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 

October 1, 2002

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 August 31, 2002.

The Office of Policy and Management (OPM), pursuant to Section 4-66 of the Connecticut General Statutes, has submitted budget estimates for Fiscal Year 2003 that project a General Fund deficit of $330,060,000 and a Transportation Fund balance of $189,823,000. In accordance with existing statutory requirements, the financial statements attached hereto reflect OPM's projections. I am estimating a Fiscal Year 2003 General Fund deficit of $390,060,000. I am in agreement with OPM's Transportation Fund projection. These deficit projections do not include the $222,387,837 General Fund deficit balance brought forward from Fiscal Year 2002. As noted on the General Fund balance sheet (Exhibit A), last year's deficit will be financed through the issuance of Economic Recovery Notes and, therefore, it is not included in the Fiscal Year 2003 operating statements.

I reported to you by letter dated September 3, 2002 that the Fiscal Year 2003 General Fund deficit exceeded one percent of the fund's appropriations. I further advised you that Connecticut General Statutes, Section 4-85(b)(2), required you to submit a deficit mitigation plan to the legislative committees designated in statute by October 3, 2002. Since last month's correspondence the deficit has grown, therefore additional mitigation efforts may be required to remain in compliance with state statute.

The General Fund projections for Fiscal Year 2003 presented by both OPM and my office assume that modest economic growth will take hold during the fiscal year producing small percentage gains in base revenues (revenues adjusted for tax and other changes). My deficit estimate is $60 million higher than the OPM number. This variance is largely explained by two tax categories. I am estimating income tax receipts that are $28 million below the current OPM projection. OPM is using an income tax growth rate of 1.5 percent; my projection incorporates growth of 0.8 percent. Last year income tax receipts declined 10.1 percent.

My corporation tax estimate is $35.8 million below the OPM projection. Based on tax increases passed into law supplemented by earnings growth, OPM is projecting a 26.2 percent jump in the corporation tax. My estimate utilizes a 16.8 percent growth figure due to stagnant earnings growth projections. Last year corporation tax receipts fell 30.8 percent.

It should be noted that the budgeted revenue estimates contained on the first column of Exhibit C were provided to the State Treasurer by OPM, and these estimates formed the basis for calculating the state's debt limit. These estimates are used within the financial statements because the legislature failed to provide Fiscal Year 2003 budgeted revenue figures as required under Connecticut General Statutes, Section 2-35.

Agency deficiencies total $74,400,000 as of this writing. The deficiencies are as follow: Medicaid $57 million, Mental Health and Addiction Services $1.5 million, Department of Children and Families $3.0 million, Workers' Compensation $2.5 million, State Employees Health Services $1.7 million, and Retired State Employees Health Services $8.7 million. My office submitted accurate Fiscal Year 2003 budget requirements for both the active and retired employees health accounts; however, my request was not fully funded resulting in the present deficiencies in the two accounts. As the year continues, it is likely that deficiencies will rise. I am also concerned that the aggressive General Fund lapse figure of $251.9 million may not be fully attainable. In Fiscal Year 2002, General Fund lapses totaled $161.6 million. Rising deficiencies and unachievable savings targets could significantly increase the General Fund deficit estimate in the coming months.

The Transportation Fund budget as passed by the legislature anticipated a Fiscal Year 2003 surplus of $190,238,000. It is estimated that adjustments will reduce the Transportation Fund balance by a net $415,000, bringing the balance to $189,823,000.

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, 2001 was $781.8 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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