August 3, 2015
The Honorable Dannel P. Malloy
Governor of the State of Connecticut
Dear Governor Malloy:
I write to provide you with financial statements for the General Fund and the Transportation Fund through June 30, 2015. In accordance with Generally Accepted Accounting Principles, accrual activity for Fiscal Year 2015 will continue through August. Preliminary, unaudited Fiscal Year 2015 results will be presented on September 30th.
OPM is projecting a Fiscal Year 2015 General Fund deficit of $70.9 million, a change of $44.8 million from last month's deficit estimate. The Transportation Fund is expected to end Fiscal Year 2015 with a balance of $187.7 million, an improvement of $8.3 million from last month's projected balance. I am in general agreement with these numbers.
These projections will undoubtedly undergo further revision as accounting adjustments continue to be posted, and revenue and expenditure accruals are processed. Any remaining General Fund deficit for Fiscal Year 2015 will be eliminated through a transfer from the Budget Reserve Fund.
General Fund revenue for Fiscal Year 2015 is expected to fall $144.5 million below initial budget expectations. The largest single downward revision is in the income tax, which is projected to close the fiscal year $110.5 million short of the budget target. Despite significant job growth during Fiscal Year 2015, as discussed below, the payroll driven withholding portion of the income tax has failed to generate the anticipated gains.
The most significant revenue increase is in the corporation tax, which is expected to exceed the initial budget amount by $107.7 million. Expanded tax credits were projected to reduce corporate payments during the fiscal year; however, the corporation tax is now estimated to grow 3.8 percent over last fiscal year. The growth is in part attributable to the Department of Revenue Services' initiative to settle outstanding corporation tax issues, which resulted in a gain of $31.6 million in this area.
Total General Fund revenue growth for Fiscal Year 2015 is expected to be approximately 1.8 percent above last fiscal year. Complete revenue projections can be found on Exhibit C.
General Fund spending for Fiscal Year 2015 is projected to be more than $70 million below the initial budget plan. Lapses resulting from hold backs and other operational factors are estimated to total $205.2 million, which exceeds the initial budget plan by $73.1 million.
The slow growth in General Fund revenue during the 2015 fiscal year produced
significant budget challenges in order to mitigate a sizeable deficit. Active
budget management held spending growth to under 3 percent in Fiscal Year 2015
compared to last fiscal year, which brought the deficit to 0.4 percent of the
funds operating dollars.
The accumulated balance in the Transportation Fund is expected improve from last year's level. Operations during Fiscal Year 2015 are projected to add $17.8 million to fund balance.
As I have been reporting, the state's overall economic climate has been gradually improving. According to the Department of Labor, preliminary figures show that Connecticut gained 600 payroll positions in June. Connecticut has added 27,000 jobs over the course of Fiscal Year 2015.
The Department of Labor reports that average hourly earnings at $28.64, not seasonally adjusted, were up 51 cents, or 1.8 percent, from the June 2014 average. The resultant average private sector weekly pay was calculated at $953.71, up just $2.92, or 0.3 percent higher than a year ago. The improving employment situation has yet to be reflected in wage growth.
According to a report from the Connecticut Realtors Association released on July 9th, Connecticut single-family home sales rose 13.9 percent in June from the same month last year. The median home price fell over that period from $276,950 to $275,000. The sale of townhouses and condominiums in the state rose by 1.1 percent from June of last year. The median price of those units decreased to $169,000 from $174,500.
On July 30th, the Bureau of Economic Analysis released advance estimates for second quarter national economic growth in 2015. The Bureau reports that GDP grew by 2.3 percent in that quarter following growth of just 0.6 percent in the first quarter.
I also issue a Comprehensive Annual Financial Report (CAFR) as an accounting supplement to the budgetary report. The CAFR includes financial statements for all state funds and component units prepared in accordance with Generally Accepted Accounting Principles (GAAP). From a balance sheet perspective, the GAAP shortfall or unreserved fund balance in the General Fund was $727.2 million as of June 30, 2014. GAAP deficit reduction bonds in the amount of $598,500,000 were issued in Fiscal Year 2014 to reduce the shortfall.
To view the data in Excel format, click here:
General Fund: A-D Transportation Fund: E-H
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