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

July 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 May 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 $125,337,000 and a Transportation Fund balance of $131,125,000. I am in agreement with these preliminary estimates for the fiscal year ending June 30, 2003.

My General Fund deficit estimate has increased by $23.3 million from last month; the OPM deficit projection is up $54 million from a month ago. Continued economic stagnation has produced a $44.5 million downward adjustment in my revenue estimate since last month; OPM's revenue estimate is down $54 million. The downward revision to my revenue projection this month is partially offset by the incorporation of higher forced lapse figures reported by OPM as well as some minor revenue offsets.

The largest single adjustment this month is in the corporation tax. Based on preliminary numbers for the month of June, it appears that the corporation tax will fall $45 million short of last month's projection. Corporate profit growth in the first quarter of 2003 was slightly below the level recorded in the last quarter of 2002. Even with this downward adjustments, tax increases and improved earnings are expected to propel corporation tax receipts 35 percent above last year's level.

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 relatively flat as compared to last year. To date this fiscal year, the state has lost 16,400 payroll jobs and the unemployment rate stands at 4.9 percent. Equity markets, while somewhat improved remain volatile. The housing market has shown some signs of weakening in the first quarter of 2003. In short, economic conditions are poor and state revenues reflect this fact.

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 $59,113,000 bringing the balance to $131,125,000. 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

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