COMPTROLLER LEMBO CONTINUES TO
PROJECT $93.9-MILLION DEFICIT ABSENT A STATE BUDGET
Monday October 2, 2017 |
Contact: Tara Downes 631-834-5234 |
Comptroller Kevin Lembo today said the state, still absent a budget for
Fiscal Year 2018, remains on track to end the year with a deficit of $93.9
million under the provisions of an executive order by the governor.
In a letter to Gov. Dannel P. Malloy, Lembo said the administration’s
spending reduction authority under his executive order should allow him to meet
current savings targets. However, spending trends so far – 7.2 percent higher
than the same period last fiscal year – show that fixed costs (including debt,
state employee and teachers retirement and retiree health care) continue to
rise, while discretionary spending is forcibly decreasing.
“The state’s municipalities, nonprofits and Connecticut residents, including
the most vulnerable, depend on discretionary program spending for critical
services and to enhance the quality of life,” Lembo said. “Vital programs that
have faced significant cuts include Grants for Substance Abuse Services; Mental
Health Service Grants; the Connecticut Home Care Program, Aid to the Disabled;
Employment Opportunities; and the Early Care and Education program.”
Lembo said the provisions of SEBAC 2017 will start to mitigate these costs as
the year progresses, but it will require close monitoring.
“The state’s capacity to meet its spending obligations is impaired by the
inability to enact a budget that provides for policy changes that increase
revenue. This problem is exacerbated each month as potential sources of
additional revenue are foregone due to the absence of necessary changes to the
“As the state enters the second quarter of the fiscal year, even a potential
agreement to increase in the hospital tax remains in doubt, even though it would
result in higher Federal reimbursements. Moreover, ongoing budget uncertainty
will slow Connecticut’s economic growth and could ultimately lead to the state
and its municipalities receiving downgrades in credit ratings that will cost
taxpayers even more.
‘The state’s economy continues to post mixed results across an array of key
economic indicators. These results do not indicate Connecticut can grow its way
out of the current revenue stagnation, especially in light of the state missing
it revenue targets in the last two fiscal years.”
Lembo pointed to latest economic indicators from federal and state
Departments of Labor and other sources that show:
• Based on FY 2017 unaudited final results, the withholding portion of the
income tax increased only 1.3 percent compared with the prior fiscal year.
• In the first two months of the new fiscal year, withholding receipts were up
6.6 percent from last year. This growth is somewhat overstated due to an extra
calendar day of deposit activity in FY 2018. Adjusting for this difference and
screening out revenue accrual activity reduces the FY 2018 year-to-date growth
to closer to 1.4 percent.
• Preliminary state Department of Labor (DOL) data for August 2017 show that
Connecticut lost 3,900 jobs during the month of August to a level of 1,687,200
seasonally adjusted. July’s original preliminary job loss of 600 was revised
down by the Bureau of Labor Statistics (BLS) to a loss of 1,100. Over the past
12-month period ending in August, the state has posted 6,000 new payroll jobs.
During the last period of economic recovery, employment growth averaged over
• Connecticut has now recovered 78.1 percent (93,000 payroll job additions)
of the 119,100 seasonally adjusted jobs lost in the Great Recession (3/08-2/10).
The job recovery is into its 90th month and the state needs an additional 26,100
jobs to reach an overall employment expansion.
• Connecticut's unemployment rate for August fell by two-tenths of a point from
last month and now stands at 4.8 percent. The decrease in the unemployment rate
was due to a decline in the size of the state’s labor force. Nationally, the
unemployment rate was 4.4 percent in August.
Payroll Employment Trend
Jobs in thousands
Sector 8/17 8/16 Gain/Loss % Change
Construction 57.8 59.0 -1.2 -2.0%
Manufacturing 157.6 156.8 0.8 0.5%
Transp. & Public Utilities 298.4 298.7 -0.3 -0.1%
Information 31.8 32.7 -0.9 -2.8%
Financial 132.1 129.7 2.4 1.9%
Prof . & Business Svc. 217.2 218.6 -1.4 -0.6%
Education & Health Svc. 332.7 329.9 2.8 0.8%
Leisure & Hospitality 158.1 154.8 3.3 2.1%
Other Services 68.3 64.7 3.6 5.6%
Government 232.7 235.7 -3.0 -1.3%
• Connecticut’s employment and revenue numbers must be viewed in the light of
its declining population. The U.S. Census reported that Connecticut saw a
decline in population of 8,278 residents between July 1, 2015 and July 1, 2016.
Connecticut was one of only eight states to experience a decline in population
during this period. Connecticut has now posted three consecutive years of
• According to a May 2017 report by CT Data Collaborative, the largest driver of
Connecticut’s declining population was an increase in the number of people
leaving Connecticut for other states. This net migration to other states
increased 55 percent (or about 9,200 individuals) over the period from 2013 thru
2016 compared to the mid-2000’s.
• International migration has helped to mitigate Connecticut’s overall
population loss, as there has been about a 30-percent increase (or about 3,700
people) in the average number of net migrants per year post-recession compared
• Based on the Internal Revenue Service tax return data, more households move in
to Connecticut from New York and New Jersey than leave Connecticut for those
states. On the other hand, more people leave Connecticut for Massachusetts and
Florida than move in from those states.
• Our neighboring states of Massachusetts, New York, and Rhode Island are
experiencing substantially more growth in total tax returns filed compared to
• Connecticut is losing on net a higher number of 22-29 year olds and those aged
65 or older compared to pre-recession. Conversely, post-recession Connecticut is
gaining on net a higher number of domestic in-migrants aged 30-64 years,
especially those aged 30 to 49.
• Average hourly earnings at $30.72, not seasonally adjusted, were up $0.33,
or 1.1 percent, from the August 2016 estimate. The resultant average Private
Sector weekly pay amounted to $1,041.41, up $20.31, or 2.0 percent higher than a
• The 12-month percent change in the Consumer Price Index for All Urban
Consumers (CPI-U, U.S. City Average, not seasonally adjusted) in August 2017 was
• The Bureau of Economic Analysis reported that Connecticut’s personal income
grew by 3 percent between 2015 and 2016. This ranked Connecticut 33rd nationally
in 2016 income growth.
• A September 26th report from the Bureau showed Connecticut personal income
increasing at a quarterly rate of 0.8 percent between the first and the second
quarter of 2017. This ranked Connecticut 22nd nationally in personal income
• According to a Sept. 20 report from CT Realtors, the sale of single-family
residential homes in Connecticut increased by 1.9 percent in August 2017 from
the same month a year earlier. The median sales price of a home increased 2.3
percent to $274,000. The sale of townhouses and condominiums in the state posted
a sales decrease of 2.8 percent, comparing August 2017 to August 2016. The
median price was up 4.7 percent to $175,828.
• Nationally, total home sales (includes single-family homes, townhouses and
condominiums) in August 2017 increased 0.2 percent from August of last year
according to the National Association of Realtors. The national median price of
a home in was $253,500.
• Consumer spending is the main engine of the U.S. economy, accounting for more
than two-thirds of total economic output. The Commerce Department reported that
retail sales fell unexpectedly by 0.2 percent in August 2017, in part due to the
effects of Hurricane Harvey. Data for July was revised to show sales increasing
0.3 percent instead of the previously reported 0.6 percent jump. Retail sales
increased 3.2 percent in August on a year-over-year basis.
• According to Dow Jones, retail sales in August were weak in most categories.
One exception was gasoline station sales, which rose 2.5 percent in August
compared with the prior month. Gas prices surged in the wake of Hurricane
Harvey, as Texas refineries temporarily shut down in the aftermath of the storm.
• Sales were uneven across other categories last month. They rose modestly at
home furnishings stores and grocery stores, but declined at building materials,
garden and department stores. Sales at nonstore retailers, mostly
online-shopping outlets, fell 1.1% in August. That was the largest decline for
the category since April 2014.
Consumer Debt and Savings Rates
• According to the Federal Reserve Bank of New York, aggregate household debt
balances rose to a new peak in the second quarter of 2017. As of June 30,
overall debt – including mortgages, auto loans and student loans – hit a record
$12.84 trillion. This increase put overall household debt $164 billion above its
peak in the third quarter of 2008, and 15.1 percent above its trough in the
second quarter of 2013. Aggregate household debt balances have now increased in
12 consecutive quarters.
• The New York Federal Reserve also noted that mortgage balances, the largest
component of household debt, increased again during the first quarter. Mortgage
balances shown on consumer credit reports on June 30 stood at $8.69 trillion, an
increase of $64 billion from the first quarter of 2017. Balances on home equity
lines of credit were roughly flat, and now stand at $452 billion. Non-housing
balances were up in the second quarter. Auto loans grew by $23 billion and
credit card balances increased by $20 billion, while student loan balances were
• Americans have also dramatically reduced their savings over the past year.
The personal-saving rate fell to 3.8 percent in June, down from a recent peak of
6.3 percent in October 2015 and not far off from prerecession lows.
• The higher debt levels and lower savings point to U.S. wage gains that aren't
keeping up with consumers' needs and desires to spend. This also signals a more
uncertain outlook for future consumer spending gains.
• The graph below provides a long-term view of the U.S. savings rate from the
beginning of 1969 through June of 2017. As can be seen there is a pronounced
downward trend over the period. It should be noted that the U.S. Personal Saving
Rate does not include capital gains from the sale of land or financial assets in
its estimate of personal income. This effectively excludes capital gains – an
important source of income for some.
• The U.S. consumer confidence index (CCI), published by the Conference
Board, is an indicator designed to measure consumer confidence. This is defined
as the degree of optimism on the state of the economy that consumers are
expressing through their activities of savings and spending.
• The Conference Board reported that consumers' assessment of current economic
conditions improved marginally in August and declined slightly in September. The
Index now stands at 119.8, down from 120.4 in August.
Business and Economic Growth
• According to a September 28th release from the Bureau of Economic Analysis,
U.S. Real Gross Domestic Product increased at an annual rate of 3.1% in the
second quarter of 2017. In the first quarter, real GDP increased 1.2 percent.
• The increase in real GDP in the second quarter reflected positive
contributions from personal consumption expenditures (PCE), nonresidential fixed
investment, exports, and federal government spending that were partly offset by
negative contributions from private residential fixed investment, private
inventory investment, and state and local government spending.
• Corporate pre-tax earnings were up 6.3 percent on a year-over-year basis and
were up 0.7 percent on a quarter-to-quarter basis.
• Corporate profits deteriorated in 2015 as falling oil prices squeezed the
domestic energy industry and a strong dollar damped demand for U.S. exports. But
earnings began to recover last year as crude prices stabilized, and exporters
are getting a boost because the dollar has weakened since early 2017.
• According to a Sept. 27 report by the U.S. Department of Commerce, new orders
for manufactured durable goods increased in August by $3.9 billion or 1.7
percent to $232.8 billion. This increase, up two of the last three months,
followed a 6.8 percent July decrease. The modest increase for August reflected a
rebound in the volatile aircraft sector, which had plunged in July. Excluding
transportation, new orders increased 0.2 percent and excluding defense, new
orders increased 2.2 percent.
The Markit Flash Purchasing Manager’s Index (PMI) for September 22nd reported
Flash U.S. Composite Output Index at 54.6 (55.3 in August). 2-month low.
Flash U.S. Services Business Activity Index at 55.1 (56.0 in August). 2-month
Flash U.S. Manufacturing PMI at 53.0 (52.8 in August). 2-month high.
Flash U.S. Manufacturing Output Index at 52.4 (52.4 in August). Unchanged.
Data collected September 12-21
• According to the Connecticut Business and Industry Second Quarter Economic
and Credit Availability Survey, only 29 percent of business leaders statewide
that were polled during the quarter had a positive outlook for their company’s
growth over the next three months. This was down from 37 percent who were
optimistic about growth in the 1st quarter.
• Also, fewer of the 127 survey respondents expected to grow their workforces –
23 percent in the 2nd quarter, compared with 26 percent in the 1st quarter.
• More than half of respondents, or 57 percent, said they expected stable
conditions over the following three months, up from 47 percent the previous
quarter, while 14 percent expected conditions to deteriorate, down slightly from
16 percent in the 1st quarter.
• Asked about access to credit, 83 percent of company leaders said credit
availability was not a problem during the 2nd quarter, with 19 percent saying
Connecticut’s credit conditions were “excellent” or “good.” Another 61 percent
described conditions as average, while 21 percent said they were fair.
• Estimated and final income tax payments account for approximately 35 to 40%
of total state income tax receipts. Both the estimated and final payments had a
negative rate of growth in both Fiscal Years 2016 and 2017.
• Over $200 million of the drop in Fiscal Year 2017 receipts came from the
state’s closely monitored top 100 income earners, who are the source of an
outsize proportion of the state’s revenue.
• According to Revenue Services, after each of the past two income-tax increases
the average tax liability for the state’s 100 wealthiest residents increased in
one year and then fell. This pattern suggests those wealthy residents either
adjusted their tax strategies or earned less money in the down years.
• A bulk of the estimated and final payment receipts for Fiscal Year 2018 will
be collected between September and the end of the Fiscal Year.
• Shifts in equity portfolio allocations following the presidential election
and a run-up in equity values have not resulted in capital gains related revenue
increases for the state.
• The potential for lower federal capital gains tax rates has remained uncertain
since the presidential election and investors may have been unwilling to take
large gains in this environment of uncertainty. In addition, investors are
increasingly using tax efficient vehicles such as Exchange Traded Funds (ETFs)
that don’t generate as a large a number of taxable gains transactions. Assets in
these investments rose from $450 billion in 2008 to almost $2.8 trillion today.
• Both the Dow Jones Industrial Average and the Nasdaq Composite Index are
showing significant year-to-date gains in calendar 2017.
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