FOR IMMEDIATE RELEASE MONDAY, JUNE 2, 2014
Contact: Tara Downes
Comptroller Kevin Lembo today announced that the state is currently on track
to end Fiscal Year 2014 with a $43.4-million surplus, as reported last month.
In a letter to Gov. Dannel P. Malloy, Lembo reported that while revenue is
running below original budget targets, spending controls have successfully kept
the budget balanced.
Lembo said General Fund revenue for Fiscal Year 2014 is expected to be $40.6
million below the original budget plan. The largest shortfall is in the income
tax, which is estimated to underperform the budget plan by $176 million. This is
a variance from the original budget of about 2 percent. Both the sales tax and
corporation tax are exceeding initial budget estimates by $65.6 million and
$42.5 million respectively, Lembo said.
Overall General Fund expenditures for Fiscal Year 2014 are projected to be
$79.6 million below the budget plan.
The General Fund surplus will be deposited to the Budget Reserve Fund, as
Lembo has advocated, to help guard against future financial challenges.
"I have emphasized that the state faces new financial challenges in the
outlying years," Lembo said. "It is critically important that we directly
deposit any surplus into the Budget Reserve Fund. I have advocated for a reserve
level of 15 percent of spending. Sufficient dollars in reserve will guard
against future tax increases and service reductions during inevitable future
The reserve balance -- often referred to as the "Rainy Day Fund" -- at the end
of Fiscal Year 2013 was $270.7 million, which represents approximately 1.6
percent of net appropriations.
"It's important to note that, despite our struggle to find the economic lift
that we should expect, the state's economy is improving overall ," Lembo said,
pointing to a third consecutive month of employment growth.
"Gradually diminishing state unemployment, which fell to 6.9 percent in
April, and rising home sales, are promising signs for Connecticut's economic
outlook," Lembo said. "Three months of job growth must be continued - and
followed by improved wages and worker productivity."
Lembo highlighted data and other information from federal and state
Departments of Labor and other sources that show:
- Year-to-date gains in the employment-driven withholding portion of the
state income tax remained positive through April, growing 2.7 percent from a
- The monthly growth in year-to-date withholdings has averaged 1.2 percent so
far in Fiscal Year 2014. As can be seen from the graph below, monthly receipts
accelerated during the second half of the year.
- Connecticut gained 2,200 payroll jobs in April. This is the third
consecutive month of employment growth in the state. According to the Department
of Labor, Connecticut has regained 66,300 payroll positions, or 55.7 percent of
the 119,100 positions lost to the March 2008 - February 2010 employment
recession. Nationally, all of the jobs lost to the recession had been recovered
by March 2014.
- The table below shows the distribution of employment gains and losses by super
sector over the latest 12-month period.
|Job Gains Latest 12 Months|| || Job Losses Latest 12 Months || |
|Sector|| || Sector || |
|Education &health ||5,600 ||Government|| -3,900|
|Leisure and Hospitality|| 4,400 ||Manufacturing|| -2,600|
|Construction ||3,000|| Prof. & Business Service|| -800|
|Transp. & Utilities ||2,400 ||Financial Activities -500|| |
| || ||Other Services ||-500|
| || ||Information ||-200|
- Connecticut's unemployment rate was 6.9 percent in April; the national
unemployment rate was 6.3 percent that month.
- The charts below are a time series view of Connecticut employment and the
- The Department of Labor calculates that average private sector weekly pay
was $938.21 in April, down $5.28, or -0.6 percent over from the same period a
- The year-to-year change in the Consumer Price Index for All Urban Consumers
(CPI-U, U.S. City Average, not seasonally adjusted) in April 2014 was 2 percent.
- Worker productivity has been on a downward trend as businesses have invested
less in the technology that has resulted in productivity increases. Typically,
lower productivity creates inflationary pressures and higher interest rates over
- Based on data released by the Bureau of Economic Analysis on March 25,
Personal income in Connecticut grew at a rate of 2.1 percent between 2012 and
2013 ranking the state 37th nationally in personal income growth. Net earnings
increased 1.4 percent while dividends, interest and rent increased 3.7 percent.
Personal income results for the 1st quarter of 2014 will be released on June 24.
- The chart below shows the annual trend in Connecticut personal income. Because
the state spending cap is based on the growth in personal income (or the rate of
inflation if higher), the current trend places downward pressure on budgeted
state spending. The cap does not apply to debt financed spending.
- A strong housing market has lifted Connecticut's real estate conveyance tax
receipts. Through April, total receipts are running more than three-quarters
above last year's level.
- Single-family home sales in Connecticut rose 3.2 percent in March according to
a May 8 report from The Warren Group. This is a slight acceleration over
February sales and is the eleventh consecutive month of home sale gains in the
state. The 3.2-percent increase is below the 6-percent growth rate posted for
the full 2013 calendar year, but weather played a role in slowing winter sales
activity, and the spring and summer normally bring higher sales volume.
- The median price of single-family homes in the state fell by 8.2 percent in
March, selling at $225,000 compared with $245,000 in the same month last year.
Prices of single-family homes were also down by 2.1 percent in the 1st quarter
of 2014 with a median selling price of $230,000, compared with $234,900 last
year. The price decline in March was the first since June 2012, which suggests
that it is an aberration in the data.
- Condominium sales in March were up 8.1 percent from the same month last year.
This is consistent with the strong double-digit growth in 2013. The median price
for a condo fell 3.5 percent in March to $154,500 compared with $160,000 in
- According to the National Association of Realtors, total U.S. existing home
sales in April were 6.8 percent below April of 2013. The median price of a home
rose 5.2 percent to $201,700 from April of last year. Regionally, existing home
sales in the Northeast fell 6.3 percent from last April and prices were
relatively unchanged at $244,000.
- The capital gains-driven estimated payment portion of the income tax grew by
almost 18 percent last fiscal year. This large increase was partially
attributable to a capital gains tax change that went into effect at the end of
2012 and resulted in a roll-forward of taxable gains to Fiscal Year 2013. Absent
the tax change, these roll-forward gains would have been realized in future
- The budget plan anticipated a softening of estimated payments in Fiscal Year
2014 based on the roll-forward activity. However, the loss was far greater than
expected, as we reported last month, resulting in a $389.1 million downward
revision in the income tax projection last month.
- During periods of economic growth, estimated and final payments represent an
increasing percentage of total income tax receipts. These receipts are
correlated to equity market activity and are especially volatile. As can be seen
from the graph below, the percentage of the total income tax expected to be
realized in Fiscal Year 2014 from estimated and final payments approximates the
Fiscal Year 2012 results. This was unexpected since growth over Fiscal Year 2012
would be typical of a recovery period.
- It is difficult at this point in time to accurately determine the cause of
the deviation in final income tax payments from the historical trend. Certainly
the forward shift in capital gains discussed above played a role. It is also
significant that profit taking has been on a downward trend since the height of
the financial crisis as trading volume has receded even as the market has risen.
- At this writing the Dow Jones Industrial Average has posted a 12-month gain
of 8.16 percent; however, on a calendar year-to-date basis the market has seen
- Through April the sales tax receipts were advancing at a rate of over 5.5
percent on a fiscal year-to-date basis. This is the growth rate anticipated
within the current revenue forecast.
- April advance retail sales were up 4 percent from the same month last year. In
calendar year 2013, sales were 4.2 percent higher than in 2012.
- According to the Federal Reserve, in March consumer credit expanded at its
strongest level since the start of 2014. Total credit expanded 6.7 percent in
March. Credit cards advanced 1.6 percent, while non-revolving credit (for things
like automobiles and student loans) was up 8.7 percent.
Business and Economic Growth
- Based on the May 29 release by the Bureau of Economic Analysis, real GDP
decreased at a rate of 1 percent in the 1st quarter of 2014. In the 4th quarter
of 2013 real GDP advanced 2.6 percent.
- The deceleration in real GDP growth in the first quarter primarily reflected
downturns in exports and in nonresidential fixed investment, a larger decrease
in private inventory investment, a deceleration in personal consumption
expenditures, and a downturn in state and local government spending that were
partly offset by an upturn in federal government spending and a downturn in
- In the 1st quarter of 2014, corporate profits posted a decline of 3 percent
from one year. Profits grew by better than 7 percent in both 2011 and 2012.
- The Department of Labor's General Drift Indicators are composite measures of
the four-quarter change in three coincident (Connecticut Manufacturing
Production Index, nonfarm employment, and real personal income) and four leading
(housing permits, manufacturing average weekly hours, Hartford help-wanted
advertising, and initial unemployment claims) economic variables, and are
indexed so 1986 = 100.