OSC Letterhead

 May 3, 2021 

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 March 31, 2021.

The Office of Policy and Management (OPM) is projecting that the General Fund will end Fiscal Year 2021 with a surplus of $249.8 million, an increase of $69.2 million from its March 19th estimate and a $3.0 million increase from its letter of April 20th. This projected surplus represents 1.2 percent of net General Fund appropriations. The change from last month is primarily due to improvements in revenue trends as reflected in the April 30th consensus revenue forecast reached with the Office of Fiscal Analysis (OFA).

OPM is projecting that the Special Transportation Fund (STF) will end Fiscal Year 2021 operations with a $24.0 million deficit. This represents a $26.3 million improvement from last month, due to a combination of $5.5 million in lower anticipated expenditures and a net revenue increase of $20.8 million based on the new consensus forecast. The two most notable changes are an $8.8 million increase in the Sales and Use Tax and a $7.0 million increase in the Oil Companies Tax due to higher fuel prices and more consumption. The projected decrease in spending this month is in the Department of Transportationís Para-transit Program account, resulting from lower utilization related to the COVID-19 public health emergency. The current projections would leave a positive STF balance of $144.4 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 OPMís General Fund and Transportation Fund projections through March 31, 2021, which includes the results of the April 30th consensus revenue forecast.

Based on improving economic conditions and tax collection trends to date, my office believes the revised revenue estimates in the April 30th consensus forecast are reasonable. In total, net FY 2021 General Fund consensus revenues are $55.8 million or 0.28 percent higher than OPMís March 19th estimates. However, there are significant changes among the various revenue categories that net to this relatively small overall difference.

The most significant upward revisions from OPMís March 19th revenue projections include increases of $150 million for the withholding portion of the income tax, $100 million in estimated and final payments and $104.1 million for the Sales and Use tax. Recent job growth, continued strength in the financial markets, two rounds of federal stimulus payments as well as progress in reopening the economy all justify increases in these tax categories. The consensus forecast also raised targets for the Pass-Through Entity Tax and the Estate Tax by $50 million each reflecting improved year-to-date receipts. These positive changes were offset by higher tax refunds of $200 million, a $150.6 million decrease in federal grant revenue (primarily for delays in anticipated receipt of Medicaid reimbursements) and a higher volatility transfer to the Budget Reserve Fund (BRF). OPM noted the increase in tax refunds was in part related to the recent federal exemption for the first $10,200 of unemployment benefits enacted as part of the American Rescue Plan among other factors. Despite the overall improvements in the revenue picture, the current forecast still came in $375 million or 1.9 percent below initial targets contained in the original FY 2021 budget plan.

As noted, OSC concurs that the revised FY 2021 revenue targets are attainable. However, I would offer a cautionary note based on the delayed tax filing deadline of May 17, 2021. This adds some uncertainty to current projections and makes the May collection period more important than usual. In a typical year, approximately a billion dollars in final income tax payments are received in April and normally about 90 percent of these total payments have been processed by this point in the fiscal year. By comparison, this April only $300 million in final payments were received and the total year-to-date collections only represent about 40 percent of expected final payments for the full year. To achieve the year-end revenue target, another $700 to 750 million will need to be collected this month. Therefore, my office will continue to monitor these revenue collections closely and revise these projections as necessary.

The statutory revenue volatility cap requires receipts above a certain threshold to be transferred to the Budget Reserve Fund (BRF). For FY 2021, the cap is $3,404.9 million for estimated and final income tax payments and revenue from the Pass-through Entity (PET) tax. If current trends hold, the anticipated volatility transfer to the BRF will be $705.1 million.

The balance of the BRF presently stands at $3,012,941,643. Adding the estimated $705.1 million volatility transfer, plus the projected FY 2021 surplus of $249.8 million would bring the year-end balance of the BRF to just over $3.97 billion, or approximately 19.8 percent of net General Fund appropriations. Based on current law, any balances above the 15 percent threshold would result in additional contributions to either the State Employees Retirement Fund or the Teachersí Retirement Fund, depending on what the State Treasurer decides is in the best interest of the state. An additional contribution of that size towards unfunded pension liability would be a welcome reversal from decades of underfunding and create more budgetary flexibility in future years.

Connecticutís budget results are ultimately dependent upon the performance of the national and state economies. Recent economic indicators include the following trends:

The national jobs picture brightened in April as COVID-19 vaccination efforts accelerated and states began easing restrictions on businesses due to lower positivity rates. For the week ending April 24th, the U.S. Bureau of Labor Statistics (BLS) reported that seasonally adjusted initial claims totaled 553,000. While still very high by historical standards, this represented a decrease of 13,000 from the previous week's revised level of 566,000 and was the lowest since March 14, 2020, just before the pandemic shutdowns began.

As noted last month, despite improvements in the labor market, the problem of long-term unemployment remains a serious one. BLS reports the number of long-term unemployed (those jobless for 27 weeks or more) is 4.2 million. The number changed little from last month but is up by 3.1 million since February 2020 before the pandemic began. In March 2021, the long-term unemployed accounted for 43.4 percent of the total unemployed population. Long-term unemployment can have devastating consequences for individuals, families and communities and therefore addressing this area will need to be a priority as the state and nation continue to recover from the pandemic-related recession.

After Connecticut experienced historic levels of employment losses in March and April of 2020, the state began regaining jobs over the following six months. Later in the year, the employment recovery stalled as coronavirus infection rates rose. More recently new information released by the Connecticut Department of Labor (DOL) indicates the trend is starting to move in a better direction in the first quarter of 2021. On April 15th DOL reported the preliminary Connecticut nonfarm job estimates for March 2021 from the business payroll survey administered by the U.S. Bureau of Labor Statistics (BLS). DOLís Labor Situation report showed the state gained 5,400 net jobs (0.3%) in March to a level of 1,580,300 jobs seasonally adjusted. This follows job growth of 3,100 positions in February and represents three consecutive months of employment gains.

Connecticutís total payroll employment is now 103,000 positions below where it was a year ago, representing a decrease of 6.1 percent. The state has now recovered 176,400 of the 292,400 (or 60.3 percent) of the jobs lost in March and April 2020 due to the COVID-19 lockdown. Among the major job sectors, all ten experienced losses in March 2021 versus March 2020 levels. The leisure & hospitality sector remains particularly hard hit, losing nearly one-fifth of its jobs for the period, followed by the information and other services sectors. Connecticut's official unemployment rate stood at 8.3 percent in March 2021, down from 8.5 percent a month earlier and significantly higher than the 3.8 percent pre-pandemic rate a year ago. The U.S. jobless rate in February was 6.0 percent, down two-tenths of a point from the previous month, but up from the 4.4 percent rate in March 2020.

According to an April 29th report from the Bureau of Economic Analysis (BEA), U.S. Real Gross Domestic Product (GDP) increased at an annual rate of 6.4 percent in the first quarter of 2021, according to bureauís advance estimate. This follows a 4.3 percent real GDP increase in the fourth quarter of 2020. BEA noted the first quarter results reflected continued economic recovery, the reopening of business establishments and the impact of the federal governmentís ongoing response to COVID-19. The first-quarter growth in real GDP resulted from increases in consumer spending, business investment, government spending, and housing investment. These gains were partially offset by decreases in inventory investment and exports. Imports, a subtraction in the calculation of GDP, increased.

The Conference Board reported that the Consumer Confidence Index rose sharply again in April, representing the fourth consecutive increase and the highest level since February 2020. The Index now stands at 121.7, up from Marchís revised reading of 109.0. The result was better than analysts expected. Economists polled by The Wall Street Journal projected that the indicator would come in at 113.0. The rise in confidence was driven by an improving job market and the recent round of federal stimulus checks.

On April 15th, the Commerce Department reported that U.S. advance retail sales were $619.1 billion in March 2021, an increase of 9.8 percent from the previous month. Analysts noted the jump was larger than expected and reflected a combination of factors including a rebound from Februaryís weather-related spending drop, the release of $1,400 federal stimulus checks from the American Rescue Plan Act and expanded business re-openings associated with the COVID-19 vaccination roll-out. Increases in retail sales were broad-based in March, with all categories showing growth. Spending on sporting goods, up 23.5 percent, experienced the highest increase on a percentage basis, followed by clothing & accessories at 18.3 percent and motor vehicles & parts at 15.1 percent. In addition, building materials & garden supplies, electronics & appliance stores and general merchandise retailers all saw healthy gains. In a sign of expanded business reopening, sales at restaurants and bars were up 13.4 percent in March.

Continuing a trend from recent months, Berkshire Hathaway HomeServices reported another month of strong results for the Connecticut housing market in March 2021 compared with March 2020. Sales of single-family homes grew 13.28 percent, with the median sale price increasing by 22.22 percent. New listings were up 3.94 percent this March versus last year and the median list price was up 19.68 percent, which may indicate the lack of new inventory is helping to drive prices higher. Average days on the market decreased 32.94 percent in March 2021 compared to the same month in the previous year (57 days on average compared with 85 in February 2020). Finally, on average sales prices came in above list prices in March, with the sales to list price ratio of 100.4 percent.

For the U.S. housing market, the National Association of Realtors (NAR) reported existing-home sales fell in March 2021, marking the second consecutive monthly decrease. All major U.S. regions had month-over-month sales declines in March, but all four experienced year-over-year gains. Total existing-home sales decreased 3.7 percent from February to a seasonally adjusted annual rate of 6.01 million in March. Year-over-year sales were up 12.3 percent from a year ago (5.35 million in March 2020).

Nationally, home prices have remained strong during the pandemic. NAR reported the median existing-home price for all housing types in March was $329,100, up 17.2 percent from March 2020 ($280,700), as prices increased in every region. Marchís national price growth marks 109 straight months of year-over-year gains. All regions of the country experienced double-digit price growth from a year ago.

My office also issues a Comprehensive Annual Financial Report as an accounting supplement to the budgetary report. The annual report for FY 2020 was published on February 19, 2021 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 $1,072.2 million as of June 30, 2020.

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

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