August 1, 2022
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 June 30, 2022. Fiscal Year 2022 officially ended on June 30, 2022, which is followed by an adjustment period ending in August with audited results available by December 31, 2022. The Office of the State Comptroller (OSC) is projecting the General Fund will end Fiscal Year 2022 with a $1.27 billion surplus, a $231 million increase from last month’s projection, and the Special Transportation Fund will end Fiscal Year 2022 with a $212.9 million surplus, a $19.8 million increase from last month. OSC is in general agreement with OPM’s General Fund and Special Transportation Fund projections. 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 $231 million increase in the General Fund surplus is due to increased revenue by a net $157.8 million and decreased expenditures by a net $73.3 million. Several tax categories saw improvement over last month and $200 million of this revenue is subject to the revenue volatility cap and will not add to the General Fund surplus but increase the projected volatility transfer to the Budget Reserve Fund discussed below. The primary drivers of the $157.8 million increase in GF revenues are:
It should be noted that these projections include FY22 revenues that will continue to accrue through August 5 with approximately $1 billion in General Fund revenue still to be collected by fiscal year close.
The $73.3 million decrease in expenditures is due to a net increase in lapses from several accounts. FY22 net expenditures, including amounts carried forward to FY23, are projected to be $74.8 million below budget.
The $19.8 million increase in the Special Transportation Fund surplus is due to a $11.9 million increase in revenue and a $7.9 million decrease in expenditures. The $11.9 million increase in revenue is due to a $20.6 million increase in the sales and use tax offset by reductions in motor vehicles receipts and licenses, permits, and fees. The $7.9 million decrease in expenditures is due to increased lapses in several accounts.
It should be noted that these projections include FY22 revenues that will continue to accrue through August 5 with approximately $230 million in Special Transportation Fund revenue still to be collected by fiscal year close.
The statutory revenue volatility cap requires receipts from the Estimated and Final Income Tax payments and the Pass-through Entity Tax above a certain level to be transferred to the Budget Reserve Fund (BRF). Due to responsible fiscal planning and a continued positive recovery from the COVID-19 pandemic, the BRF is filled to its statutory maximum of 15% of General Fund appropriations ($3.1 billion). Adding the projected revenue volatility transfer of $3 billion and the projected surplus of $1.27 billion would bring the BRF balance to $7.4 billion or 34 percent of net General Fund appropriations for FY23. If current projections hold, approximately $4.1 billion would be available to reduce unfunded pension liability for the State Employee Retirement System (SERS) and the Teachers' Retirement System (TRS).
The U.S. economy has entered another phase of recovery from the COVID-19 pandemic in which a strong labor market exists alongside declining growth and high inflation. Consumers are concerned a recession is here, but the signs are not very clear. The U.S. added 372,000 jobs in June while the unemployment rate remained at 3.6% for the fourth month in a row. The US has recovered 97.6% of the jobs lost during Covid-19 and 6 industry sectors have recovered over 100% of job lost. Connecticut added 1,700 jobs in June while the state’s unemployment rate fell to 4%. The state has recovered 83.4% of the jobs lost during Covid-19 and 3 industry sectors have recovered over 100% of job lost.
While the labor market is not signaling recession, other parts of the economy are. Inflation came in at an annual rate of 9.1% in June and GDP shrank 0.9% in the second quarter which marks two months of consecutive decline. Consumer confidence dropped for the third month in a row after the Federal Reserve raised interest rates by another 75 basis points. More detailed economic data can be found in the monthly economic outlook.
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.