January 2, 2018
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 November 30, 2017.
The Office of Policy and Management (OPM) is projecting that the General Fund will end Fiscal Year 2018 with a deficit of $222.5 million. My office is currently projecting a slightly higher deficit of $224.0 million for reasons explained below. The projected operating results included in the OPM financial statements forecast a deficit greater than one percent of net General Fund appropriations. As required by Connecticut General Statutes, Section 4-85, your office submitted a deficit mitigation plan to the Connecticut General Assembly on December 13, 2017 that is awaiting action by the legislature.
OPM is projecting the Transportation Fund will end Fiscal Year 2018 operations with a balance of $141.1 million, no change from last month's forecast.
The following analysis of the financial statements furnished by OPM is provided pursuant to Public Act 17-2 June Special Session, Section 713.
The difference in the Office of the State Comptroller's (OSC) higher deficit forecast is on the expenditure side of the budget. My office is projecting a $21.5 million deficiency in the non-appropriated Adjudicated Claims account. This account is responsible for paying SEBAC v. Rowland claims and related attorney's fees, along with other negotiated settlements. Recently a new settlement for $1.5 million was approved, which represents the difference in OSC's estimate versus OPM?s. Due to the unpredictable nature of this account, my office will closely monitor Adjudicated Claims activity and revise these estimates as needed in the coming months.
The revenue forecast included in the General Fund deficit estimate largely reflects the November consensus forecast. One difference is a $16.7 million reduction in Federal grant revenue to account for the delay in the implementation of the Medicare Savings Program until April 2018. My office is in general agreement with these estimates. More up-to-date information will be available after the next consensus forecast is issued on January 16th. The complete General Fund revenue schedule is attached in Exhibit C.
My office continues to monitor personal income tax collections closely.
Income tax receipts have underperformed budget targets through November,
especially the estimated payments portion of the tax. There is also a
significant amount of uncertainty regarding the impact that recently enacted
Federal tax changes will have on Connecticut. Tax professionals are anticipating
a short-term increase in estimated payments at the end of calendar 2017 as
residents seek to pre-pay taxes before the limits on the State and Local Tax
(SALT) deductions go into effect for the 2018 tax year. As of this writing,
December 2017 estimated and final payment collections have significantly
outpaced the prior year's December receipts on a month-over-month basis. As the
year progresses, state policy makers should be aware of the likely one-time
nature of this revenue.
Federal tax changes - particularly the federal SALT deduction - will likely have long-term consequences for Connecticut. Even as Connecticut lags the nation in pace of economic growth, its already disproportionate federal tax burden will grow, forcing Connecticut to fund growth in other states at the expense of our own residents.
Connecticut pays more federal taxes per capita than any state in the nation - making it a so-called 'donor state', according to a recent report by Federal Funds Information for States (FFIS). While places like Mississippi, Alabama, West Virginia, New Mexico and the District of Columbia receive far more federal dollars than they pay, Connecticut receives only 87 cents back for every tax dollar sent to Washington, D.C. (ranking Connecticut 46th in what it receives in per-capita federal spending). New federal tax changes will now worsen this disparity and likely have long-term consequences for states like Connecticut, impairing the ability of Connecticut state and local governments to afford essential investments in infrastructure, education and workforce training that are necessary to drive economic growth.
These federal tax changes raise basic questions of fairness for high-income states like Connecticut and fly in the face of the tax bill?s stated goals.
On the economic front, an ongoing area of concern is Connecticut?s lack of job growth. Preliminary data for November show that the state lost 3,500 net jobs during the month, falling to a level of 1,677,500, seasonally adjusted. October?s originally-released job loss of 6,600 was revised upward by the Bureau of Labor Statistics (BLS) to a loss of 6,200 for the month. In total, Connecticut has lost a total of 13,600 jobs since June and has experienced no job growth on a year-over-year basis for the period ending in November 2017.
Connecticut's unemployment rate for November rose by one-tenth of a point from last month and now stands at 4.6 percent. Nationally, the unemployment rate was 4.1 percent in October.
On a more positive note, Connecticut was recently ranked 10th in the nation in the 2017 State New Economy Index by the Information Technology and Innovation Foundation (ITIF). This index measures how closely the 50 state economies match the ideal structure of the innovation-driven new economy. According to ITIF, the new economy is characterized by strength in knowledge jobs, participation in globalization and the digital economy, economic dynamism, and innovation capacity. Connecticut was included in the top ten for exceling in traded services, employing a highly educated workforce, receiving high amounts of foreign direct investment, and for the level of research and development activity.
Earnings in Connecticut continue to show only modest growth. November 2017 average hourly earnings at $31.01, not seasonally adjusted, were up $0.44, or 1.4 percent, from the November 2016 estimate. The resulting average private sector weekly pay amounted to $1,054.34, up $24.13, or 2.3 percent higher than a year ago. By comparison, the 12-month percent change in the Consumer Price Index for All Urban Consumers in November 2017 was 2.2 percent.
A December 20th report from the Bureau of Economic Analysis showed Connecticut personal income increasing at a quarterly rate of 0.6 percent between the second and third quarters of 2017. Based on these results, Connecticut ranked 36th nationally in personal income growth, just below the national average of 0.7 percent for the quarter. On an annualized basis, Connecticut?s income growth would be 2.2 percent, which is just keeping up with the general rate of inflation.
In its December 7th release, Berkshire Hathaway HomeServices reported results for the Connecticut housing market for November 2017 compared with November 2016. Sales of single family homes declined 2.81 percent. However, the median sale price rose 1.43 percent. New listings in Connecticut decreased by 2.61 percent and the median list price remained unchanged at $250,000. Average days on the market increased nearly 10.88 percent in November 2017 compared to the same month in the previous year.
My office also issues 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 $821.1 million as of June 30, 2017.
To view the data in Excel format, click here:
General Fund: A-D Transportation Fund: E-H
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