April 1, 2016
The Honorable Dannel P. Malloy
Governor of the State of Connecticut
Dear Governor Malloy:
I write to provide you with financial statements in accordance with CGS, Section 3-115 for the General Fund and the Transportation Fund through February 29, 2016.
The Office of Policy and Management (OPM) was projecting a General Fund deficit of $130.8 million for Fiscal Year 2016 prior to the passage of SB 474 on March 29th. The increase in the OPM deficit projection from last month's $19.9 million forecast was the result of a continued deterioration of the revenue outlook. OPM reduced its revenue estimate by $178 million and implemented additional expenditure reductions to mitigate the deficit.
Last month, I projected a General fund deficit for Fiscal Year 2016 of $219.9 million. The expenditure reductions and transfers contained in SB 474 provide the necessary fiscal tools to eliminate that deficit. Therefore, I am projecting that the General Fund is in balance at this writing. However, I must note that while passage of this bipartisan deficit mitigation plan is a significant step forward in restoring budget stability there remain significant downside risks. My greatest concern continues to be further erosion in General Fund revenue through the final months of Fiscal Year 2016. Specifically, while the withholding portion of the income tax showed solid growth in the month of March, it is still underperforming on a year-to-date basis. In addition, there has been some slippage in the sales tax trend and national economic growth projections have moderated.
The continued downward risk to General Fund revenue receipts makes the estimated and final payment collections in April especially important. These receipts are highly dependent on capital gains and bonus payments to workers. This category of revenue has been exceptionally volatile over the past several decades and is difficult to project given the absence of timely Connecticut specific data on the major factors driving collections in this area. Consensus revenue forecasts are expected to be issued on April 30th; these projections will bring significant clarity to the budget outlook.
I am in agreement with OPM's projections for the Transportation Fund. That fund is expected to close Fiscal Year 2016 with a balance $165.4 million. This is an erosion of $14.6 million in the fund's starting balance of $180 million. Again, a decline in projected revenue is the primary cause of the deterioration in the fund's position.
Connecticut's economy continues to experience moderate growth, but it is falling short of the growth required to support the original budget estimates. The Department of Labor reported that the job growth originally posted during 2015 was revised significantly lower as a result of an updated benchmark process. The 2015 annual average nonfarm employment growth was 12,200 payroll positions as compared to the 26,900 reported pre-benchmark. The revised figure is more in line with the observed growth in 2013 and 2014, and better explains the lag in income tax withholding growth.
The Department of Labor also released job numbers for February and revised January job totals. Connecticut added 4,200 nonfarm jobs (0.25%) in February 2016 to a level of 1,685,400, seasonally adjusted. In addition, January 2016's initial release of a 900 job gain was revised slightly higher to 1,200. The state has now increased nonfarm employment by 15,800 positions (0.95%) over February 2015.
U.S. employment has been advancing at a rate of 1.9 percent over the twelve-month period ending in February; Connecticut's employment growth was 0.9 percent for the same period. Connecticut's unemployment rate was 5.5 percent in February; the national unemployment rate was 4.9 percent. Connecticut's unemployment rate has continued to decline from a high of 9.5 percent in October 2010.
Connecticut ranked 39th nationally in income growth for the 2015 calendar year based on personal income statistics released by the Bureau of Economic Analysis on March 24th. Personal income grew by 3.1 percent in the state during 2015. Connecticut ranked number one in per capita personal income at $66,972.
The strongest segment of Connecticut's economy continues to be the housing
market. According to a March 8th release by the Warren Group, January sales were
24.9 percent above the same month last year in the state. Connecticut recorded
1,717 single-family home sales in January 2016, the most sales to start a year
since January 2007. Condominium sales were also strong growing 16 percent from
Single-family home prices in Connecticut were stable at a median selling price of $230,000. Condominium prices fell to a median of $150,000, which is 11.2 percent lower than last January.
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 $793.2 million
as of June 30, 2015.
To view the data in Excel format, click here:
General Fund: A-D Transportation Fund: E-H
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