MANAGEMENT'S DISCUSSION AND ANALYSIS (MDA)
The following is a discussion and analysis of the State's financial performance and condition providing an overview of the State's activities for the fiscal year ended June 30, 2015. The information provided here should be read in conjunction with the letter of transmittal and in the basic financial statements.
FINANCIAL HIGHLIGHTS
Government-wide:
The primary government's liabilities and deferred inflows of resources exceeded
assets and deferred outflows of resources by $38.1 billion (reported as net
position deficit). Of this amount, $46.8 billion reported as unrestricted net
position deficit while $11.5 billion is restricted for specific uses or invested
in capital assets.
Net position deficit of governmental activities decreased by $2.1 billion and net position of business-type activities increased by $718.2 million. Component units reported an increase of $111.4 million from June 30, 2014.
As a result of implementing GASB Statement 68, Accounting and Financial Reporting for Pensions, the State recorded $2,360.8 billion deferred outflows of resources, $24,568.3 billion net pension liability, and $1,423.3 billion deferred inflows of resources for the primary government. As explained in Note 22 this was the primary reason for a $25.6 billion adjustment to the beginning unrestricted net position in fiscal year 2015.
Fund:
The governmental funds reported combined ending fund balance of $2.1 billion, an
increase of $0.1 million in comparison with the prior year. Of this total fund
balance, $190.5 million represents nonspendable fund balance, $2.1 billion
represents restricted fund balance, $585.5 million represents committed fund
balance, and $22.3 million represents assigned fund balance. A negative $801.9
million unassigned fund balance offsets these amounts. This deficit, which
belongs primarily to the General Fund, increased by $66.9 million during the
fiscal year.
The State's stabilization account, the General Fund Budget Reserve Account
(Rainy Day Fund) ended the fiscal year with a balance of $406.0 million.
The Enterprise funds reported net position of $5.5 billion at year-end, an increase of $718.2 million during the year, substantially all of which was invested in capital assets or restricted for specific purposes.
Long-Term Debt:
Total long-term debt was $57.3 billion for governmental activities at year-end,
of which $22.4 billion was bonded debt.
Total long-term debt was $2.1 billion for business-type activities at
year-end, of which $1.6 billion was bonded debt.
OVERVIEW OF THE FINANCIAL STATEMENTS
This discussion and analysis is an introduction to the State's basic financial statements. The State's basic financial statements comprise three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. The report also contains other supplementary information to provide additional support to the basic financial statements.
Government-wide Financial Statements:
The government-wide financial statements are designed to provide readers with a
broad overview of the State's finances, in a manner similar to a private-sector
business. All revenues and expenses are recognized regardless of when cash is
received or spent, and all assets, deferred outflows of resources, liabilities
and deferred inflows of resources, including capital assets and long-term debt,
are reported at the entity level. The government-wide statements report the
State's net position and changes in net position. Over time, increases and
decreases in net
position measure whether the State's overall financial condition is getting
better or worse. Non-financial factors such as the State's economic outlook,
changes in its demographics, and the condition of capital assets and
infrastructure should also be considered when evaluating the State's overall
condition.
The statement of net position presents information on all of the State's assets and deferred outflows of resources, and liabilities and deferred inflows of resources with the difference between all reported as net position. Net position is displayed in three components - net investment in capital assets; restricted; and unrestricted.
The statement of activities presents information showing how the State's net position changed during fiscal year 2015. All changes in net position are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of the related cash flows. Thus, revenues and expenses are reported in this statement for some items that will result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave).
Both the Statement of Net Position and Statement of Activities report three separate activities. These activities are described as follows:
Fund Financial Statements:
A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The State uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the State can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds. Each of these categories uses different accounting approaches. Fund financial statements begin on page 36.
Notes to the Financial Statements
The notes to the financial statements provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements. The notes to the financial statements can be found immediately following the component unit fund financial statements.
Required Supplementary Information (RSI)
Following the basic financial statements are budgetary comparison schedules for major and nonmajor funds with legally adopted budgets. In addition, within the RSI there is a reconciliation schedule for budgetary vs. GAAP basis of accounting. The RSI also includes information regarding the State's funding progress and employer contributions for pension and other postemployment benefits, and change in employers' net pension liability.
Other Information
The combining financial statements for the State's nonmajor governmental,
nonmajor enterprise, nonmajor fiduciary funds, and nonmajor discretely presented
component units. This also includes the statistical section, which provides up
to ten years of financial, economic, and demographic information.
FINANCIAL ANALYSIS OF THE GOVERNMENT AS A WHOLE
NET POSITION
The combined net position deficit of the State decreased $2.7 billion or 6.6
percent. In comparison, last year the combined net position deficit increased
$1.8 billion or 16.9 percent.
State Of Connecticut's Net Position
(Expressed in Millions)
Total Primary | ||||||
---|---|---|---|---|---|---|
Governmental Activities | Business-Type Activities | Government | ||||
2015 | 2014* | 2015 | 2014 | 2015 | 2014 | |
ASSETS | ||||||
Current and Other Assets | $4,566 | $4,274 | $4,104 | $3,753 | $8,670 | $8,027 |
Capital Assets | 13,031 | 12,540 | 4,151 | 3,781 | 17,182 | 16,321 |
Total Assets | 17,597 | 16,814 | 8,255 | 7,534 | 25,852 | 24,348 |
Deferred Outflows of Resources | 2,461 | 99 | 16 | 21 | 2,477 | 120 |
LIABILITIES | ||||||
Current Liabilities | 4,149 | 3,665 | 829 | 728 | 4,978 | 4,393 |
Long-term Liabilities | 55,311 | 56,031 | 1,926 | 2,029 | 57,237 | 58,060 |
Total Liabilities | 59,460 | 59,696 | 2,755 | 2,757 | 62,215 | 62,453 |
Deferred Inflows of Resources | 1,423 | - | 17 | 17 | 1,440 | 17 |
NET POSITION | ||||||
Net Investment in Capital Assets | 4,958 | 5,777 | 3,449 | 3,169 | 8,407 | 8,946 |
Restricted | 1,885 | 1,795 | 1,154 | 1,068 | 3,039 | 2,863 |
Unrestricted | (47,668) | (50,494) | 896 | 544 | (46,772) | (49,950) |
Total Net Position (Deficit) | $(40,825) | $(42,922) | $5,499 | $4,781 | $(35,326) | $(38,141) |
*Restated for comparative purposes |
The net position deficit of the State's governmental activities decreased $2.1 billion (4.9 percent) to $40.8 billion during the current fiscal year. As a result of implementing GASB Statement 68, Accounting and Financial Reporting for Pensions, the State recorded $2,360.8 billion deferred outflows of resources, $24,568.3 billion net pension liability, and $1,423.3 billion deferred inflows of resources for the primary government.
Total invested in capital assets net of related debt was $5.0 billion (buildings, roads, bridges, etc.) and $1.9 billion was restricted for specific purposes, resulting in an unrestricted net position deficit of $47.7 billion. This deficit is the result of having long-term obligations that are greater than currently available resources. The State has recorded the following outstanding long-term obligations which contributed to the deficit; a) general obligation bonds issued in the amount of $9.5 billion to finance various municipal grant programs (e.g., school construction) and $2.2 billion issued to finance a contribution to a pension trust fund, and b) other long-term obligations in the amount of $36.5 billion, which are partially funded or not funded by the State (e.g., net pension liability and OPEB obligations and compensated absences).
Net position of the State's business-type activities increased $718.2 million (15.0 percent) to $5.5 billion during the current fiscal year. Of this amount, $3.4 billion was invested in capital assets and $1.2 billion was restricted for specific purposes, resulting in unrestricted net positions of $0.9 billion. These resources cannot be used to make up for the net position deficit of the State's governmental activities. The State can only use these net positions to finance the ongoing operations of its Enterprise funds (such as the University of Connecticut and Health Center and others).
CHANGE IN NET POSITION
Changes in net position for the years ended June 30, 2015 and 2014 were as follows:
Governmental Activities | Business-Type Activities | Total | % change | ||||
---|---|---|---|---|---|---|---|
2015 | 2014* | 2015 | 2014 | 2015 | 2014* | 15-14 | |
REVENUES | |||||||
Program Revenues | |||||||
Charges for Services | $1,902 | $1,726 | $2,600 | $2,546 | $4,502 | $4,272 | 5.4% |
Operating Grants and Contributions | 7,096 | 6,497 | 676 | 780 | 7,772 | 7,277 | 6.8% |
Capital Grants and Contributions | 717 | 610 | 33 | 28 | 750 | 638 | 17.6% |
General Revenues | |||||||
Taxes | 15,707 | 15,257 | - | - | 15,707 | 15,257 | 2.9% |
Casino Gaming Payments | 268 | 280 | - | - | 268 | 280 | -4.3% |
Lottery Tickets | 320 | 320 | - | - | 320 | 320 | 0.0% |
Other | 141 | 224 | 12 | 13 | 153 | 237 | -35.4% |
Total Revenues |
26,151 | 24,914 | 3,321 | 3,367 | 29,472 | 28,281 | 4.2% |
EXPENSES | |||||||
Legislative | 108 | 123 | - | - | 108 | 123 | -12.2% |
General Government | 1,713 | 2,060 | - | - | 1,713 | 2,060 | -16.8% |
Regulation and Protection | 1,028 | 905 | - | - | 1,028 | 905 | 13.6% |
Conservation and Development | 922 | 997 | - | - | 922 | 997 | -7.5% |
Health and Hospital | 2,172 | 2,624 | - | - | 2,172 | 2,624 | -17.2% |
Transportation | 1,762 | 1,985 | - | - | 1,762 | 1,985 | -11.2% |
Human Services | 6,736 | 8,273 | - | - | 6,736 | 8,273 | -18.6% |
Education, Libraries, and Museums | 4,396 | 4,638 | - | - | 4,396 | 4,638 | -5.2% |
Corrections | 1,820 | 2,143 | - | - | 1,820 | 2,143 | -15.1% |
Judicial | 874 | 1,005 | - | - | 874 | 1,005 | -13.0% |
Interest and Fiscal Charges | 797 | 922 | - | - | 797 | 922 | -13.6% |
University of Connecticut & Health Center | - | - | 2,155 | 2,050 | 2,155 | 2,050 | 5.1% |
State Universities | - | - | 781 | 716 | 781 | 716 | 9.1% |
Connecticut Community Colleges | - | - | 538 | 514 | 538 | 514 | 4.7% |
Employment Security | - | - | 751 | 1,060 | 751 | 1,060 | -29.2% |
Clean Water | - | - | 35 | 40 | 35 | 40 | -12.5% |
Other | - | - | 69 | 73 | 69 | 73 | -5.5% |
Total Expenses | 22,328 | 25,675 | 4,329 | 4,453 | 26,657 | 30,128 | -11.5% |
Excess (Deficiency) Before Transfers | 3,823 | (761) | (1,008) | (1,086) | 2,815 | (1,847) | |
Transfers | (1,726) | (1,548) | 1,726 | 1,548 | - | - | |
Special Item | - | 31 | - | - | - | 31 | |
Increase (Decrease) in Net Position | 2,097 | (2,278) | 718 | 462 | 2,815 | (1,816) | |
Net Position (Deficit) - Beginning (as restated) | (42,922) | (40,644) | 4,781 | 4,319 | (38,141) | (36,325) | |
Net Position (Deficit) - Ending | (40,825) | (42,922) | 5,499 | 4,781 | (35,326) | (38,141) | -7.4% |
*Restated for comparative purposes |
GOVERNMENTAL ACTIVITIES
The following graph is a representation of the Statement of Activities revenues
for governmental activities. Governmental activities revenues increased by $1.2
billion, or 5.0 percent. This increase is primarily due to an increase of $599
million from operating grants and contributions.
The following graph is a representation of the Statement of Activities
expenses for governmental activities. Governmental activities expenses decreased
by $3.3 million, or 13.0 percent. The decrease is mainly attributable to
decreased spending in human services.
NET POSITION OF BUSINESS-TYPE ACTIVITIES
Net position of business-type activities increased by $718.2 million during the
fiscal year. The following chart highlights the changes in net position for the
major enterprise funds.
During the year, total revenues of business-type activities remained steady
at $3.3 billion, while total expenses decreased 2.8 percent to $4.3 billion. In
comparison, last year total revenues decreased 10.1 percent, while total
expenses decreased 4.7 percent. The decrease in total expenses of $124 million
was due mainly to a decrease in Employment Security expenses of $309.0 million
or 29.2 percent. Although, total expenses exceeded total revenues by $1,008
million, this deficiency was reduced by transfers of $1,726 million, resulting
in an increase in net position of $718.2 million.
FINANCIAL ANALYSIS OF THE STATE'S GOVERNMENTAL FUNDS
As of the end of the fiscal year, the State's governmental funds had fund balances of $2,109.4 million, an increase of $12.3 million over the prior year ending fund balances. Of the total governmental fund balances, $2,113 million represents fund balance that is considered restricted for specific purposes by external constrains or enabling legislation; $190.5 million represents fund balance that is non-spendable; $607.8 million represents fund balance that is committed or assigned for specific purposes. A negative $801.9 million unassigned fund balance offsets these amounts.
General Fund
The General Fund is the chief operating fund of the State. At the end of the fiscal year, the General Fund had a fund balance deficit of $189.8 million, an increase of $148.7 million in comparison with the prior year. Of this total fund balance, $603.4 million represents non-spendable fund balance or committed for specific purposes, leaving a deficit of $793.2 million in unassigned fund balance.
At the end of fiscal year 2015, General Fund revenues were 3.2 percent, or $553.4 million, higher than fiscal year 2014 revenues. This change in revenue results from increases of $747 million primarily attributable to taxes ($525.4 million) and federal grants and aid ($221.6 million). These increases were offset by decreases of $193.6 million primarily attributable to licenses, permits, and fees ($57.2 million), casino gaming payments ($11.9 million), charges for services ($4.7 million), fines, forfeits, and rents ($78.9 million), and other revenue ($40.9 million).
At the end of fiscal year 2015, General Fund expenditures were 2.1 percent, or $344.6 million, higher than fiscal year 2014. This was primarily attributable to increases in education, corrections, and judicial of $535.6 million, $41.5 million, and $38.7 million, respectively. Net other financing sources and uses decreased by $903.6 million, which is primarily due to bonds not being issued in fiscal year 2015.
Debt Service Fund
At the end of fiscal year 2015, the Debt Service Fund had a fund balance of $668.4 million, all of which was restricted, an increase of $.9 million in comparison with the prior year.
Transportation Fund
The State's Transportation Fund had a fund balance of $257.3 million at the end of fiscal 2015. Of this amount, $29.4 million was in nonspendable form and $227.9 million was restricted or committed for specific purposes. Fund balance increased by 30.7 million during the current fiscal year.
At the end of fiscal year 2015, Transportation Fund revenues decreased by $21.1, or 1.5 percent, and expenditures increased by $52.7 million, or 6.2 percent. The decreased revenue is primarily due to a decrease in taxes.
Restricted Grants and Accounts Fund
At the end of fiscal year 2015, the Restricted Grants and Accounts Fund had a fund balance of $84.8 million, all of which was restricted for specific purposes, an increase of $39.1 million in comparison with the prior year.
Total revenues were 14.2 percent, or $796.4 million, higher than in fiscal year 2014. Overall, total expenditures were 6.8 percent, or $417.9 million, higher than fiscal year 2014.
Grant and Loan Programs
As of June 30, 2015, the Grant and Loan Programs Fund had a fund balance of
$753.0 million, all of which was restricted for specific purposes, an increase
of $284.5 million in comparison with the prior year.
FINANCIAL ANALYSIS OF THE STATE'S PROPRIETARY FUNDS
Proprietary funds report activities of the State that are similar to for-profit business. Proprietary fund financial statements provide the same type of information as the government-wide financial statements, only in more detail. Accordingly, a discussion of the financial activities of the Proprietary funds is provided in that section.
FINANCIAL ANALYSIS OF THE STATE'S FIDUCIARY FUNDS
The State maintains Fiduciary funds for the assets of Pension and Other Employee Benefit Trust funds, an Investment Trust fund, and a Private-Purpose Trust fund. The net positions of the State's Fiduciary funds totaled $30.9 billion, an increase of $544.8 million when compared to the prior year ending net position.
Budget Highlights-General Fund
The revised State budget as adopted for Fiscal Year 2015 was anticipating a small surplus of $0.4 million dollars on gross General Fund appropriations of $17.8 billion. By the end of the fiscal year, a General Fund deficit of $113.2 million had emerged from operations. In accordance with state law, a transfer from the State's Budget Reserve Fund was made to cover this deficit, which decreased the total reserve balance in the fund to $406.0 million.
As Fiscal Year 2015 progressed, it became clear that the General Fund would not reach the budgeted revenue targets. By the end of the fiscal year, revenues were $176.2 million short of the original budget projection. In an attempt to eliminate General Fund deficit projections for Fiscal Year 2015, the Governor implemented three deficit mitigations plans over the course of the fiscal year and implemented other cost cutting initiatives. These measures proved insufficient to completely eliminate a fiscal year-end deficit, but they did substantially lessen that deficit.
The State experienced significant job growth throughout Fiscal Year 2015. However, suppressed wage growth during the fiscal year significantly constrained the growth in major state revenue sources. By the end of Fiscal Year 2015, weekly wages in Connecticut were growing by less than 2 percent. Considering the level of job growth that the State was experiencing, wage growth was expected to approach 5 percent. As a result of the wage drag on overall State economic growth, General Fund revenue in Fiscal Year 2015 grew by just 1.6 percent.
As discussed above, significant expenditures controls were implemented in an attempt to keep the budget in balance. General Fund spending in Fiscal Year 2015 was held to a growth rate of 2.6 percent. In the six fiscal years following the large Fiscal Year 2009 General Fund deficit, spending growth in the General Fund has averaged 2.5 percent per year. This compares to average annual General Fund spending growth of 7.3 percent in the four years leading up to that large deficit.
Twenty-six appropriation line-items in the budget account for 87 percent of General Fund spending. In order to control the growth in General
Some of the spending trends listed above were reversed between Fiscal Year 2014 and Fiscal Year 2015. General Fund spending for Medicaid declined $103.7 million during the period as federal Medicaid spending increased by 16.4 percent. The state employee General Fund payroll expense grew by $105.5 million as wage increases that had been eliminated in past years were reinstituted and critical positions were filled. Higher education operations also experienced a $31.5 million increase during Fiscal Year 2015.
Fiscal Year 2015 recorded $13.9 billion in Fiscal Year 2015 operating activity that fell outside the General Fund. The majority of this activity was in the Special Revenue Funds group. These are funds that have dedicated revenue sources to support their programs. This fund category includes federally supported programs, the operating activities of the universities, and the Transportation Fund. Federal grants grew by 10.6 percent in Fiscal Year 2015 over the prior fiscal year. This equates to $545.8 million in additional federal spending. The largest federal increase was in Medicaid. This caused the special revenue fund group to grow by 9.8 percent to total $11.5 billion in Fiscal Year 2015.
The Transportation Fund ended Fiscal Year 2015 with a positive fund balance of $180.1 million. Spending increased by 4.5 percent during Fiscal Year 2015 and totaled $1.3 billion. Since 2009, Transportation Fund spending has grown by an average of 2.7 percent a year.
Capital project spending grew by 12.5 percent between Fiscal Year 2014 and Fiscal Year 2015 to total $1.7 billion. Since 2009, the average annual growth in capital spending has been 6.3 percent. This is consistent with growth in the private sector use of debt financing as companies took advantage of historically low interest rates.
Within the Required Supplemental Information Section of this report, there is a reconciliation of Fiscal Year 2015 General Fund operations for the accrual budgetary basis of accounting and the accounting basis used within the fund financial statements in this report. In Fiscal Year 2014, a new budgetary accrual approach was developed with the intention of eliminating the growth in the annual General Fund negative unassigned fund balance contained in this report.
CAPITAL ASSETS AND DEBT ADMINISTRATION
Capital Assets
The State's investment in capital assets for its governmental and business-type activities as of June 30, 2015 totaled $17.2 billion (net of accumulated depreciation). This investment in capital assets includes land, buildings, improvements other than buildings, equipment, infrastructure, and construction in progress. The net decrease in the State's investment in capital assets for the fiscal year was $539.5 million.
Major capital asset events for governmental activities during the fiscal year include additions to buildings and land of $292 million and depreciation expense of $917.6 million.
The following table is a two-year comparison of the investment in capital assets presented for both governmental and business-type activities:
State of Connecticut's Capital Assets
(Net of Depreciation, in Millions)
Governmental | Business-Type | Total | ||||
---|---|---|---|---|---|---|
Activities | Activities | Primary Government | ||||
2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |
Land | $1,709 | $1,687 | $68 | $68 | $1,777 | $1,755 |
Buildings | 2,505 | 2,234 | 2,868 | 2,706 | 5,373 | 4,940 |
Improvements Other Than Buildings | 156 | 158 | 166 | 171 | 322 | 329 |
Equipment | 62 | 72 | 332 | 325 | 394 | 397 |
Infrastructure | 4,934 | 4,924 | - | - | 4,934 | 4,924 |
Construction in Progress | 3,665 | 3,465 | 717 | 511 | 4,382 | 3,976 |
Total | $13,031 | $12,540 | $4,151 | $3,781 | $17,182 | $16,321 |
Additional information on the State's capital assets can be found in Note 9 of
this report.
Long-Term Debt - Bonded Debt
At the end of the current fiscal year, the State had total debt outstanding of $23.9 billion. Pursuant to various public and special acts, the State has authorized the issuance of the following types of debt: general obligation debt (payable from the General Fund), special tax obligation debt (payable from the Debt Service Fund), and revenue debt (payable from specific revenues of the Enterprise funds).
The following table is a two-year comparison of bonded debt presented for both governmental and business-type activities:
State of Connecticut's Bonded Debt (in millions)
General Obligation and Revenue Bonds
Governmental Activities | Business-Type Activities | Total Primary Government | ||||
---|---|---|---|---|---|---|
2015 | 2014 | 2015 | 2014 | 2015 | 2014 | |
General Obligation Bonds | $16,403 | $15,282 | $- | $- | $16,403 | $15,282 |
Transportation Related bonds | 4,090 | 3,771 | - | - | 4,090 | 3,771 |
Revenue Bonds | - | - | 1,357 | 1,213 | 1,357 | 1,213 |
Long-Term Notes | 520 | 581 | - | - | 520 | 581 |
Premiums and Deferred Amounts | 1,417 | 1,195 | 111 | 84 | 1,528 | 1,279 |
Total | $22,430 | $20,829 | $1,468 | $1,297 | $23,898 | $22,126 |
The State's total bonded debt increased by $1.8 million (8.0 percent) during the current fiscal year. This increase resulted mainly from an increase in general obligation bonds of $1.1 million.
Section 3-21 of the Connecticut General Statutes provides that the total amount of bonds, notes or other evidences of indebtedness payable from General Fund tax receipts authorized by the General Assembly but have not been issued and the total amount of such indebtedness which has been issued and remains outstanding shall not exceed 1.6 times the total estimated General Fund tax receipts of the State for the current fiscal year. In computing the indebtedness at any time, revenue anticipation notes, refunded indebtedness, bond anticipation notes, tax increment financing, budget deficit bonding, revenue bonding, balances in debt retirement funds and other indebtedness pursuant to certain provisions of the General Statutes shall be excluded from the calculation. As of July 2015, the State had a debt incurring margin of $3.6 billion.
Other Long-Term Debt
State of Connecticut Other Long - Term Debt (in Millions)
Governmental Activities |
Business-Type Activities |
Total Primary Government |
||||
---|---|---|---|---|---|---|
2015 | 2014* | 2015 | 2014 | 2015 | 2014* | |
Net Pension Liability | $26,171 | $27,773 | $- | $- | $26,171 | $27,773 |
Net OPEB Obligation | 8,983 | 7,763 | - | - | 8,983 | 7,763 |
Compensated Absences | 499 | 513 | 186 | 167 | 685 | 680 |
Workers Compensation | 651 | 620 | - | - | 651 | 620 |
Federal Loan Payable | - | - | 103 | 434 | 103 | 434 |
Other | 150 | 129 | 351 | 302 | 501 | 431 |
Total | $36,454 | $36,798 | $640 | $903 | $37,094 | $37,701 |
*Restated for comparative purposes
The State's other long-term obligations decreased by $607 million (1.6
percent) during the fiscal year. This decrease was due mainly to a decrease in
the net pension liability (Governmental activities) of $1.6 million or 5.8
percent. Additional information on the State's long-term debt can be found in
Notes 16 and 17 of this report.
Economic Outlook and Next Year's Budget
At this writing, Connecticut has recovered all of its private sector recessionary job losses and is continuing to add private sector employment. The State needs to reach the 1,713,000 job level to enter a full nonfarm employment expansionary phase. This will require an additional 13,300 nonfarm jobs. Connecticut's nonfarm jobs recovery is 69 months old and is averaging 1,532 new jobs per month since February 2010.
Connecticut has been growing jobs at fairly typical recovery rate; however workers' wage growth has been below normal recovery levels. There are some early signs that wage increases may be accelerating slightly. Wages increased by less than 2 percent in Fiscal Year 2015. Current trends point to Connecticut wage growth of better than 3 percent. Wage Growth in the United States averaged 6.3 percent from 1960 until 2015, reaching an all-time high of 13.8 percent in January of 1979 and a record low of -5.77 percent in March of 2009. Historically, Connecticut wages have increased at a faster pace than the national average.
Connecticut, like most other states, has a revenue structure that is dependent on rising wages and the related increases in consumer spending. As wages have been slow to recover, Connecticut's revenue base has experienced lower than expected growth. As job expansion continues in the State and as wage acceleration takes hold, Connecticut's recent budget pressures will abate. Exactly when solid wage gains will emerge is as uncertain as it is vital to the State's budgetary health.
Looking forward it is also important to note that Connecticut's economy is dependent on the national economy, which is dependent on world events. Global economic activity has constrained domestic growth. China's economy (2nd largest in the world) has been slowing. In response, its central bank cut interest rates in hopes of boosting growth. Less oil demand from China as the economy slowed has produced a sharp drop in oil prices as well as coal and other commodities. These falling prices have negatively impacted the stock market.
The cheaper oil has damaged oil exporting economies such as Brazil and Russia, in addition to many Middle Eastern producers. The European economy has struggled to grow at all, advancing at an annual pace of less than 2 percent.
All of these economic trends will impact future Connecticut budgets. The Governor is required to submit a balanced budget for Fiscal Year 2017 in February 2016. Currently, the Fiscal Year 2016 budget is facing the same slow growth in revenue that was experienced in Fiscal Year 2015. Cost controls are in place to avoid ending Fiscal Year 2016 with a budget deficit.
CONTACTING THE STATE'S OFFICES OF FINANCIAL MANAGEMENT
This financial report is designed to provide our citizens, taxpayers, customers, investors, and creditors with a general overview of the State's finances and to demonstrate the State's accountability for the money it receives. If you have any questions about this report, please contact the State Comptroller's Office at 1-860-702-3350.