June 3, 2019
The Honorable Ned Lamont
Governor of the State of Connecticut
Dear Governor Lamont:
I write to provide you with financial statements for the General Fund and the Transportation Fund through April 30, 2019.
The Office of Policy and Management (OPM) is projecting that the General Fund will end Fiscal Year 2019 with a surplus of $571.8 million, a decrease of $9.1 million from last month’s estimate. The change in OPM’s surplus projection is due to an increase in net expenditures. OPM noted that its estimates include the impact of the transfers approved at the May 4th meeting of the Finance Advisory Committee.
OPM is projecting that the Special Transportation Fund (STF) will end Fiscal Year 2019 operations with a $57.3 million surplus, a $1.8 million decrease from its April estimate. The change is the result of higher anticipated net spending requirements. This would leave a positive STF balance of $303.0 million at year-end.
The following analysis of the financial statements furnished by OPM is provided pursuant to Connecticut General Statutes (CGS) Section 3-115.
The Office of the State Comptroller (OSC) is in general agreement with OPM's surplus projections for the General and Transportation Funds. Both contain relatively modest adjustments from last month and continue to reflect the April 30th consensus revenue forecast reached between OPM and the Office of Fiscal Analysis.
The statutory revenue volatility cap requires revenues above a certain threshold to be transferred to the Budget Reserve Fund (BRF). For FY 2019, the cap is $3,196.8 million for estimated and final income tax payments and revenue from the Pass-through Entity tax. If current projections are realized, an $885.5 million volatility transfer would be made to the BRF.
The current balance of the BRF is $1,185,259,428. Notwithstanding any budgetary or legislative changes in the final days of the legislative session, adding the estimated $885.5 million volatility transfer and the projected FY 2019 surplus of $571.8 million would bring the year-end balance of the BRF to $2.64 billion. This would represent approximately 13.9 percent of FY 2019 General Fund expenditures. This result, if achieved, would be a significant improvement over the recent past and move the BRF closer to the statutory target of 15 percent.
A strong Budget Reserve Fund is an essential financial management tool for Connecticut. In the past, when economic downturns struck, state government was unprepared and had to make difficult policy choices in the midst of a crisis. The state was forced to raise taxes and cut spending at the worst possible time – just when the need for essential state services was growing. Maintaining financial discipline and a strong BRF balance will help protect against future economic downturns.
Connecticut's budget results are ultimately dependent upon the performance of the national and state economies. Recent economic indicators include the following trends.
The state Department of Labor (DOL) reported preliminary data showing Connecticut gained 300 net jobs in April, to a level of 1,695,300, seasonally adjusted. At the same time, March’s originally-released job loss of 1,300 was revised upward by 1,600 to a gain of 300 jobs over the month. DOL noted that the small April gains and the March jobs revision have driven the calendar 2019 employment growth into positive territory. Over the year, DOL reported that nonagricultural employment in the state grew by 11,600 jobs on a seasonally-adjusted basis. Construction, information and leisure & hospitality were the fastest growing sectors in the state’s labor market on a percentage basis. The other services and professional & business services sectors experienced job losses.
Connecticut's unemployment rate stood at 3.8 percent in April, down one-tenth of a point from the revised March figure and down five-tenths of a point from a year ago when it was 4.3 percent. Nationally, the unemployment rate was 3.6 percent in April 2019, down two-tenths of a point from March’s revised estimate. Connecticut has now recovered 81.9 percent (98,500 payroll job additions) of the 119,100 seasonally adjusted jobs lost in the Great Recession (3/08-2/10). As of April, the job recovery was into its 111th month and the state needed an additional 21,800 new net jobs to reach an overall employment expansion.
According to a May 30th report from the Bureau of Economic Analysis (BEA), U.S. Real Gross Domestic Product grew at an annual rate of 3.1 percent in the first quarter of 2019. This is second estimate for the quarter, down slightly from the advance estimate of 3.2 percent. The first quarter results were better than many economists expected and represented an improvement over the fourth quarter 2018 GDP growth of 2.2 percent.
Despite low unemployment and a growing national economy, a recent study shows too many families are still being left behind financially. The Report on the Economic Well-Being of U.S. Households in 2018 by the Federal Reserve Board of Governors found that four in ten adults are financially vulnerable and would have difficulty handling an emergency expense as small as $400. Unpredictable work schedules and not enough work hours contribute to financial stress. One-fifth of adults surveyed had major, unexpected medical bills to pay in the prior year and one-fourth skipped necessary medical care in 2018 because they were unable to afford the cost. The report concluded that many families have experienced substantial gains in the past five years; nevertheless, another year of economic expansion did little to narrow the persistent economic disparities categorized by race, education, and geography.
Berkshire Hathaway HomeServices reported results for the Connecticut housing market for April 2019 compared with April 2018. Sales of single-family homes fell 4.85 percent, while the median sale price was largely flat, rising by just 0.39 percent. New listings declined by 1.97 percent in Connecticut and the median list price remained unchanged at $259,900 from a year ago. Average days on the market decreased 6.19 percent in April 2019 compared to the same month in the previous year (91 days on average, down from 97 days).
For the U.S. housing market, there was a small decline in existing-home sales in April, following a drop in March, according to the National Association of Realtors (NAR). April sales were down 0.4 percent from March to a seasonally adjusted annual rate of 5.19 million. Two of the four major U.S. regions had a slight decrease in sales, while the West saw growth and the Midwest essentially experienced no change. Compared with a year ago, U.S. sales were down 4.4 percent from a year ago (5.43 million in April 2018). One factor, according to NAR, is that high levels of student debt continue to hinder millennial homebuyers.
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 $241.1 million as of June 30, 2018.
If you have any questions on this report, please do not hesitate to contact me.
To view the data in Excel format, click here:
General Fund: A-D Transportation Fund: E-H
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