STATE OF CONNECTICUT
NANCY WYMAN COMPTROLLER	OFFICE OF THE STATE COMPTROLLER 55 ELM STREET HARTFORD, CONNECTICUT 06106-1775	MARK OJAKIAN DEPUTY COMPTROLLER

Monthly Letter to the Governor 

December 1, 2000

The Honorable John G. Rowland
Governor of the State of Connecticut
State Capitol
Hartford, Connecticut 06106

Dear Governor Rowland:

In accordance with Section 3-115 of the General Statutes and with my duty to render all public accounts under Article IV, Section 24, of the State Constitution, I am submitting the financial statements as of October 31, 2000.

The Office of Policy and Management (OPM), pursuant to Section 4-66 of the Connecticut General Statutes, has submitted budget estimates for Fiscal Year 2001 that project a General Fund surplus of $390,355,000 and a Transportation Fund surplus of $119,107,000. In accordance with existing statutory requirements, the financial statements attached hereto reflect OPM's projections. I am projecting a Fiscal Year 2001 General Fund surplus of $400,355,000. I am in agreement with OPM's Transportation Fund figures. The OPM General Fund surplus number has increased $823,000 since last month; my projection is up $20,523,000. Most of the increase results from the recognition of higher than expected realized income tax receipts for October within the revenue projections.

General Fund spending in Fiscal Year 2001 is anticipated to exceed budget expectations by a net $137,990,000. This figure consists of $80,700,000 in lower than anticipated budget savings, $7,890,000 in miscellaneous adjustments, and $49,400,000 in net agency deficiencies. Gross agency deficiencies actually amount to $168,425,000. However, these deficiencies will be partially covered by general spending holdbacks of $48,500,000 as well as the transfer to agencies with budget shortfalls of $70,525,000 that the legislature had designated to be saved (lapsed). Agency deficiencies are anticipated as follows: Department of Mental Health and Addiction Services ($15.2 million), the Department of Social Services ($131.7 million), the Department of Mental Retardation ($2.3 million), the Department of Children and Families ($17.5 million), the Board of Education and Services for the Blind ($1.7 million), and the Office of the Child Advocate ($25,000). The deficiencies are primarily the result of medical inflation, double digit cost increases in prescription drugs, interim nursing home rate increases, increased staffing based on resource assessments in the Department of Children and Families, and other staffing and overtime requirements.  

The additional spending requirements will, in effect, push year-end net appropriations above the spending cap limit. This will be the fourth straight year of spending in excess of the cap. It should be noted that because dollars designated for savings will be spent by agencies with shortfalls, additional deficiency appropriation requirements will remain below the cap. However, the forgone savings are needed to keep the final net appropriation level below the cap. Therefore, abandoning those savings targets permits year-end net appropriations to rise above the cap without legislative approval.

Higher than anticipated revenues more than compensate for the overspending. General Fund revenues for Fiscal Year 2001 are expected to exceed the budgeted amount by $537.8 million. This represents an overall revenue growth rate of 5.4%, down slightly from last fiscal year's 5.6% increase. The income tax is expected to end the year $356.4 million over budget; both the withholding and estimated payment components of the income tax are increasing at double digit rates on a year-to-date basis. Both components experienced slower growth rates in October, but still exceeded the projections for the month. Federal receipts are expected to exceed budget estimates by $129.7 million due to higher spending in federally reimbursed program areas. An additional $83.3 million is expected in the sales tax.

Connecticut's economy, like the national economy, is exhibiting slower growth. Nationally, third quarter Gross Domestic Product advanced at a four-year quarterly low of 2.4%. So far this year, the often-volatile stock market has not experienced the dramatic gains of the past five years. State job additions are running slightly below last year's pace, and total income and wage and salary growth rates are beginning to moderate. The revenue estimates for the remainder of this fiscal year incorporate these trends toward slower economic growth.

An initial budget surplus of $545,000 and $537,800,000 in higher than anticipated revenue are reduced by $137,990,000 in higher spending, leaving a net Fiscal Year 2001 General Fund surplus of $400,355,000.

The Transportation Fund budget as passed by the legislature anticipated a Fiscal Year 2001 surplus of $129,777,000. It is projected that slightly lower revenues of $10,700,000 offset by $30,000 in lower spending will bring the surplus balance in the fund to $119,107,000.

The General Fund projection contained in this report is prepared on a modified cash accounting basis. My office also prepares an annual financial report in accordance with Generally Accepted Accounting Principles (GAAP). The cumulative GAAP General Fund deficit as of June 30, 1999 was $602.7 million. The difference between the budgetary and GAAP basis projections is primarily due to the recognition under GAAP of projected liabilities, revenues, and other items which will be outstanding at year end and which are not reflected in the modified cash basis currently used for budgetary reporting. The recognition of these adjustments under GAAP results in a more accurate statement of the General Fund's financial position.

If you have any questions, I will be pleased to discuss this report at your convenience.

Sincerely, 

Nancy Wyman
State Comptroller

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