Comptroller Kevin Lembo today announced that - due to increasing state revenue
flow and a tax amnesty program -- the state's financial outlook has continued to
improve, positioning the state to end Fiscal Year 2014 with a surplus of $245.9
In a letter to Gov. Dannel P. Malloy, Lembo said that his projection is $110
million above the Office of Policy and Management's (OPM) earlier projection due
to the inclusion of additional revenue from the state's tax amnesty program that
ended Nov. 15.
While the tax amnesty program partly contributed to the state's improving
outlook this year, various sources of tax revenue have also continued to
improve, Lembo said. The sales and corporation taxes are each up by $30 million
from initial budget targets, and the real estate conveyance tax is $15.6 million
over initial estimates.
The Department of Revenue Services estimated that the tax amnesty program
resulted in additional revenue in Fiscal Year 2014 in excess of $175 million -
exceeding the budget target of $35 million.
"Month after month the state's financial outlook for the current fiscal year
is improving," Lembo said. "This is a great sign for Connecticut's economic
recovery - but there are also uncertainties and future liabilities that we need
to brace for. I strongly recommend that any General Fund surplus amount should
be transferred to the state's Budget Reserve Fund at the close of the current
The Budget Reserve Fund balance - commonly referred to as the "Rainy Day
Fund" - was $270.7 million at the end of Fiscal Year 2013, or 1.6 percent of
"I have called for a reserve level of 15 percent of spending - beyond the 10
percent statutory requirement," Lembo said. "It is essential to the state's
long-term fiscal stability that sufficient reserves be established as soon as
possible. Too often in the past, opportunities to build reserves have been
missed as other perceived budget priorities were pursued."
In the chart below, Lembo juxtaposes state surpluses and deficits with Budget
Reserve funding levels from Fiscal Years 1991 to recent years. The chart reveals
that, since 1990, the General Fund has realized almost $5 billion in revenue
windfalls - most of which did not go to build reserves.
"Connecticut would have weathered the 2009 recession far better had we
prepared for it by fully funding our Budget Reserve Fund at 15 percent," Lembo
Rebuilding the Budget Reserve Fund with this year's surplus is imperative in
light of mounting future liabilities expected to spike in Fiscal Year 2016, as
projected by both the Office of Fiscal Analysis and OPM. Lembo said federal
instability and uncertainties could also jeopardize the state's outlook at any
time - including any potential cuts to the defense industry and nonprofits, as
well as impacts on Wall Street, and consequently tax receipts from capital
"The bottom line is that Connecticut should use any opportunity now to
protect taxpayers from future financial threats and uncertainties," Lembo said.
As far as economic indicators, information from federal and state Departments
of Labor and other sources show:
According to Department of Labor data, the state lost 4,200 jobs through
September and October (-4,100 in September, -100 in October). Despite the
disappointing job numbers, the withholding portion of the income tax is up by
over 3 percent through October. The state's unemployment rate fell to 7.9
percent, the first time that it has dropped below 8 percent since April of 2009.
Over the 12-month period ending in October, Connecticut employment has
increased by 10,000 non-farm positions.
- According to the Connecticut Department of Labor, the state has recovered
48.6 percent or 58,900 of the 121,200 jobs lost during the recession.
Nationally, about 80 percent of recessionary job losses have been recovered.
- The strongest job gains over the past twelve months have been in education and
health services (+ 7,200), while the largest losses have occurred in
manufacturing (-3,500) and financial activities (-3,400).
- Personal income in Connecticut grew at a rate of 0.9 percent between the
first and second quarters of 2013. This ranked Connecticut 30th nationally in
income growth. On an annualized basis growth was 3.6 percent, which is well
above the 1.3 percent growth that was posted for 2012. Data for the third
quarter will be released on Dec. 19.
- According to the Department of Labor, average hourly earnings declined 0.8
percent from last October and weekly pay was down 1.9 percent for the same
- The year-to-year change in the Consumer Price Index for All Urban Consumers
(CPI-U, U.S. City Average) in August 2013 was 1.0 percent.
- The number of housing permits issued has shown solid gains over the past
two years, but remain well below the peak of 2004-2005.
- The Census Bureau reported that U.S. new home sales increased 12.6 percent
from August of last year. Sales in the Northeast were up 27.6 percent for the
- Results for the larger existing home sales market were as follows based on
numbers from to the National Association of Realtors (NAR): Nationally, October
sales were down 3.2 percent from the previous month, but sales were up 6 percent
from last October. Home prices at $199,500 were up a solid 12.8 percent from one
year ago. This is the 11th consecutive month of housing price increases.
- Regionally, existing-home sales in the Northeast were down 2.9 percent in
October from last month, but were up 11.7 percent from last October. The median
price in the Northeast was $247,300, were up 7.4 percent from a year ago.
- According to a report from Berkshire Hathaway HomeServices, 3rd quarter data
shows Connecticut home sales running 13.4 percent above last year. The median
home price in the state was $259,000, which is up 3.6 percent from the same
period one year ago.
- Conventional mortgage rates are showing some upward movement, but remain at
historically low levels.
- The stock market has continued to post solid gains. At this writing the Dow
was up almost 23 percent on a year-to-date basis. Estimated income tax payments
through October were up 13.2 percent from the same period last year, which is in
part due to the continued strength in equity markets.
In October, advance retail sales were up 3.9 percent from one year ago, which
is above the 3.2 percent pace set in September. Auto sales, which dipped in
September, were posting double-digit gains in October. Non-store retail sales
also recorded gains of just over 10 percent in October.
- The state's sales tax through October was up 8.6 percent over the same period
last fiscal year. Part of the gain is related to the state's tax amnesty
- The Conference Board reported a sharp decline in consumer confidence in
October. The index also fell in November. Consumers continue to express
concerned about the slow rate of job growth and stagnant or declining wages. The
long-term outlook of consumers was better than their short-term view.
- According to the Federal Reserve, consumer credit increased at a seasonally
adjusted annual rate of 5.25 percent during the 3rd quarter. Revolving credit
decreased at an annual rate of 2.25 percent, while non-revolving credit
increased at an annual rate of 8 percent. In September, consumer credit
increased at a seasonally adjusted annual rate of 5.25 percent.
Business and Economic Growth
- Based on current estimates, real GDP increased at a rate of 2.8 percent in the
3nd quarter of 2013. This follows growth of 2.5 percent in the 2nd quarter.
According to the Bureau of Economic Analysis, the acceleration in real GDP in
the 3rd primarily reflected a deceleration in imports and accelerations in
private inventory investment and in state and local government spending that
were partly offset by decelerations in exports, in nonresidential fixed
investment, and in personal consumption expenditures.
- Corporate profits advanced 7.0 percent in 2012 after growth of 7.9 percent in
2011. Corporate profits rebounded in the 2nd quarter after a weak 1st quarter
showing. Profits are running 4.5 percent above the 2nd quarter of last year.
- The Labor Department's scorecard of business activity was mixed in 2012 and
been down in 2013.