Office of the Comptroller letterhead

May 2, 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 March 31, 2022. The Office of the State Comptroller (OSC) is projecting the General Fund will end Fiscal Year 2022 with a $2.1 billion surplus, a $381 million increase from last month’s projection, and the Special Transportation Fund will end Fiscal Year 2022 with a $319.1 million surplus, a $27.8 million increase from last month.

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 the State Comptroller is in general agreement with OPM’s General Fund and Special Transportation Fund projections which reflect the consensus revenue forecast reached with the Office of Fiscal Analysis (OFA) on May 2, 2022. OPM projected that the General Fund will end Fiscal Year 2022 with a surplus of $2.1 billion and the Special Transportation Fund will end Fiscal Year 2022 with a surplus of $319.1 million.

The consensus revenue forecast projected General Fund revenues are now $56 million higher than estimated by OPM on April 20 for a total improvement of $353.5 million over last month. Several revenue accounts have exceeded their target including the Pass-Through Entity Tax, the Withholding portion of the Personal Income Tax, the Sales and Use Tax, and Rents, Fines and Escheats. Due to the increased collections in certain volatile revenue streams (Pass-Through Entity Tax, Estimated and Finals), an additional $1.7 million is required to be transferred from the General Fund to the Budget Reserve Fund pursuant to Connecticut General Statutes Section 4-30a. Federal Grants were also revised downward by a net $115.5 million due to a shift in the timing of reimbursements.

The net $15.9 million decrease in General Fund expenditures is based on a net $4 million in additional requirements offset by $19.9 million in lapses. The net $4 million in additional requirements is due to an increase in the adjudicated claims account within my office offset by a decrease in additional requirements due to the Department of Administrative Services purchase of COVID-19 test kits which are expected to be reimbursed by the Federal Emergency Management Agency (FEMA). This is offset by a net $19.9 million in estimated lapses, the largest of which is within the Department of Housing due to slower than anticipated rollout of the Rental Assistance Program. Several state agencies have increased lapses due to the impact of the pandemic reducing caseloads and service utilization and increasing position vacancies.

The $27.8 improvement in the Special Transportation Fund (STF) is based on a $27.5 million improvement in revenue projections due to the Oil Companies tax and increased lapses within the Department of Transportation and OSC’s fringe benefit accounts due to increased retirements. Current projections would leave a positive STF balance of $560.2 million on June 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, which represents the statutory threshold of 15 percent. Adding the anticipated revenue volatility transfer of $2.67 billion and the projected FY 2022 surplus of $2.1 billion would bring the BRF balance to $7.9 billion or 37 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 $4.7 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. labor market remains tight with high demand for labor and record job openings. Overall, the U.S. added 431,000 jobs in March as the unemployment rate dropped to 3.6%. Jobless claims and long-term unemployed numbers have fell considerably reflecting figures seen before the pandemic. Additionally, five industry sectors have gained jobs above pre-pandemic levels. Connecticut added 4,600 jobs in March gaining momentum back after the Omicron-related dips in December and January. The state’s unemployment rate fell to 4.6% in March while average jobless claims hit an all-time low.

Inflation grew at the fastest pace in 40 years coming in at an annual rate of 8.5% in March. The Federal Reserve is expected to continue to increase interest rates to tame inflationary pressure while attempting to avoid triggering a recession. The stock market plunged in April after a small recovery in March amid hawkish comments from the Federal Reserve and continued uncertainty due to the Russian invasion of Ukraine. These factors contributed to a slight decrease in consumer confidence in April.

Gross Domestic Product decreased at an annual rate of 1.4% in the first quarter of 2022 due to the U.S. trade deficit and reduced private and government spending. However, consumer spending for both goods and services remained strong indicating healthy demand coupled with higher prices.

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 June 30, 2021.

If you have any questions on this report, please do not hesitate to contact me.

Sincerely,
Natalie Braswell signature
Natalie Braswell
State Comptroller


Supporting documents

  1. General Fund (Exhibits A-D)
  2. Transportation Fund (Exhibits E-H)