September 1, 2016
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 July 31, 2016.
The Office of Policy and Management (OPM) is projecting that the General Fund will end Fiscal Year 2017 operations approximately in balance The Transportation Fund is projected to have a Fiscal Year 2017 ending balance of $151.4 million. I am in general agreement with these estimates.
As OPM has noted, the budget estimates rely on significant lapse savings that are currently targeted at $186.8 million. While that target is not at a historically high level, it follows successive fiscal years of significant cost cutting with each year?s target becoming more challenging to achieve. Current General Fund projections have Fiscal Year 2017 total spending falling below the prior fiscal year?s expenditures. To realize an actual year-over-year reduction in outlays is a considerable management challenge that will require the skillful efforts of all agencies and branches of government.
General Fund revenue estimates for Fiscal Year 2017 are consistent with a continuation of moderate economic growth. My office is working with the Department of Revenue Services to finalize the Fiscal Year 2016 revenue accruals. In fiscal year 2016, several major revenue categories are known to have fallen well short of budget targets. Volatility in capital markets and slower than expected growth in workers? wages were major contributing factors to sluggish revenue growth in Fiscal Year 2016. I will be carefully monitoring economic data that impacts state revenue and will adjust my estimates accordingly in future letters.
Preliminary data from the Department of Labor shows that the state gained 1,700 payroll positions in July bringing the total level to 1,693,000. On a twelve-month basis the state has added 20,200 jobs. June?s original job gain of 7,900 was revised down to a still very strong gain of 5,800. U.S. employment has been advancing at a rate of 1.7 percent over the twelve-month period ending in July; Connecticut?s employment growth was 1.2 percent for the same period.
Connecticut?s unemployment rate was 5.7 percent in July; the national unemployment rate was 4.9 percent. Connecticut?s unemployment rate has continued to decline from a high of 9.5% in October 2010.
According to an August 24th release from Connecticut Realtors, single-family
residential home sales decreased 8.2 percent in July 2016 from the same month a
year earlier. The median sale price fell 2.9 percent to a price of $265,000.
Townhouse and Condominium sales decreased 18.1 percent from last July, although
the median price increased by 1.8 percent to $167,500.
For the first half of 2016, Connecticut home sales were up 18 percent over last years. Sales were up 17 percent in 2015. So far in 2016, median home prices in the state are down 1.2 percent. In 2015 prices dropped 2.2 percent and in 2014 they were down 3.3 percent.
According to an August 12th report from the Commerce Department, U.S. retail sales were unexpectedly flat in July. Sales in July showed little change from June. The June reading was revised upward to 0.8 percent. Retail sales in June were previously reported to have increased 0.6 percent. The University of Michigan reported that its final index of consumer sentiment stood at 89.8 in August compared with 90 in July. The share of households that expected their finances to improve fell to 29 percent, the smallest percentage since late 2014. The drop was especially large for those younger than 45. While long-term inflation expectations dropped to the lowest on record, consumers anticipated smaller income gains.
The Bureau of Economic Analysis reported that GDP in the second quarter of 2016 grew at a 1.1 percent annual rate. In the first quarter GDP grew by 0.8 percent. Before-tax corporate earnings fell 4.9 percent in the second quarter from a year earlier, the fifth consecutive decline and the worst streak since the end of the recession in mid-2009. The profit slump softens the outlook for already-weak business investment and also poses a risk to continued strength in hiring.
The Wall Street Journal?s survey of 60 economists indicates a small probability of a recession within the next 12 months. The probability has moved down slightly in August from 22 percent in July to 21 percent.
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. I will be releasing the 2016 CAFR early in 2017.
To view the data in Excel format, click here:
General Fund: A-D Transportation Fund: E-H
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