August 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 June 30, 2016.
The Office of Policy and Management (OPM) reported a projected Fiscal Year 2016 General Fund deficit of $279.4 million in July, a decrease in the deficit of $36.4 million from last month. The decrease is the result of a $19.9 million improvement in revenue. The revenue increase is primarily due to higher than anticipated federal grant receipts in Fiscal Year 2016. The federal receipts helped to offset a $65 million reduction in major tax categories. Unexpended appropriations (lapses) are also $16.5 million higher than anticipated last month. The Transportation Fund is expected to close Fiscal Year 2016 with a balance of $154.1 million. I am in general agreement with these projections.
Revenue and expenditure accruals related to Fiscal Year 2016 will continue to be recorded through the end of August. Those accruals will impact the deficit estimate reported in this letter and, therefore, the amount that will be required to be transferred from the Budget Reserve Fund. The current reserve balance is $406 million.
Shortfalls in income tax receipts were the defining factor in the Fiscal Year 2016 General Fund budget. Income tax revenues fell $659.4 million short of the original budget projections. Capital gains related income tax receipts were constrained by market volatility and payroll related tax gains were hampered by lower than anticipated wage increases throughout most of the fiscal year.
Excluding the income tax, General Fund revenue was $206.1 million higher than the original budget plan. This is after accounting for revenue enhancing policies implemented during the course of the fiscal year. Complete revenue detail is presented on Exhibit C.
As the income tax projections dropped during the months of Fiscal Year 2016, cost cutting measures were implemented including allotment reductions made under your authority and additional legislative actions contained in PA 15-1 of the December Special Session. The aggregate result of these actions reduced spending by $173.1 million from the original budget plan. Budget adjustment details are presented in Exhibit D.
The Connecticut economy, like the national economy, continues to experience below normal post-recession growth rates. The Department of Labor reported that that the state gained 7,900 jobs in June 2016, which brought payroll employment to a level of 1,693,400. The May employment figure was revised down to post a job loss for the month of 4,000 positions.
The large employment swings in May and June mirror the pattern observed in the national data. It appears that the variance may be due to seasonal adjustment factors rather than real employment changes of those magnitudes.
Connecticut's unemployment rate was 5.8 percent in June; 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.
The state's personal income was growing at an annualized 3.1 percent rate in the first quarter of 2016 This is the same growth level recorded in calendar year 2015. During the last economic expansion, between 2004 and 2007, Connecticut personal income grew at an average annual rate of 6.8 percent.
Housing sales have been a bright spot in Connecticut?s economy. According to a June 30th release by the Warren Group, single family home sales in Connecticut grew by 23.9 percent in May from the same month last year. That exceeds the strong April sales numbers. Connecticut recorded 2,921 single-family home sales in May 2016, the most sales in the month of May since 2007. Condominium sales also grew at a double digit rate, up growing 14.7 percent from May of last year with 719 new purchases.
Single-family home prices in Connecticut were soft. The sales price dropped by 7.2 percent in May to $246,000 compared to $265,000 a year ago. This followed a small price gain in April. Condominium prices rose by 5.8% in May from $162,500 to $172,000.
Nationally, consumer spending data released this month has pointed to a continuation of solid household spending. A July 15th report from the Commerce Department on June sales showed a 0.6 percent increase in retail receipts for the month. Eleven of 13 major categories showed stronger demand in June from the prior month, including a 1.1 percent advance in receipts at online merchants and a 0.7 percent increase at health and personal care outlets.
Retail sales in the first half of 2016 performed at a solid pace, growing close to 4 percent on a year-over-year basis, according to National Retail Federation?s calculations, which exclude automobiles, gasoline stations and restaurants.
According to the July 29th advance estimate by the Bureau of Economic Analysis, GDP in the 2nd quarter of 2016 grew at a 1.2 percent annual rate. In the 1st quarter GDP grew by 0.8%. To date in 2016, the economy is growing at about a 1% annualized rate, the worst first-half performance since 2011.
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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