November 1, 2021
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 September 30, 2021.
The Office of Policy and Management (OPM) is projecting that the General Fund will end Fiscal Year 2022 with a surplus of $482.3 million, an increase in $207 million from last month. The projected surplus represents 2.4 percent of net General Fund appropriations. The change is due to a combination of revenue improvements totaling $126.2 million and lower anticipated net expenditures of $80.8 million.
OPM is projecting that the Special Transportation Fund (STF) will end Fiscal Year 2022 operations with a $183.0 million surplus, $15.1 million higher than last month due to an improved forecast for the Sales and Use Tax. The current projections would leave a positive STF balance of $424.1 million on June 30, 2022.
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 General Fund and Transportation Fund surplus projections through September 30, 2021. I should note these estimates are subject to change as the Office of Fiscal Analysis and OPM are scheduled to release an updated consensus revenue forecast on November 10, 2021.
For the General Fund, OPM raised its estimate for Sales and Use Tax revenue by $96.2 million due to stronger than expected first quarter receipts. My office is seeing the same trend. Even with this improvement, the FY 2022 budget target for the sales tax is still 8.8 percent or $421.9 million below realized amounts from FY 2021, indicating potential for more upside growth in the months ahead. At the same time, it is still relatively early in the fiscal year. Other factors could have a negative impact on the sales tax including the expiration of pandemic-related federal stimulus support and slowing of GDP growth. In addition, despite modest improvement in October, consumer confidence has been generally lower in recent months, which can have a dampening effect on consumer spending. Therefore, additional positive trend information is needed to justify raising the sales tax revenue target further. The other increase in the General Fund revenue forecast involves an additional quarter of enhanced Federal reimbursements due to the extension of the public health emergency through the quarter ending March 31, 2022.
On the expenditure side of the budget, OPM reduced projected expenditures by a net $80.8 million, again primarily due to an additional quarter of enhanced Federal Medicaid reimbursements, which lowers expenditures for the General Fund portion of these costs.
The statutory revenue volatility cap requires receipts above a certain level to be transferred to the Budget Reserve Fund (BRF). For FY 2022, the cap is just over $3.5 billion for estimated and final income tax payments and revenue from the Pass-through Entity (PET) tax. The balance in the BRF presently stands at $3.11 billion, the statutory threshold of 15 percent. Adding the anticipated revenue volatility transfer of $969.2 million and the projected FY 2022 surplus of $482.3 million would bring the BRF balance to $4.56 billion or 22 percent of net General Fund appropriations for FY 2022. If projections hold, by statute the State Treasurer would decide what is in the best interest of the state, whether to transfer the excess balance above the threshold to the State Employee Retirement Fund (SERF) or to the Teachers' Retirement System (TRS) to reduce unfunded pension liability.
Connecticut’s budget results are ultimately dependent upon the performance of the national and state economies. Recent economic indicators include the following trends:
National job growth disappointed in September after a summer of large gains. The Bureau of Labor Statistics (BLS) reported the U.S. added 194,000 jobs in September after adding 366,000 jobs in August and over one million in July. This marks nine straight months of gains, but recent growth is much lower than expected. Job gains occurred in leisure and hospitality (+74,000), professional and business services (+60,000), retail trade (+56,000), and information (+32,000). Sectors that lost jobs include government (-123,000), other services (-16,000), and education and health services (-7,000). Nonfarm payroll employment is up by 17.4 million since April 2020 but is down by 5 million, or 3.3 percent, from its pre-pandemic level in February 2020.
In August, in a trend labeled the “Great Resignation,” a record high 4.3 million people voluntarily left their jobs, representing 2.9 percent of the U.S. workforce. Industries with the highest so called quits rate included public facing sectors such as leisure and hospitality, specifically accommodation and food services, and trade, transportation, and utilities, primarily retail trade. Analysts noted there are a variety of reasons for this trend including low wages, concerns about the Delta variant of COVID-19, employee burn out, decisions to retire early, difficulty finding or affording childcare and, in some cases, leaving for a better job opportunity.
On October 21, the Connecticut Department of Labor (DOL) reported the preliminary Connecticut nonfarm job estimates for September 2021 from the business payroll survey administered by the U.S. Bureau of Labor Statistics (BLS). DOL’s Labor Situation report showed the state gained 4,700 net jobs (0.3%) in September to a level of 1,609,700 jobs seasonally adjusted. This follows job growth of 3,000 positions in August and represents nine consecutive months of employment gains. DOL reported Connecticut has now recovered 70.4 percent of the 292,400 jobs lost in March and April 2020 due to the COVID-19 lockdown.
On a month-to-month basis, DOL noted that seven of the ten major industry sectors experienced improvement while three declined. Trade, transportation, and utilities lead the way (+3,600 jobs), followed by construction and mining (+1,700), and education and health services (+1,100). The sectors that lost jobs include other services (-1,400), professional and business services (-1,100), and government (-200) which includes all federal, state, and local employment, including public education and Native American casino employment located on tribal reservation land.
On a year-over-year basis, seven sectors experienced gains and three experienced losses. The leisure & hospitality sector, hardest hit during the pandemic, experienced the largest gains (+12,900), growing 10.7 percent from a year ago. Information, financial activities, and government lost jobs over the same period. According to BLS, in August, Connecticut’s quits rate was 2.2 percent, with 35,000 people leaving their jobs in one month. This is one of the lowest rates across the country and within the Northeast region.
According to the Bureau of Economic Analysis (BEA), U.S. Real Gross Domestic Product (GDP) increased at an annual rate of 2.0 percent in the third quarter of 2021. This follows a 6.7 percent real GDP increase in the second quarter. BEA noted the deceleration in real GDP growth in the third quarter was led by a slowdown in consumer spending, reflecting the continued economic impact of the COVID-19 pandemic. A resurgence of COVID-19 cases resulted in new restrictions and delays in the reopening of establishments in some parts of the country. Government assistance payments in the form of forgivable loans to businesses, grants to state and local governments, and social benefits to households all decreased for the period. Analysts pointed to supply chain bottlenecks as partially responsible for the slowdown in GDP growth for the quarter.
On October 1, BEA reported state level GDP data for the second quarter of 2021. Real gross domestic product (GDP) increased in all 50 states and the District of Columbia in the second quarter of 2021, as real GDP for the nation increased at an annual rate of 6.7 percent. The percent change in real GDP in the first quarter ranged from 9.7 percent in Nevada to 1.8 percent in the Alaska. Connecticut’s GDP growth rate of 5.9 percent ranked 29th in the nation and came in below the New England regional average of 7.1 percent. The Connecticut industries experiencing the largest gains on a percentage basis were accommodation and food services (+1.36%), information (+1.26%), and professional, scientific, and technical services (+0.98%).
Consumer spending is the main engine of the U.S. economy, accounting for more than two-thirds of total economic output. According to the U.S. Department of Commerce, advance retail sales were $625.4 billion in September, up 0.7 percent from August. Sectors with the biggest gains included sporting goods, hobby, musical and bookstores (+3.7%), general merchandise stores (+2.0%), miscellaneous store retailers (+1.8%), and gasoline stations (+1.8%). Sectors that experienced a step back included health and personal care stores (-1.4%) and electronics and appliance stores (-0.9%). Core retail sales increased 0.8 percent in September. This category excludes automobiles, gasoline, building materials and food services.
The U.S. consumer confidence index (CCI) is published by the Conference Board and looks at U.S. consumer’s views of current economic conditions and their expectations for the next six months. The Conference Board reported that the CCI now stands at 113.8, up from September’s revised reading of 109.8. This marks the first increase after three months of decline, as consumers’ anxiety about the spread of the Delta variant eased and concerns about inflation remained muted.
Connecticut’s housing market appeared to slow down in September as sales decreased, price growth abated, and inventory lagged. Berkshire Hathaway HomeServices reported year-over- year sales of single-family homes decreased 20.5 percent and new listings were down 24.16 percent. Median sales price increased by 4.48 percent and median list price increased by 1.48 percent. However, average sales price decreased 1.54 percent and average list price decreased 3.55 percent. Average days on the market decreased to 38 days from 61 a year ago. On average, sales prices came in above list prices, with a list/sell price ratio of 101.4 percent. Inventory sits at a 1.8-month supply at the current sales pace, down from last month and last year.
For the U.S. housing market, the National Association of Realtors (NAR) reported existing-home sales increased 7 percent to a seasonally adjusted annual rate of 6.29 million in September. All four major U.S. regions had month-over-month sales increases. However, year-over-year sales dropped 2.3 percent from a year ago (6.4 million in September 2020).
NAR reported the median existing-home price for all housing types was $352,800, up 13.3 percent from last year. This price growth marks 115 straight months of year-over-year gains dating back to March 2012. All regions of the country experienced price growth from a year ago. The largest regional gains on a percentage basis were in the South (+14.8%), followed by the Northeast (+9.2%), the Midwest (+9.1%), and the West (+8.3%).
My office also issues a Comprehensive Annual Financial Report as an accounting supplement to the budgetary report. This annual report 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. I will report the new unassigned fund balance figure for Fiscal Year 2021 no later than February of 2022 in accordance with U.S. Securities and Exchange Commission (SEC) requirements.
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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