COMPTROLLER LEMBO SAYS STATE DEFICIT CLOSE TO MITIGATION;
RECOMMENDS COLLABORATIVE DEFICIT REDUCTION PLANNING
Thursday, April 1, 2015 | Contact: Tara
Downes (860.702.3308 |
download release as a PDF
Comptroller Kevin Lembo today projected a $172.8-million General Fund
deficit for Fiscal Year 2015 - an amount just short of one percent of total
appropriations, which would legally trigger a mandatory deficit mitigation plan,
but close enough that Lembo recommended deficit reduction planning with the
legislature proceed without delay.
In a letter to Gov. Dannel P. Malloy, Lembo explained that his projection is a
$40-million increase from the Office of Policy and Management's (OPM) most
recent projection due to lower estimated income tax collections, as he reported
State law requires that the administration prepare a deficit mitigation plan for
submission to the legislature when the General Fund deficit certified in the
comptroller's monthly report exceeds one percent of total appropriations, which
would amount to $176 million this fiscal year.
"Because my current estimate is so close to the mitigation
trigger and only three months remain in the fiscal year, I recommend that
deficit reduction planning with the legislature should proceed without delay,"
The most significant revenue shortfalls are related to
federal grants, the health provider tax and the income tax - while notable gains
are in the sales tax and the corporation tax.
OPM has estimated that deficiencies across agencies will
exceed lapses (savings) in other areas by $7.7 million - the largest deficiency
within the Medicaid account.
Lembo said that, while technically not attributable to the General Fund, it's
important to note a $14.3-million cash shortfall in the retiree health insurance
fiduciary fund - the fund that holds employer, employee and retiree health
contributions and pays medical claims for eligible retirees. Typically, cash
shortfalls in non-General Fund activities are eliminated by transfers from the
General Fund in years of surplus if they cannot be addressed through other
policy options, Lembo noted.
"My original budget request for this account in Fiscal Year
2015 was reduced in the final version of the budget act," Lembo said. "Had the
amount that I requested been approved, no deficiencies would have resulted."
As far as the economy, Lembo said the state experienced a net
jobs gain so far this year - gaining 7,500 jobs in January, though losing 3,700
payroll positions in February. The latest economic indicators from federal and
state Departments of Labor and other sources show:
• Through the first eight months of Fiscal Year 2015, the
withholding portion of the income tax was running 1.6 percent above the same
period last year. This is a deceleration from the gains experienced over the
past several months.
• Withholding receipts have yet to attain pre-recession growth rates. The large
revenue increases in Fiscal Years 2011 and 2012 were almost entirely
attributable to higher income tax rates. Net of those tax increases, withholding
receipts were stagnant in both Fiscal Year 2011 and Fiscal Year 2012. The poor
performance also continued through Fiscal Year 2013. In Fiscal Year 2015,
despite improving employment statistics, the withholding tax has yet to
establish a pattern of consistent accelerating growth.
• According to the Department of Labor, Connecticut gained
7,500 payroll positions in January but lost 3,700 jobs in February. January was
the seventh straight month of job gains in the state before February's loss. The
graph below depicts the significant upward trend in Connecticut's job market.
• Connecticut has now recovered 87,900 positions, or 73.9
percent of the now 119,000 seasonally adjusted total nonfarm jobs that were lost
in the state during the March 2008 - February 2010 employment recession
(post-benchmark). Connecticut's jobs recovery is now 60 months old (five years)
and is averaging 1,465 jobs per month since February 2010. At 1,681,900 overall
nonfarm jobs for February 2015, the state needs to reach the 1,713,000 level to
start a true nonfarm employment expansion. This will require an additional
31,100 nonfarm jobs.
• The table below shows the distribution of employment gains and losses by major
employment sector over the latest 12-month period ending in February. Job
additions in Connecticut during this period total 25,800.
• U.S. employment has been advancing at a rate of 2.4 percent
over the 12-month period ending in February; Connecticut's employment growth was
1.6 percent for the same period.
• Connecticut's unemployment rate was 6.4 percent in February; the national
unemployment rate was 5.5 percent. Connecticut's unemployment rate has continued
to decline from a high of 9.5 percent in October 2010.
• There are approximately 122,000 unemployed workers in Connecticut. A low of
36,500 unemployed workers was recorded in October of 2000. The number of
unemployed state workers hit a recessionary high of 177,200 in December of 2010.
• The Department of Labor reports that average hourly earnings at $28.26, not
seasonally adjusted, were down 21 cents, or -0.7 percent, from January 2014.
Because of an increase in hours worked, average private-sector weekly pay was
calculated at $952.36, up $28.07, or 3.0 percent over the year.
• The year-to-year change in the Consumer Price Index for All Urban Consumers
(CPI-U, U.S. City Average, not seasonally adjusted) in January 2015 was negative
• Based on data released by the Bureau of Economic Analysis
on March 25 for calendar year 2014, personal income in Connecticut grew at a
rate of 3 percent between 2013 and 2014; however, annualized growth for the 4th
quarter was just over 4 percent. Connecticut was ranked 39th nationally in
personal income growth in 2014, but ranked 22nd in 4th quarter income growth.
• The chart below shows the annual trend in Connecticut personal income over
time, which is well off the pace set during the last post-recessionary period.
• The Real Estate Conveyance Tax is trending almost 6 percent ahead of
collections through December of last year.
• According to a report from the Warren Group released on March 9, January
single-family home sales in Connecticut fell 6.3 percent from January of last
year. This ended four months of consecutive increases in state sales data. The
median price of a single-family home held steady at $230,000. Condominium sales
statewide also declined in January with a drop of 6.2 percent from the same
month last year. Condominium prices were up slightly from $162,500 to $163,800.
• The National Association of Realtors reported that existing U.S. home sales in
February were up 4.7 percent from the same period last year and prices were up
7.5 percent to $202,600.
• Sales tax receipts through February of Fiscal Year 2015 were up 2.2 percent
over last year. The sales tax is on track to complete the year almost $60
million above the original budget estimate.
• Advance retail sales were up 1.7 percent from February of last year. This is a
deceleration from the three-month average growth of 2.9 percent. Auto sales were
still advancing with a gain of 6.2 percent from last February. Auto sales grew
at a 12.9-percent rate in January.
• Gasoline stations posted the largest sales decline due to falling prices.
Department stores also experienced a decrease in sales.
• According to the Universities of Michigan's consumer sentiment index, consumer
optimism reached its highest level in a decade through the first three months of
2015. There was some pullback in the index in February and March. There was an
especially sharp drop in low-income households over the last two months. High
heating costs were blamed for much of the decline.
• The Federal Reserve reported that January consumer credit increased at a
seasonally adjusted annual rate of 4.2 percent. Revolving credit decreased at an
annual rate of 1.6 percent, while non-revolving credit increased at an annual
rate of 6.3 percent. Consumer credit advanced at a rate of 7.1 percent in 2014
with revolving credit growing 3.7 percent, while non-revolving credit grew 8.3
Business and Economic Growth
• Based on the March 27 third estimate by the Bureau of
Economic Analysis, real GDP increased at a rate of 2.2 percent in the 4th
quarter of 2014. In the 3rd quarter of 2014 real GDP increased at a 5-percent
• The increase in real GDP in the 4th quarter reflected positive contributions
from personal consumption expenditures (PCE), private inventory investment,
exports, nonresidential fixed investment, state and local government spending,
and residential fixed investment that were partly offset by a negative
contribution from federal government spending. Imports, which are a subtraction
in the calculation of GDP, increased.
• Corporate profits were down slightly in 2014. After gains in the 2nd and 3rd
quarters of 2014, profits fell in the 4th quarter.
• 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. The index has been showing a general upward trend
although it remains well below pre-recession levels.
• Estimated income tax payments, which are influenced by
capital gains receipts, were trending 5.2 percent higher on a year-to-date basis
thru February from the same period one year ago. The chart below shows the
trends in estimated and final income tax payments since 2005. For Fiscal Year
2015, only a small portion of the final payments have been processed to date.
Most final payment activity occurs in April. Looking at data through the first
three weeks of March, final payments were accelerating at a double-digit growth
rate over last year; however, the dollars collected in March are a small
percentage of the total receipts and cannot be relied upon for April
• Over the past 12 months the Dow has posted a gain of 8.3
percent with significant monthly swings.
• As a result of the monthly volatility, the Dow has posted
little movement on a year-to-date basis.