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

May 1, 2003

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 March 31, 2003.

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 $66,205,000 and a Transportation Fund balance of $129,725,000. In accordance with existing statutory requirements, the financial statements attached hereto reflect OPM's projections. The OPM estimates incorporate both the deficit mitigation provisions of PA 03-2 and your proposed elimination of funding for unsettled labor contracts.

I am estimating a Fiscal Year 2003 General Fund deficit of $100,955,000 and a Transportation Fund balance for this Fiscal Year of $129,725,000. My projections account for the deficit mitigation provisions of PA 03-2; however, I have not included your proposal concerning unsettled labor contracts as this recommendation is still under consideration by the legislature and is subject to modification. If I had included this proposal, with lapses estimated at $33.8 million, my General Fund deficit projection would be virtually the same as the OPM estimate.

My General Fund deficit estimate has increased by $53.5 million from last month; the OPM deficit projection is up $81.4 million from a month ago. Last month OPM was projecting a small General Fund surplus. The rising deficit is primarily attributable to declining tax revenue estimates, specifically the income tax. Estimated and final income tax payments in April were below expectations and income tax related refunds were higher than anticipated. This resulted in a $40 million downward adjustment in my net income tax revenue projection, and $70 million decline in the OPM estimate.

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. 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. On December 6, 2002, you submitted a comprehensive deficit reduction plan for Fiscal Year 2003. The enactment of PA 03-2 brings the General Fund deficit projection below the statutory level requiring additional deficit mitigation initiatives for Fiscal Year 2003.

The provisions of PA 03-2 were expected to achieve $600.2 million in General Fund deficit mitigation in Fiscal Year 2003. The act provides a projected $392 million in additional revenue, approximately $70.1 million in fund transfers to general operating revenue, and $138.1 million in spending reductions.

Absent one-time receipts and other revenue increases contained in PA 03-2, General Fund revenue growth for the current fiscal year would be flat as compared to last year. In February payroll employment in the state declined by 5,000 jobs and the unemployment rate increased to 5 percent. The state's payroll job loss for this fiscal year now totals 15,400 positions. Equity markets remain unsettled and the housing market is beginning to show signs of weakening. Retail sales were sluggish through the first quarter of 2003. In short, economic conditions are poor and state revenues reflect this fact.

Agency deficiencies in the General Fund declined $50 million due to transfers from lapsing accounts. Total anticipated lapses declined by over $70 million, in large part due to these transfers. Net agency deficiencies now total $89 million. The net agency deficiencies are: Department of Social Services $67.7 million, State Employees Health Services $5.2 million, and Retired State Employees Health Services $8.7 million, the Military Department $0.9 million, and the Worker's Compensation account $6.5 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.

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 $60,513,000 bringing the balance to $129,725,000. The transfer of $52 million from the Transportation Fund to the General Fund in accordance with PA 03-2 largely explains the reduction.

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, 2002 was $944 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

Back to Monthly Letter Index
Back to Comptroller's Home Page