September 5, 2023
The Honorable Ned Lamont
Governor of the State of Connecticut
State Capitol
Hartford, Connecticut
Dear Governor Lamont,
Fund through July 31, 2023. The Office of the State Comptroller (OSC) is projecting the General Fund will end Fiscal Year 2024 with a $390.2 million surplus and the Special Transportation fund will end Fiscal Year 2024 with a $204.2 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 first forecast for Fiscal Year 2024, the General Fund surplus is projected to be $390.2 million, which is $9.5 million lower than the FY24 budget as a result of unbudgeted expenditure requirements in the adjudicated claims account.
Special Transportation Fund
In the first forecast for Fiscal Year 2024, the Special Transportation Fund surplus is projected to be $204.2 million and remains unchanged from the FY24 budget.
Budget Reserve Fund
We estimate that with the closeout of FY 2023, $1.9 billion will be transferred out of the Budgetary Reserve Fund (BRF) and into the State Employees and Teachers' Retirement Systems, $1.3 billion in September pertaining to the statutory volatility cap, and the remainder once the FY 2023 operating surplus is finalized in December. In the first forecast for Fiscal Year 2024, it is projected that between the volatility cap deposit and the operating surplus an additional $1.1 billion will be transferred to the BRF.
Economic Indicators
While inflation has cooled from 9.1% last summer to 3.2% last month, Federal Reserve Chair Jerome Powell said on August 25th that inflation is still too high, and he warned that restoring price stability (the Fed is committed a getting inflation to their 2% target) will likely require an extended period of elevated interest rates. The central bank has already raised its benchmark interest rate from near zero in early 2022 to just over 5.25% in the most aggressive series of rate hikes since the early 1980's. The next Federal Reserve meeting is scheduled for September 20, 2023.
Rising interest rates have been a significant drag on the housing market. Mortgage rates have climbed to their highest level in more than two decades, and sales of existing homes have dropped sharply (although sales of newly-build homes are on the rise). According to Freddie Mac, the 30-year fixed-rate mortgage averaged 7.09% as of August 17, up 5.13% from one year ago.
In Connecticut year-over-year sales of single-family homes decreased 28.5% and new listings were down 25.86% in July. In addition, a report from the National Low-Income Housing Coalition analyzing the affordability of each state found that a minimum wage worker in Connecticut would have to work 69 hours a week, at $15 per hour just to afford a modest one-bedroom apartment.
However, on a positive note the state's job market remains strong. Connecticut gained 19,200 jobs so far this year after gaining 26,800 in all of 2022. The number of unemployed is below 70,000 for the first time since August 2019. "While job growth may slow toward the end of the year as it has in recent years, Connecticut's labor market is healthy as we start the second half of 2023," said Patrick Flaherty, Director of the Office of Research as the Connecticut Department of Labor.
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 $771.5 million as of June 30, 2022.
If you have any questions on this report, please do not hesitate to contact me.
Sincerely,
Sean Scanlon
State Comptroller