COMPTROLLER LEMBO PROJECTS
Comptroller Kevin Lembo announced today that his analysis of recent spending data indicates that the state is currently on track to end the year with a $42-million deficit.
Lembo said that, as always, his office had its first opportunity in mid-October (Oct. 15) to review the state’s first-quarter spending data.
In a letter to Gov. Dannel P. Malloy, Lembo said that his office generally agrees with the Office of Policy and Management’s (OPM) revenue projection at this time, but believes certain costs on the spending side – particularly for debt service and adjudicated claims (resulting from the SEBAC vs. Rowland settlement) – could grow the deficit to $42 million.
“My variance from OPM is entirely due to spending differentials,” Lembo said. “Continued active budget management may eliminate this shortfall, which represents 0.2 percent of net budgeted expenditures.
“I am in general agreement with the OPM revenue projections. However, it should be noted that estimated income tax payments are volatile and must be closely monitored for additional deterioration in the state’s revenue outlook.”
In the third quarter of 2016, estimated income tax payments dropped by over 10 percent from the prior year. Last year and in Fiscal Year 2014, the third-quarter estimated payment pattern reversed sharply for the remainder of the fiscal year as taxpayers adjusted their January payments to recognize their prior year tax liability.
On the spending side, OPM is estimating that General Fund expenditures will exceed the budget by $9.3 million. Lembo said he projects that number to be closer to $46 million over budget.
Lembo said that the differentials related to two categories: adjudicated
claims and debt service. While OPM estimated a $5-million shortfall in
adjudicated claims, Lembo’s estimate is $22.3 million, due in large part to the
ongoing settlement payments related to the SEBAC vs. Rowland case. Lembo’s
analysis also relies on the state treasurer’s larger estimated debt service
shortfall of $19.4 million.
It’s important to note, Lembo said, that the cost of personal services is declining – just not at the rate necessary to meet savings targets.
“Notably, the state General Fund personal services line-item has been on a declining trajectory during the first months of Fiscal Year 2017,” Lembo said. “However, the rate of decline may not be sufficient to realize the large savings goal. Offsetting the slower-than-anticipated payroll decline are significant decreases in spending trends in other line-items. On balance, current trends indicate that a large portion of the lapse goal is still achievable.
“General Fund revenue estimates for Fiscal Year 2017 are consistent with a continuation of moderate economic growth,” Lembo said.
Lembo pointed to some of the latest economic indicators from federal and state Departments of Labor and other sources that show:
• In Fiscal Year 2016 the withholding portion of the income tax increased 3.4 percent from the prior fiscal year. Through September of Fiscal Year 2017, adjusting for accrual differentials, the withholding tax is exceeding last year’s growth.
• Preliminary Connecticut payroll job estimates show that the state lost
5,200 jobs in September to a level of 1,685,000, seasonally adjusted. Over the
last 12 months ending in September, employment in the state has grown by
approximately 12,800 positions (0.8 percent, 1,067 jobs per month). August’s
originally released job gain of 300 was revised down to a loss of 300. September
was the third consecutive month of job losses in the state.
• As the state’s employment recovery has progressed over the past year, an
increasing number of job sectors have posted employment gains.
• Personal income statistics for third-quarter personal income growth will be released on Dec. 20.
• According to an Oct. 25 release from CT Realtors, Connecticut single-family
residential home sales increased 2.6 percent in September 2016 from the same
month a year earlier. The median sale price also posted an increase of 2 percent
to $255,000. This marks a reversal of recent trend of consistent monthly
declines in home prices. Townhouse and condominium sales and prices dropped in
September by 1.4 percent and 1.8 percent respectively.
• The Commerce Department reported that U.S. sales at retail stores, online platforms and at restaurants rose 0.6 percent in September, matching economists’ expectations for a rebound after sales fell 0.2 percent in August. Spending, excluding gas and autos, rose a more modest 0.3 percent, though that increase was the best posted over the last three months. Retail sales in September were up 2.7 percent from a year earlier. Sales for the third quarter as a whole rose 2.4 percent from the same period in 2015.
• Sales in September continued to shift to e-commerce platforms from
traditional brick-and-mortar retailers. Sales in the non-store category,
including online retailers, were up 11 percent in the first nine months of 2016
compared with a year earlier. Sales at department stores were down 4.8 percent
over the same period.
Business and Economic Growth
• According to the Oct. 28 release from the Bureau of Economic Analysis, GDP
in the third quarter of 2016 grew at a 2.9-percent annual rate. That was the
strongest rate of growth in two years and followed second-quarter growth of 1.4
• The solid increase in GDP lowers the probability of a recession in the near
• Estimated and final income tax payments account for approximately 40
percent of total state income tax receipts. Both the estimated and final
payments had a negative rate of growth in Fiscal Year 2016.
• The graphs below show the year-to-date movement in the DOW and the S&P respectively at this writing.
Read the Comptroller's Full Letter
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