October 3, 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 August 31, 2022. The Office of the State Comptroller (OSC) is projecting the General Fund will end Fiscal Year 2023 with a $444.6 million surplus and the Special Transportation Fund will end Fiscal Year 2023 with a $327.1 million surplus. 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.
General Fund
In the second forecast for Fiscal Year 2023, the General Fund surplus is projected to be $444.6 million, an increase of $145.6 million from last month’s projection due to a $125.2 million increase in revenue and a $20.4 million increase in lapses.
Projected investment income was revised upwards by $95.2 million reflecting the impact of rising interest rates on the state’s cash position. Federal grants were revised upwards by $30 million due to the Federal government’s extension of the public health emergency and the resulting enhanced Medicaid support through December 31, 2022.
Projected FY23 expenditures have been revised downwards by $20.4 million due to increased lapses in several accounts. $131 million is projected to lapse at my office due to the State Employees Health Service Cost account and the Retired State Employees Health Service Cost account. Approximately half of the forecasted lapse in the retiree health account is due to favorable rates negotiated by my office for the state Medicare Advantage program with the remainder of the lapse due to a greater than anticipated number of retirees transitioning directly into Medicare upon retirement. DSS is projected to lapse $18 million due to the federal extension of the public health emergency and other factors. The Personal Services account is projected to lapse due to vacancies at DRS, DVA, DPH, and DDS.
Special Transportation Fund
In the second forecast for Fiscal Year 2023, the Special Transportation Fund surplus is projected to be $327.1 million, an increase of $60.1 million from last month’s projection. Projected FY23 revenues have been revised upward by $26.7 million compared to last month due to rising interest rates and adequate cash balances.
Projected FY23 expenditures have been revised downwards by $33.4 million due to increased lapses in several accounts. The Department of Transportation’s Pay-As-You-Go Transportation Projects account is projected to lapse $100.0 million due to the availability of temporary federal support for transportation projects. The Treasurer’s Debt Service account is forecast to lapse $44.8 million as a result of savings from the FY22 bond sale which were not reflected in the FY23 budget as well as a revised estimate of FY23 borrowing. My office’s fringe benefit account is expected to lapse $600,000 due to lower than anticipated costs in the State Employees Health Service Cost and SERS Defined Contribution Match accounts.
Budget Reserve Fund
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. On September 21, a volatility transfer of $3 billion was made to the BRF bringing the year-end balance to over $6.16 billion, or 27.9% of net General Fund appropriations for FY23.
In September, the State Treasurer transferred $903.6 million to the Teacher’s Retirement System (TRS) and $1.94 billion to the State Employee’s Retirement System (SERS). Once the FY22 General Fund surplus of $1.26 billion is confirmed, it will be transferred to SERS as an additional pension contribution.
Economic Indicators
The U.S. labor market cooled down in August, adding 315,000 jobs while the unemployment rate rose to 3.7%. Connecticut added 2,900 jobs while the state’s unemployment rate rose to 4.1%. The U.S. has recovered 100% of the jobs lost during the Covid-19 recession while the state has recovered 88%.
Inflation increased slightly in August, adding increased uncertainty to the economy. While gas prices have come down, prices of food, shelter, and basic necessities continue to rise. The Federal Reserve made its 5th rate increase in September as they aggressively try to tame inflation. The housing market has started to feel the effects as mortgage rates climbed to over 6%.
GDP has officially declined for two consecutive quarters increasing fears of recession. All three major stock market indices have entered bear market territory—down at least 20% from their previous peak as the market continues its decline. However, consumer confidence has increased for the second month in a row due to falling gas prices and easing concerns over inflation. 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.
Sincerely,
Natalie Braswell
State Comptroller