COMPTROLLER
55 ELM STREET
HARTFORD, CONNECTICUT 06106-1775
DEPUTY COMPTROLLER
|
||
| STATE OF CONNECTICUT | ||
| NANCY WYMAN COMPTROLLER |
OFFICE OF
THE STATE COMPTROLLER 55 ELM STREET HARTFORD, CONNECTICUT 06106-1775 |
MARK OJAKIAN DEPUTY COMPTROLLER |
February 28, 2003
To the Citizens of the State of Connecticut:
It is our privilege to present this Comprehensive Annual Financial Report (CAFR) of the State of Connecticut for the fiscal year ended June 30, 2002. This report was prepared in its entirety by the Office of the State Comptroller. The Comptroller is responsible for state accounting practices and is committed to sound financial management and governmental accountability.
We believe that the financial statements are fairly presented in all material aspects. They are designed to set forth the financial position of the state, its operating results and the changes in net assets or fund balances of the major funds and non-major funds in the aggregate. All required disclosures have been included to assist the public, state policy makers, and the financial community in understanding the state's financial affairs.
The CAFR is designed to be in conformance with generally accepted accounting principles (GAAP) for governmental units as promulgated by the Governmental Accounting Standards Board as well as the reporting requirements prescribed by the Government Finance Officers Association. Significant changes to the content and format of the statements for Fiscal Year 2002 include a section titled Management's Discussion and Analysis (MDA) that contains information previously found within the letter of transmittal. In addition to the basic financial statements, the CAFR includes: combining financial statements that present information by fund category, certain narrative information that describes the individual fund categories, supporting schedules, and statistical tables.
PROFILE OF THE STATE OF CONNECTICUT
Connecticut became the fifth state of the United States on January 9, 1788. Its borders encompass 5,009 square miles. Within its compact borders, Connecticut has forested hills, new urban skylines, shoreline beaches, and historic village greens. There are world class schools, modern expressways, corporate offices, and small farms. Connecticut is a thriving center of business as well as a vacation location. It is both a New England State, and suburban to New York City. The population of Connecticut was 3,405,565 according to the 2000 U.S. Census. Five large cities, Bridgeport, New Haven, Hartford (the State Capitol since 1875), Stamford and Waterbury, have populations in excess of 100,000 residents.
State Government in Connecticut has three branches: executive, legislative and judicial. Voters elect six state officers: Governor, Lieutenant Governor, Treasurer, Comptroller, Secretary of State and Attorney General. All have four-year terms. Connecticut also elects two U.S. Senators and five U.S. Representatives. Connecticut's General Assembly or legislature has a Senate and a House of Representatives. The regular sessions of the General Assembly are held every year. These sessions run from January through June in odd-number years and from February through May in even-number years. The General Assembly reconvenes in special session to deal with emergencies or bills or appropriations vetoed by the Governor. Members of both houses represent districts based on population. There are currently 36 State Senators and 151 State Representatives. Members of the General Assembly are elected to two-year terms. The Judicial Department is composed of the Superior, Appellate and Supreme courts. Except for judges of the probate court, who are elected by the voters of the town or district that they serve, all judges are nominated by the Governor and appointed by the General Assembly.
Connecticut has no system of county government. Below the state level, governing units consist of 169 municipalities. The General Statutes of Connecticut provide procedures for the creation of many types of local special purpose authorities, districts and similar bodies. Under Connecticut law, all municipal governmental bodies have only the powers specifically granted to them by the state and the ancillary powers that are necessarily implied by the powers explicitly granted.
ECONOMIC CONDITION AND OUTLOOK
From the outset of Fiscal Year 2002 it was clear that Connecticut's authorized General Fund budget of $12.4 billion would end the year in deficit. A national economic recession exacerbated by the September 11th terrorist attack produced a 9.5 percent drop in Connecticut's General Fund revenue collections as compared to the prior fiscal year. State revenues fell $1.5 billion below budget expectations. Throughout the course of the fiscal year, state spending authority was reduced $254.3 million from the original budget authorization level. In addition, the state's cigarette tax was increased to generate an additional $40.5 million in Fiscal Year 2002 revenue. Despite these deficit mitigation efforts, the state was forced to deplete its entire budget reserve fund of $594.7 million and to issue economic recovery notes in order to eliminate the remaining deficit.
Nationally, Real Gross Domestic Product (GDP) grew at an anemic 0.3 percent rate in calendar year 2001, the slowest rate of growth since 1991. Throughout the four quarters of Fiscal Year 2002, GDP growth averaged a moderate 2.2 percent on an annualized basis.
Personal spending on goods and services generally accounts for two-thirds of GDP. Approximately half of personal spending is done through retail stores. During the last decade, variations in retail trade proved to be a good barometer of overall state economic health. Over the five-year period preceding Fiscal Year 2001, retail trade in Connecticut grew at an average annual rate of 6.1 percent. In Fiscal Year 2001, retail trade in the state declined 0.9 percent as the state economy contracted.
During Fiscal Year 2002 the nation lost 1.4 million payroll jobs, a one percent decline in payroll employment. During this same period, Connecticut lost 10,900 payroll jobs, a decline of just under one percent. Forecasts show moderate job growth resuming in Connecticut by Fiscal Year 2004. Employment in Connecticut is distributed by sector as follows: Services 32 percent, Trade 21 percent, Manufacturing 15 percent, Government (includes Casino employment) 14 percent, Finance 9 percent, Utilities 5 percent, and Construction 4 percent.
One important component of the manufacturing sector in Connecticut is the defense industry. Approximately one quarter of the state's manufacturing employees are employed in defense related businesses. Nonetheless, this sector's significance in the state's economy has declined considerably. Federal money earmarked for Connecticut's defense related industries was cut substantially over the past decade. Still, Connecticut ranked in the top ten states in total defense contract awards in Federal Fiscal Year 2001. Connecticut remains a leading producer of aircraft engines and parts, submarines, and helicopters.
In Connecticut, the export sector of manufacturing has assumed an increasingly important role in overall economic growth. Exports of manufacturing products registered at $8.6 billion in 2001. From 1997 to 2001, the state's export of goods grew at an average annual rate of 5.2 percent.
During Fiscal Year 2002 national unemployment grew from 4.6 percent to 5.9 percent, while Connecticut's unemployment rate rose from 3.3 percent to 3.6 percent. The slow growth in the state's unemployment rate during the period can be attributed to a decline in the state's pool of available workers. During Fiscal Year 2002 Connecticut's labor force of over 1.7 million declined by 6,255 workers, while nationally the labor force experienced modest growth. Declines in the state's labor force over the past decade have been viewed by some economists as a possible impediment to future economic growth; however, worker productivity in Connecticut is more than 20 percent higher than the national average mitigating some of the negative consequences of a declining pool of workers.
Connecticut has a high level of personal income. Historically, the State's average per capita income has been among the highest in the nation. Connecticut's per capita income of $41,931 in 2001 was 14 percent above the New England average and 38 percent above the national average. In 2001, Connecticut personal income grew 3.5 percent. Results for the second quarter of 2002 showed personal income growth slowing to an annualized rate of 1.5 percent. In the five years prior to 2001, state personal income grew at an average annual rate of close to 6 percent. Connecticut also has a high median household income of $53,347 in 2001, which was 26 percent above the national median income for the period.
MAJOR GOVERNMENT INITIATIVES
During Fiscal Year 2002, the implementation of new government initiatives was restricted by the significant shortfall in state revenues discussed above. As a result of the revenue shortfall, much of the Fiscal Year 2002 legislation was in reaction to the building budget deficit. However, despite the financial difficulties presented by a growing General Fund operating deficit, the state continued to move forward with infrastructure improvement projects, with much of the capital spending being education related.
In 1995, the General Assembly passed legislation that implemented $1.03 billion in capital improvements to the University of Connecticut. The infrastructure program was called UCONN 2000. The University and Health Center infrastructure improvements were scheduled to proceed in two phases and to end in 2005. In 2002, Public Act 02-3 (UCONN 21st Century) was signed into law extending the UCONN 2000 financing program for an additional ten years through 2015. The Act authorized fifty-one new projects at a total cost of $1.25 billion.
In addition to higher education, the state has made substantial grant commitments to assist in rebuilding public schools in cities, towns and regional school districts. These school construction grants are primarily financed through state bond funds. Public Act 02-2 of the May Special Session authorized state grant commitments for 152 school building projects. Legislation also limited the amount that the Commission of Education may submit for priority grant reimbursements in 2003 and 2004 to one billion dollars. Total state grant commitments for present and future school construction projects were estimated at $3.9 billion as of June 30, 2002.
BUDGETARY AND OTHER CONTROL SYSTEMS
In November 1992, electors approved an amendment to the State Constitution providing that the amount of general budget expenditures authorized for any fiscal year shall not exceed the estimated amount of revenue for such fiscal year. This amendment also provided a framework for placing a cap on budgeted appropriations. Annual budgeted appropriations are capped at a percentage increase that is based on either the five-year average annual growth in the state's personal income or inflation, whichever is higher. Debt service payments, certain statutory grants to distressed municipalities, and appropriations required by federal mandate or court order are excluded from the limits of the cap. The spending cap can be lifted if the Governor declares the existence of extraordinary circumstances and the General Assembly by a three-fifths vote approves appropriations in excess of the cap.
Budget control is maintained at the individual appropriation account level by agency as established in authorized appropriation bills. The allotment process exercises control over obligations or commitments. The Governor, through his budget office, allots funds for both budgeted and non-budgeted accounts and funds. The Governor is permitted to modify appropriations through the allotment process under certain circumstances and within percentage limitations specified by the General Assembly.
Elected officials, agency commissioners, directors of public benefit corporations and agency managers are responsible for establishing internal control structures. Good internal control systems ensure that: resource use is consistent with laws, regulations and policies; resources are safeguarded against waste, loss and misuse; and reliable data are obtained, maintained and fairly disclosed in reports. The Office of the State Comptroller has worked to improve the overall internal control environment in state government. This work has included improvements to the central state accounting system that advance internal control efforts.
RISK MANAGEMENT
The state retains risk for certain property and liability claims, including workers' compensation. The State Insurance and Risk Management Board serves as the focal point of risk management and insurance matters, retaining a balance of commercially placed coverage and risk retention to provide optimal coverage at the minimum cost.
CASH MANAGEMENT
The State Treasurer continually monitors cash flow to maximize the utilization of cash resources. During the year, temporary balances are invested in the state's short-term investment fund. This fund is a money market investment pool with investments consisting of certificates of deposit, bankers' acceptances, commercial paper, repurchase agreements, federal agency securities, and other investments with various ranges of maturities. The investment income and average yield rate for Fiscal Year 2002 for this fund was approximately $111 million and 2.6 percent respectively.
Bank balances at June 30, 2002 were $126 million of which about 68 percent was not insured or protected by collateral.
INDEPENDENT AUDIT
The Auditors of Public Accounts, who report to the legislature and are independent of the executive branch of government, have audited the accompanying financial statements in accordance with generally accepted auditing standards and their opinion has been included in this report.
CERTIFICATE OF ACHIEVEMENT
The Government Finance Officers Association of the United States and Canada (GFOA) awarded a Certificate of Achievement for Excellence in Financial Reporting to the State of Connecticut for its Fiscal Year 2001 Comprehensive Annual Financial Report. The State of Connecticut has received a Certificate of Achievement for the past thirteen consecutive years. We believe that our current report continues to conform to the Certificate of Achievement requirements, and we are submitting it to GFOA.
ACKNOWLEDGEMENTS
I wish to express my personal thanks to the many individuals in various agencies and reporting units whose cooperation and assistance have made this report possible. In addition, I would like to thank the staff of my Budget and Financial Analysis Division for their diligent work on this report.
Sincerely,
Nancy Wyman
State Comptroller