October 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 August 31, 2021.
The Office of Policy and Management (OPM) is projecting that the General Fund will end Fiscal Year 2022 with a surplus of $275.3 million, no net change from last month. This represents 1.3 percent of net General Fund appropriations. Since last month, OPM has adjusted expenditure estimates in terms of deficiencies and lapses, but in aggregate they net to zero. For example, OPM is reporting a $10 million deficiency in the non-appropriated Adjudicated Claims account. However, this shortfall is offset by a projected $8 million lapse in the retired teacher health services account due to lower premiums. In addition, OPM is projecting a $2 million lapse in the board and care accounts administered by the Department of Children and Families. The ongoing impact of the pandemic has reduced caseloads and service utilization for this program. My office agrees with these assessments but is forecasting a General Fund surplus that is lower by $8.7 million for the reasons described below.
OPM is projecting that the Special Transportation Fund (STF) will end Fiscal Year 2022 operations with a $167.9 million surplus, consistent with the adopted budget plan. The current projections would leave a positive STF balance of $409.0 million on June 30, 2022. My office is in general agreement with OPMís STF forecast.
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 projecting a General Fund surplus of $266.6 million, $8.7 million less than OPM. The difference is on the expenditure side of the budget, with OSC estimating a $18.7 million deficiency in the non-appropriated Adjudicated Claims account, which draws on resources of the General Fund. The increase in the shortfall is related to additional payouts for the SEBAC v. Rowland settlement. The revenue schedule remains unchanged from last month. First quarter results will be reported in next monthís letter and will provide a better indication of performance year-to-date.
I should also note it is still very early in the fiscal year and my projections will be refined and updated as more information becomes available in the coming months.
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 was just over $3.4 billion for estimated and final income tax payments and revenue from the Pass-through Entity (PET) tax. Prior to the close of FY 2021, the balance of the BRF was just over $3.03 billion. Adding the $1.24 billion volatility transfer brought the BRF total to $4.25 billion, or 20.5 percent of net General Fund appropriations for FY 2022. As a result, the BRF was $1.14 billion above the statutory 15 percent cap. According to CGS Section 4-30a (c)(1)(A), no further transfers will be made to BRF. Instead, the State Treasurer decides 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). Earlier this week the State Treasurer elected to transfer $903.6 million to TRS to reduce unfunded pension liability, with the remaining balance of $238.8 million going to SERF. In addition, once the audit of FY 2021 operations is complete and the General Fund surplus is confirmed, the $480.9 million surplus will be transferred to SERF to reduce unfunded service liability.
Connecticutís budget results are ultimately dependent upon the performance of the national and state economies. Recent economic indicators include the following trends:
National job growth slowed down in August, after months of large gains. The Bureau of Labor Statistics (BLS) reported the U.S. added 235,000 jobs in August after adding 1,053,000 in July and 962,000 in June. Job gains occurred in professional and business services (+74,000), transportation and warehousing (+53,000), private education (+40,000), and manufacturing (+37,000). Nonfarm payroll employment is up by 17 million since April 2020 but is down by 5.3 million, or 3.5 percent, from its pre-pandemic level in February 2020.
In August, the U.S. unemployment rate declined by 0.2 percentage points to 5.2 percent, which is still higher than pre-pandemic levels (3.5%). The number of unemployed people decreased to 8.4 million, following a large decrease in July. The number of long-term unemployed people, those jobless for 27 weeks or more, decreased by 246,000 to 3.2 million, and account for 37.4 percent of the total unemployed in August.
On September 16th, the Connecticut Department of Labor (DOL) reported the preliminary Connecticut nonfarm job estimates for August 2021 from the business payroll survey administered by the U.S. Bureau of Labor Statistics (BLS). DOLís Labor Situation report showed the state gained 3,300 net jobs (0.2%) in August to a level of 1,605,300 jobs seasonally adjusted. This follows job growth of 11,100 positions in July and represents eight consecutive months of employment gains.
On a month-to-month basis, DOL noted that eight of the ten major industry sectors experienced improvement, or no change, while two experienced decline. Leisure and hospitality lead the way (+1,800 jobs), followed by professional and business services (+1,600), and manufacturing (+1,100). The sectors that lost jobs include education and health services (-1,200) and government (-2,200) which includes all federal, state, and local employment, including public education and Native American casino employment located on tribal reservation land. The private sector added 5,500 jobs in August.
On a year-over-year basis, eight sectors experienced gains and two experienced losses. The leisure & hospitality sector, hardest hit during the pandemic, experienced the largest gains (+19,400 jobs), growing 17 percent from a year ago. Information and financial activities both lost jobs over the same period. Connecticut reached its pandemic-related employment low in April of 2020. The stateís total payroll employment is now 55,800 positions higher than August 2020, representing an increase of 3.6 percent. Connecticut has now recovered 68.9 percent of the 292,400 jobs lost in March and April 2020 due to the COVID-19 lockdown. Connecticut's official unemployment rate stood at 7.2 percent in August, down from 7.3 percent a month earlier and 8.4 percent from a year ago.
According to a September 30th report from the Bureau of Economic Analysis (BEA), U.S. Real Gross Domestic Product (GDP) increased at an annual rate of 6.7 percent in the second quarter of 2021. This follows a 6.3 percent real GDP increase in the first quarter of 2021. BEA noted the second quarter results reflected the continued economic recovery, reopening of establishments, and continued government response related to the COVID-19 pandemic.
Consumer spending is the main engine of the U.S. economy, accounting for more than two-thirds of total economic output. On September 16th, the U.S. Department of Commerce reported that U.S. advance retail sales were $618.7 billion in August, up 0.7 percent from July. This result was better than expected as analysts anticipated the resurgence of COVID cases and ongoing supply chain issues would dampen sales. Consumer spending in 2021 has been quite unpredictable, swinging up and down month over month as consumers navigate a recovering economy and surges of new COVID-19 variants. As the summer ended, it appears demand may be shifting back to goods over services as spending on clothes, furniture, department stores and online shopping increased while food services and drinking places remained flat.
The Conference Board reported that the Consumer Confidence Index dropped in September for the third month in a row. The Index now stands at 109.3, down from Augustís revised reading of 115.2. Consumers expressed concerns about the continued spread of the Delta variant of COVID-19. The Conference Board noted that back-to-back monthly declines in confidence suggest consumers are growing more cautious and may curtail their spending going forward.
After months of strong results, August presented more of a mixed picture for Connecticutís housing market. Sales declined while prices continued to rise. Berkshire Hathaway HomeServices reported year over year sales of all property types decreased 12.05 percent in August and new listings were down 11.56 percent. At the same time, median sales price increased by 8.2 percent and median list price increased by 6.56 percent. Average days on the market decreased 45.31 percentó64 days in August 2020 compared with 35 days in August of 2021. On average, sales prices came in above list prices, with a list/sell price ratio of 101.8 percent.
For the U.S. housing market, the National Association of Realtors (NAR) reported existing-home sales decreased 2.0 percent to a seasonally adjusted annual rate of 5.88 million in August. All four of the major U.S. regions had month-over-month sales declines. Year-over-year sales dropped 1.5 percent from a year ago (5.97 million in August 2020).
NAR reported the median existing-home price for all housing types was $356,700, up 14.9 percent from August 2020 as prices increased in every region. Augustís national price growth marks 114 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 Northeast (+16.8%), followed by the South (+12.8%), the West (+11.4%), and the Midwest (+10.5%). One of the constraints in the market continues to be housing inventory, which was down 1.5 percent in August and 13.4 percent from a year ago.
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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