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March 2, 2020
The Honorable Ned Lamont
Governor of the State of Connecticut
State
Capitol
Hartford, Connecticut
Dear Governor Lamont:
I write to provide you with financial statements for the General Fund and the Transportation Fund through January 31, 2020.
The Office of Policy and Management (OPM) is projecting that the General Fund will end Fiscal Year 2020 with a deficit of $54.8 million, a reduction of $4.0 million from last month’s estimate. The change is due to an updated forecast, which lowered net expenditures through year-end.
OPM is projecting that the Special Transportation Fund (STF) will end Fiscal Year 2020 operations with a $1.2 million surplus, a modest $200,000 improvement from last month. The current projection would leave a positive STF balance of $321.4 million at year-end. My office is in general agreement with OPM’s Transportation Fund surplus projection.
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 currently projecting a General Fund deficit of $63.3 million for FY 2020, $8.5 million higher than OPM. OSC’s forecast continues to incorporate the January 15th consensus revenue forecast. Therefore, the difference with OPM is on the expenditure side of the budget.
My office is projecting a $45 million deficiency in the non-appropriated Adjudicated Claims account ($5 million above OPM’s estimate) largely due to timing as additional claims have been received since OPM’s most recent projection. This account is responsible for paying SEBAC v. Rowland claims and related attorney’s fees, along with other negotiated settlements. Due to the often-irregular spending patterns associated with this account, my office will continue to monitor Adjudicated Claims activity closely and revise these estimates as needed.
In addition, OSC is projecting a net deficiency of $23.9 million in the General Fund fringe benefit accounts ($3.5 million above OPM’s estimate). The variance with OPM is primarily due to higher anticipated expenditures for active health insurance and a smaller projected lapse in the employer Other Post Employment Benefit (OPEB) account.
The statutory revenue volatility cap requires receipts above a certain threshold to be transferred to the Budget Reserve Fund (BRF). For FY 2020, the cap is $3,294.2 million for estimated and final income tax payments and revenue from the Pass-through Entity tax. If current projections are realized, a $318.3 million volatility transfer would be made to the BRF.
The balance of the BRF presently stands at $2,505,537,507. Adding the estimated $318.3 million volatility transfer, less the projected FY 2020 deficit of $63.3 million would bring the year-end balance of the BRF to approximately $2.76 billion. This would represent 13.8 percent of net General Fund appropriations for FY 2021. In order to help protect against future economic downturns, Connecticut must maintain financial discipline and continue building the BRF balance to the statutory target of 15 percent.
Connecticut’s budget results are ultimately dependent upon the performance of the national and state economies. Recent economic indicators include the following trends:
Over the year ending in December 2019, the Connecticut Department of Labor (DOL) reported that nonagricultural employment in the state grew by 3,600 jobs on a seasonally adjusted basis. Education & health services, professional & business services and information were the fastest growing sectors in the state’s labor market on a percentage basis. The construction, trade, transportation & utilities and other services sectors experienced the largest job losses. Connecticut’s employment growth rate for the year was just 0.2 percent, second slowest in New England behind Vermont. By comparison, the New England region grew by 0.9 percent in 2019 on average. On March 13th, DOL is scheduled to release updated employment results for January 2020, along with new benchmarked job data for the 2019 calendar year.
Connecticut's unemployment rate stood at 3.7 percent in December, unchanged from the revised November figure and down one-tenth of a point from a year ago when it was 3.8 percent. Nationally, the unemployment rate was 3.6 percent in January 2020, up one-tenth of a point from December.
Connecticut has recovered 86.1 percent (103,600 payroll job additions) of the 120,300 seasonally adjusted jobs lost in the Great Recession (3/08-2/10). As of December, the job recovery was into its 118th month and the state needed an additional 16,700 new net jobs to reach an overall employment expansion. Within the job recovery numbers, DOL points out a significant distinction. The private sector has recovered more than the total jobs lost in the recession (107.1 percent), which means the remaining employment losses are from the government sector. This sector includes all federal, state and local government employment, including public education, and Native American tribal government.
On February 27th, the Bureau of Economic Analysis (BEA) released its second estimate of U.S. GDP results for both the fourth quarter and the full year for 2019. U.S. GDP increased by 2.1 percent in the fourth quarter of 2019, which was in line with economists’ expectations and matched the third quarter growth rate. For the full year, U.S. GDP increased by 2.3 percent in 2019, the slowest growth in three years. In 2017, for example, the U.S. economy grew 2.4 percent, followed by a 2.9 percent increase in 2018.March 3, 2020
Berkshire Hathaway HomeServices reported results for the Connecticut housing market for January 2020 compared with January 2019. Sales of single-family homes grew by 5.03 percent, with the median sale price increasing by 12.77 percent. New listings were down 2.88 percent in Connecticut, while the median list price rose 12.51 percent to $269,900. Average days on the market were up in January 2020 compared to the same month in the previous year (89 days on average compared with 85 days).
For the U.S. housing market, the National Association of Realtors (NAR) reported existing-home sales declined in January, continuing a fluctuating pattern of monthly increases and decreases. January sales declined 1.3 percent from December to a seasonally adjusted annual rate of 5.46 million. On the regional level, significant declines in the West region dragged down nationwide numbers. The other three major U.S. regions reported either marginal or no changes from the previous month. According to NAR, the median existing-home price for all housing types in January was $266,300, up 6.8 percent from January 2019 ($249,400), as prices increased in every region. January’s price increase marks 95 straight months of year-over-year gains. NAR reports that low mortgage rates are helping with affordability, but limits in supply are driving price growth nationwide.
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 $771.4 million as of June 30, 2019.
If you have any questions on this report, please do not hesitate to contact me.
Sincerely,
Kevin Lembo
State Comptroller
To view the data in Excel format, click here:
General Fund: A-D
Transportation Fund: E-H