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August 1, 2017
The Honorable Dannel P. Malloy
Governor of the State of Connecticut
State Capitol
Hartford, Connecticut
Dear Governor Malloy:
I write to provide you with financial statements for the General Fund and the Transportation Fund through June 30, 2017.
The Office of Policy and Management (OPM) is projecting that the General Fund will end Fiscal Year 2017 operations with a surplus of $35.7 million. This is an improvement of $142.9 million in the General Fund's position from last month. The improvement is in large part the result of deficit mitigation efforts and revenue increases. The volatile inheritance and estate tax more than doubled in June, the corporation tax posted double digit June receipts and federal grants were $37.3 million above initial expectations. The Transportation Fund is expected to close Fiscal Year 2017 with an operating deficit of $39.9 million and a fund balance of $102.9 million. I am in general agreement with these projections.
The Budget Reserve Fund has a current balance of $235,582,921, which would be used to cover any deficit that may result from accrual activity in Fiscal Year 2017. At this time it does not appear that any transfer from the Budget Reserve Fund will be required.
While June posted some higher than expected revenue receipts, Fiscal Year 2017 saw revenue decline from initial budget projections. Most notably, the income tax is expected to fall $532.2 million short of the budget plan, which will result in receipts that are more than 2 percent below last fiscal year. The sales tax is expected to close the fiscal year $136.8 million below budget expectations, which will leave it relatively flat against last fiscal year?s collections. Detailed General Fund revenue estimates are available on Exhibit C.
Some of the diminishment in income tax revenue from capital gains may result from uncertainty about the possibility of federal tax changes that would lower the capital gains rate. Investors may be reluctant to undertake transactions that generate taxable gains in light of the potential for future reductions in those tax liabilities. Investors may also be lowering taxable gains by using tax-advantaged vehicles such as Exchange Traded Funds (ETFs). Assets in these funds have grown from just over $150 billion in 2003 to almost $3 trillion today.
In addition, the state's age 65 and over population has been growing; while
total state population has been declining. The aging population has important
implications for state tax revenue - especially income and sales tax collections
- because as the baby boom generation retires, the labor force participation
rate in states is expected to decline and, with it, personal income and total
spending. In June, the Census Bureau reported that Connecticut?s population age
65 and over grew from 14.2 percent to an estimated 16.2 percent of the total
population between 2010 and 2016. That?s an increase from about 508,000 to
577,000 people. Nationally, the 65 and over population represented 15.3 percent
of the total.
Turning to the expenditure side of the General Fund in Fiscal Year 2017, net
expenditures are currently estimated to be $181.6 million below the budget plan.
Through June of Fiscal Year 2017 (not inclusive of ongoing accrual activity),
year-to-date expenditures were trending 1.3 percent below last fiscal year.
Notably, state General Fund payroll is running almost 7 percent below last
year?s level and general agency operating expenditures were down by over 10
percent. Higher education also posted notable decreases from the prior year
Connecticut?s overall budget performance is ultimately dependent upon the performance of the national and state economies.
Preliminary data for June of 2017 show that Connecticut added 7,000 jobs during the month to a level of 1,694,200, seasonally adjusted. The May preliminary job addition numbers were revised downward from a gain of 6,700 positions to a gain of 5,600 jobs. Over the past twelve month period ending in June, the state has posted 15,400 new payroll jobs. During the last period of economic recovery, employment growth averaged over 16,000 annually.
Average hourly earnings at $30.67, not seasonally adjusted, were up $0.63, or 2.1 percent from the June 2016 estimate. The resultant average Private Sector weekly pay amounted to $1,030.51, up $21.17, or 2.1 percent higher than a year ago.
The 12-month percent change in the Consumer Price Index for All Urban Consumers (CPI-U, U.S. City Average, not seasonally adjusted) in June 2017 was 1.6 percent.
According to a July 25th report from CT Realtors, the sale of single-family residential homes in Connecticut increased by 6.4 percent in June 2017 from the same month a year earlier. The median sales price of a home also increased 1.8 percent to $280,000. The sale of townhouses and condominiums in the state posted an increased by 8.9 percent in June 2017. The median price was up 8.8 percent to $185,000.
Nationally, existing-home sales in June increased 0.7 percent from June of last year. The median price of a home in June was $263,800.
Real gross domestic product increased at an annual rate of 2.6 percent in the second quarter of 2017. In the first quarter, real GDP increased 1.2 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 unassigned fund balance in the General Fund was a negative $998.9 million as of June 30, 2016.
Sincerely,
Kevin Lembo
State Comptroller
To view the data in Excel format, click here:
General Fund: A-D
Transportation Fund: E-H