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 

January 2, 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 November 30, 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 $390,923,000 and a Transportation Fund balance of $189,824,000. 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 $482,312,000. I am in agreement with OPM's Transportation Fund projection. These deficit figures 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. 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. That plan is presently under review by the legislature.

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 most base revenues (revenues adjusted for tax and other changes). My deficit estimate is $91.4 million higher than the OPM number.

My deficit estimate has increased $67.4 million since last month. The rise in the deficit is explained by a $23.9 million reduction in projected revenues, a $42.7 million reduction in anticipated savings/lapses and miscellaneous spending increases of $0.8 million.

The downward adjustment in the lapse figure results from the absence of negotiated payroll and employee benefit savings sought by your administration. The targeted level for such savings in Fiscal Year 2003 was $94 million. In November, I reduced this component of the lapse estimate to $79 million since less than a full fiscal year of savings was attainable. I am now removing the remaining $79 million from the lapse estimate as no progress toward achieving this savings is apparent. The $79 million lapse reduction is partially offset by other savings initiatives resulting in a net lapse reduction from last month of $42.7 million. My total lapse projection for this fiscal year is now $194.2 million, which is $57.7 million below the original budget target of $251.9 million; OPM is projecting a lapse of $245.2 million.

Agency deficiencies remain unchanged this month at $131.7 million. The deficiencies are: Department of Social Services $94.1 million, Mental Health and Addiction Services $2.6 million, Department of Children and Families $11 million, Workers' Compensation $6.5 million, State Employees Health Services $1.7 million, and Retired State Employees Health Services $8.7 million, State Insurance and Risk Management Board $1.2 million, Department of Mental Retardation $2.6 million, and Department of Corrections $3.3 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 largest single revenue change from last month is a $58 million decline in my income tax projection. This reduction is partially offset by gains in other revenue categories for a net revenue decline of $23.9 million this month. While many revenue categories are showing positive growth for the fiscal year, helped by the Tax Amnesty Program's $109 million revenue windfall, the income tax continues to perform below last year's weak level. Continued job losses have depressed the withholding portion of the income tax. The state has lost 8,700 payroll jobs during the first five months of the fiscal year. Your plan to layoff 2,800 state employees will produce a 32 percent increase in the state job loss figure and impair the state's future employment prospects. The layoffs will also further weaken the performance of the income tax and have a secondary impact on other tax categories. My complete revenue projections are contained on Exhibit J.

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.

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 $414,000, bringing the balance to $189,824,000.

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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