December 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 October 31, 2022. The Office of the State Comptroller (OSC) is projecting the General Fund will end Fiscal Year 2023 with a $1 billion surplus and the Special Transportation Fund will end Fiscal Year 2023 with a $226.8 million surplus. OSC's projections vary from the Office of Policy and Management's (OPM) due to the passage of HB 6001 which impacts both funds. 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 General Fund surplus is projected to be $1 billion which is an increase of $506 million from last month's projection. This month's estimate include revisions consistent with the consensus revenue estimates provided by OPM and the Office of Fiscal Analysis (OFA) and the passage of HB 6001.
Projected FY23 revenue has been revised upwards by $420 million reflecting improvements in several categories. The Sales and Use Tax was revised upwards by $280 million due to collections exceeding target, and Investment Income was revised upwards by $85 million due to rising interest rates. Federal Grants was revised upwards by $39.8 million due to the extension of the federal public health emergency which results in enhanced federal reimbursement under Medicaid. This was offset by $4.8 million due to HB 6001 which required the Public Utilities Regulatory Authority (PURA) to direct at least 95% of fines in FY 23 to nonprofit agencies engaged in energy assistance programs.
Projected FY23 expenditures were revised downwards by $86.3 million due to $95.3 million in increased lapses offset by $9 million in additional requirements. The Department of Social Services is expected to lapse $111.4 million due to several accounts with the largest being the Medicaid account due to the extension of enhanced federal funding through January of 2023 due to the public health emergency as well as revisions to the ARPA home and community-based services reinvestment plan. Several other Personal Services accounts are expected to lapse due to vacancies.
The Special Transportation Fund surplus is projected to be $226.8 million, a decrease of $94.3 million from last month’s projection due to a $77.3 million reduction in revenue and $17 million in reduced lapses. Governor Lamont signed HB 6001 on November 29, 2022 which reduced Special Transportation Fund revenue by $90 million. HB 6001 extended through December 31, 2022, the suspension of the state's 25 cent-per-gallon excise tax on gasoline. Beginning January 1, 2023, the tax will be phased back in over a period of five months at five cents per month. This reduction was offset by the Sales and Use Tax, which was revised upwards by $26 million due to increased collections and the Sales Tax DMV which was revised upwards by $6 million due to continued strength in private motor vehicle transactions. Projected lapses decreased in several accounts including $8.9 million at the Department of Transportation and $8.9 million for Office of the Treasurer Debt Service.
The statutory revenue volatility cap requires receipts above a certain level to be transferred to the Budget Reserve Fund (BRF). OSC is currently projecting approximately $2.85 billion would be available to reduce unfunded pension liability for the State Employee Retirement System (SERS) and the Teachers' Retirement System (TRS).
Areas of the U.S. economy have started to show signs of slowing down. Job growth is moderating, the unemployment rate is rising, and the housing market is cooling off. The U.S. added 261,000 jobs in October and the unemployment rate rose to 3.7%. The number of unemployed people grew by 306,000 and jobless claims ticked up. Connecticut added 500 jobs in October and the state unemployment rate rose to 4.3%.
Inflation remains elevated but may have started to moderate as the Consumer Price Index came in at an annual rate of 7.7% in October. The Federal Reserve raised interest rates once again by 75 basis points to cool demand and bring prices down. U.S. household debt is up as inflation and increasing interest rates make it more expensive to borrow. The housing market is shifting as mortgage rates topped 7% in November and home prices started to moderate on a monthly basis. The U.S. labor and housing markets may be slowing down, but GDP and consumer spending remain resilient. U.S. GDP grew 2.9% in the third quarter and consumer spending increased 0.8% from last month. Consumer confidence declined in November mostly due to high gas and food prices and many remain concerned about a possible recession.
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.