General Fund spending plan for Fiscal Year 2018 remains close to last fiscal year’s spending level. However, fixed costs this fiscal year are expected to rise about 9 percent. This results in the need for large reductions to discretionary programs in the absence of policy changes that generate additional revenue. The three largest cost components of the General Fund are municipal grants, Medicaid and state employee wages and benefits. These spending categories account for about three quarters of all General Fund spending. To hold the deficit to the level that you currently project, your planned savings in these areas must be achieved.
As you note in your executive order, the state’s ability to meet its spending obligations is impaired by the inability to enact a budget that provides for policy changes that increase revenue. This problem is exacerbated each month as potential sources of additional revenue are foregone due to the absence of the necessary changes to the revenue structure.
The inability to pass a budget will slow Connecticut’s economic growth and will ultimately lead to the state and its municipalities receiving downgrades in credit ratings that will cost taxpayers even more.
Connecticut's economy continues to post mixed results across an array of key economic indicators. These results do not indicate that the state can grow its way out of the current revenue stagnation.
Preliminary data for July of 2017 show that Connecticut lost 600 jobs during the month to a level of 1,692,200, seasonally adjusted. June’s original preliminary job gain of 7,000 was revised down by 1,400 to an employment gain of 5,600. Over the past twelve month period ending in July, the state has posted 11,600 new payroll jobs. During the last period of economic recovery, employment growth averaged over 16,000 annually. Connecticut's unemployment rate for July was unchanged from last month now at 5.0 percent. Nationally, the unemployment rate was 4.3 percent in July.
A June 27th report from the Bureau of Economic Analysis showed Connecticut personal income increasing at an annualized rate of 3.7 percent in the first quarter of 2017. This ranked Connecticut 37th nationally in personal income growth. Average hourly earnings in the state at $31.33, not seasonally adjusted, were up $1.15, or 3.8 percent, from the July 2016 estimate. The resultant average Private Sector weekly pay amounted to $1,058.95, up $44.90, or 4.4 percent higher than a year ago.
According to an August 24th report from CT Realtors, the sale of single-family residential homes in Connecticut increased by 0.1 percent in July 2017 from the same month a year earlier. The median sales price of a home increased 3.0 percent to $273,000. The sale of townhouses and condominiums in the state posted a sales decrease of 0.5 percent in July 2017 from July 2016. The median price was up 1.2 percent to $169,000.
The Bureau of Economic Analysis reported that U.S. Real Gross Domestic Product increased at an annual rate of 3.0 percent in the second quarter of 2017. In the first quarter, real GDP increased 1.2 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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