April 1, 2022
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 February 28, 2022.
The Office of the State Comptroller (OSC) is projecting the General Fund will end Fiscal Year 2022 with a $1.76 billion surplus, a $245 million increase from last month, and the Special Transportation Fund will end Fiscal Year 2022 with a $291 million surplus, a $16 million increase from last month. It is important to note the upcoming consensus revenue forecast for Apr. 30 could have a material impact on these projections going forward.
The following analysis of the financial statements furnished by the Office of Policy and Management (OPM) is provided pursuant to Connecticut General Statutes (CGS) Section 3-115.
The Office of Policy and Management projected on Mar. 18 that the General Fund will end Fiscal Year 2022 with a surplus of $1.77 billion and the Special Transportation Fund will end Fiscal Year 2022 with a surplus of $381.3 million. The differences between my office and OPM’s surplus projections are related to recent changes in policy as outlined below.
The $245 million improvement in the General Fund surplus is based on a $197.5 million upward revision in revenue combined with $47.7 million in lower expenditures. Several revenue accounts are exceeding their target including the Sales and Use Tax, Corporation Tax, and the Real Estate Conveyance Tax increasing revenue projections up by $200 million. This upward revision in revenue is offset by $2.5 million due to the passage of House Bill 5501 on Mar. 24 which adds a second sales tax free week in April.
Estimated lapses have increased in several General Fund accounts, leading to $47.7 million in lower net projected spending. The largest change is within the Personal Services account for the Department of Corrections due to expenditure offsets from the Coronavirus Relief Fund for allowable public safety costs. The fringe benefits accounts administered by my office, including the active employee’s health services account, have increased lapses due to growing retirements. OSC is also anticipating an additional requirement of $9 million in the adjudicated claims account.
The $16 million improvement in the Special Transportation Fund (STF) is based on a net $10 million upward revision in revenue combined with $6.4 million in lower expenditures. The Oil Companies Tax is performing well, increasing projected revenue by $100 million due to the recent increase in oil prices. This revenue increase in the STF is offset by the passage of House Bill 5501 that suspends Connecticut’s excise tax on gasoline from Apr. 1 to Jun. 30, 2022, decreasing Motor Fuels tax revenue by approximately $90 million.
Estimated lapses have increased in several STF accounts, leading to $6.4 million in lower net projected spending. The largest change was a net lapse in Personal Services for the Department of Transportation due to vacancies. Current projections would leave a positive STF balance of $532 million on Jun. 30, 2022.
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 tax. The balance in the BRF presently stands at $3.11 billion, already surpassing the statutory threshold of 15 percent. Adding the anticipated revenue volatility transfer of $969.2 million and the projected FY 2022 surplus of $1.76 billion would bring the BRF balance to $5.8 billion or 27 percent of net General Fund appropriations for FY 2023.
After the close of the fiscal year, since the 15 percent threshold has already been reached, no further transfers can be made to the BRF. If current projections hold, approximately $2.6 billion would be available to reduce unfunded pension liability and other types of debt. By statute, the State Treasurer decides what is in the best interest of the state, whether to transfer the excess balance as an additional contribution to the State Employee Retirement Fund or to the Teachers' Retirement Fund.
Connecticut’s budget results are ultimately dependent upon the performance of the national and state economies. Recent economic indicators include the following trends:
The U.S. added 678,000 jobs in February and the unemployment rate decreased to 3.8%. Connecticut added 6,300 jobs in February as the state unemployment rate dropped to 4.9%. Job growth in Connecticut in 2021 was larger than originally estimated, indicating a stronger statewide economy. Connecticut’s 2021 Q4 GDP growth rate of 7.7% ranked 12th in the nation, coming in above national growth and the New England regional average of 7.6%.
The U.S. started to feel effects from the Russian invasion of Ukraine this month, seeing higher commodity prices and a volatile stock market. Economists expect the price of food and energy to be impacted further by the conflict due to trade interruptions. The Federal Reserve raised interest rates by a quarter percentage point and penciled in six more rate increases this year. This move follows inflation coming in at an annual rate of 7.9% in February—the highest in 40 years. Despite this, consumer confidence increased this month with consumers remaining relatively confident about current business and labor market conditions but growing more pessimistic about the future.
My office also issues an Annual Comprehensive 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 $660,749 as of Jun. 30, 2021.
If you have any questions on this report, please do not hesitate to contact me.
Sincerely,
Natalie Braswell
State Comptroller