September 4, 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 July 31, 2018.
The Office of Policy and Management (OPM) is projecting that the General Fund will end Fiscal Year 2019 with a surplus of $137.9 million. This represents a $127.4 million improvement from the $10.5 million operating balance built into the adopted budget for FY 2019. My office is currently projecting that the General Fund remains approximately in balance at this early stage of the fiscal year for reasons explained below.
The increase in OPM's projected surplus is largely due to strong revenue collections in FY 2018, which formed the basis of OPM's updated revenue forecast for FY 2019. Net improvements in revenue totaled $162.9 million and were offset by $35.5 million in additional net expenditure requirements. On the revenue side, OPM increased its estimates for the withholding portion of the income tax (+$96.9 million) and the Sales and Use Tax (+$58.3 million). Other revenue changes resulted in a net positive improvement of $7.7 million. In addition, OPM revised its forecast for the estimated and finals portion of the income tax by $84.9 million. However, this additional amount, if realized, would be transferred to the Budget Reserve Fund due to the statutory revenue volatility cap.
OPM is projecting that the Special Transportation Fund will end Fiscal Year 2019 operations with a balance of $284.0 million, a $56.8 million increase over the FY 2019 budget plan. Higher revenue estimates are responsible for the change, including a $50.2 million increase in the Oil Companies tax due to higher oil prices, and a $5.7 million improvement in interest income. The Office of the State Comptroller (OSC) is in general agreement with OPM's Transportation Fund forecast. I should also note that an updated fund balance for the Transportation Fund will be available in next month's financial statements, which will reflect the FY 2018 year-end expenditure accruals being made in accordance with GAAP-based budgeting.
The following analysis of the financial statements furnished by OPM is provided pursuant to Public Act 17-2 June Special Session, Section 713.
As noted above, the Office of the State Comptroller is projecting that the General Fund is currently in balance for FY 2019. My office believes that generally positive revenue trends, especially in the withholding portion of the income tax and the Sales and Use Tax, are enough to offset the additional net expenditure requirements OPM has identified beyond the budget plan.
However, OSC would need to see a continuation of strong collection trends before it makes specific changes its revenue forecast. For example, mid-September is the first significant collection period for estimated payments for both the income tax and for the Corporations Tax. Job and wage growth will continue to have a substantial impact on withholding receipts as the fiscal year progresses. Therefore, more meaningful data will be available in the weeks and months ahead to inform changes to the revenue schedule if required.
Connecticut's overall budget results are ultimately dependent upon the performance of the national and state economies. Recent economic indicators include the following trends.
Department of Labor (DOL) reported preliminary data showing Connecticut lost 1,200 net jobs in July, to a level of 1,696,800, seasonally adjusted. In addition, June's originally-released job growth of 6,100 was revised down by 800 to a gain of 5,300 jobs over the month. July's job loses followed two consecutive months of gains. The largest monthly job losses in July were in trade, transportation & utilities (-1,300), professional & business services (-900), other services (-600) and financial activities (-400). The sectors that gained the most jobs in July were leisure & hospitality (+1,600), education & health services (+400) and construction (+400).
Over the year, DOL reported that nonagricultural employment in the state grew by 16,600 jobs on a seasonally-adjusted basis with construction and manufacturing remaining the fastest growing sectors of the labor market.
Connecticut's unemployment rate is estimated at 4.4 percent in July, unchanged from June 2018 and down two-tenths of point from a year ago when it was 4.6 percent. Nationally, the unemployment rate was 3.9% in July 2018, down one-tenth of a point from June.
Connecticut has now recovered 86.1 percent (102,600 payroll job additions) of the 119,100 seasonally adjusted jobs lost in the Great Recession (3/08-2/10). The job recovery is into its 101st month and the state needs an additional 16,500 jobs to reach an overall employment expansion.
In a July 24th report, the Bureau of Economic Analysis (BEA) released Real Gross Domestic Product (GDP) results by state for the first quarter of 2018. Connecticut experienced a seasonally adjusted annual growth rate of 1.6 percent, which ranked 23rd in the nation overall. This growth rate was somewhat slower than the national average of 1.8 percent. However, Connecticut was second only to Vermont in growth among the New England states for the period. BEA data indicated the sectors that contributed most to Connecticut's growth in the first quarter of 2018 were real estate and rental & leasing (+0.43%), finance & insurance (+0.42%), and information (+0.27%).
In its August 7th release, Berkshire Hathaway HomeServices reported results for the Connecticut housing market for July 2018 compared with July 2017. Sales of single family homes grew 2.16 percent, while the median sale price rose 5.59 percent. New listings decreased slightly by 0.65 percent and the median list price increased by 5.42 percent to $289,900 from a year ago. Average days on the market grew 29.51 percent in July 2018 compared to the same month in the previous year (79 days on average, up from 61 days). Finally, the list to sell price rose slightly to 97.9 percent, compared with 97.6 percent a year ago.
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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