June 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 April 30, 2016.
The Office of Policy and Management (OPM) reported in their May 20th letter that a General Fund deficit of $259.1 million is projected for Fiscal Year 2016. The deficit estimate is based on the April 29th consensus revenue forecast and is unchanged from last month. The Budget Reserve Fund holds a balance of $406 million. The Transportation Fund is expected to end Fiscal Year 2106 with a balance of $160.7 million, a deterioration of $19.3 million from operations this fiscal year. I am in general agreement with these estimates.
The major cause of the General Fund deficit is the underperformance of the income tax. The wage driven withholding component of the income tax has been rising at a 3.2 percent rate through April on a fiscal year-to-date basis. Withholding receipts have also been accelerating in May. However, the estimated and final payment components of the income tax that are highly dependent on non-wage income have posted negative growth through April. Estimated payments are running 4.4 percent below last fiscal year and final payments are down 1.2 percent. Stock market volatility that impacted Fiscal Year 2016 receipts were the strongest contributing factor in the decline. The total General Fund revenue shortfall for 2016 is projected to be $430 million. The attached Exhibit C has complete General Fund revenue data.
The General Fund revenue shortfall for Fiscal Year 2016 is partially offset
by spending that is $170.1 million below the budget plan. After accounting for
legislative action and your mitigation efforts, appropriation lapses are
expected to total $436.1 million in the General Fund. This would hold spending
growth this fiscal year to a rate of approximately 3 percent. The changes to
planned spending by agency are detailed on Exhibit D of this letter.
Connecticut?s economy continues to experience moderate growth. The latest job and wage report from the Department of Labor was positive. The Department reported that the state added 3,500 jobs in April 2016 to a level of 1,689,800. Statewide nonagricultural employment gains now tally 20,100 (1.20%, 1,675 per month) since April 2015. The initial announcement of a 300 job gain for March 2016 was revised upward to 1,000.
Connecticut?s unemployment rate was 5.7 percent in April; the national unemployment rate was 5.0 percent. Connecticut?s unemployment rate has continued to decline from a high of 9.5 percent in October 2010.
According to a May 10th release by the Warren Group, single family home sales in Connecticut grew by 20.9 percent in March from the same month last year. Connecticut recorded 2,139 single-family home sales in March 2016, the most sales in the month of March since 2007. Condominium sales were also strong growing 11.0 percent from last March with 564 new purchases.
Single-family home prices in Connecticut continued to be soft. The sales price dropped by 3 percent in March to $225,000 compared to $232,000 a year ago. Condominium prices also fell from $150,000 to $145,000, a 3.3 percent drop from last March.
Nationally, consumer spending data released this month has pointed to strong household spending. The Commerce Department reported strong retail sales numbers for April following a March decline. The April growth in consumer spending of 1.3% was the largest gain since March of 2015.
According to the May 27th second estimate by the Bureau of Economic Analysis, GDP in the 1st quarter of 2016 grew at a 0.8 percent annual rate. This is an upward revision from the 0.5 percent advance estimate. In the 4th quarter GDP expanded by 1.4 percent. The increase in real GDP in the first quarter primarily reflected positive contributions from personal consumption expenditures, residential fixed investment, and state and local government spending that were partly offset by negative contributions from nonresidential fixed investment, exports, private inventory investment, and federal government spending. Imports, which are a subtraction in the calculation of GDP, decreased.
Corporate profits were positive in the 1st quarter growing 0.3 percent, but were down 5.8 percent from the 1st quarter of 2015. The modest rebound came after two consecutive quarters of falling profits. Weakness in profits is likely contributing to the recent national pullback in business spending and hiring growth. The first quarter saw the steepest decline in fixed nonresidential investment?a proxy for U.S. business spending?since the tail end of the 2007-09 recession, including sharply lower spending on structures and equipment. Much, but far from all, of the weakness stems from the energy sector.
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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