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 

December 2, 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 October 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 $390,888,000 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 $414,888,000. 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. 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 my September report, the deficit estimate has risen and no plan containing specific mitigation initiatives has been offered. I again refer you to Connecticut General Statutes, Section 4-85 (b)(2).

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 $24 million higher than the OPM number.

The increase in this month's General Fund deficit is primarily the result of rising agency deficiencies. Estimated deficiencies rose $56.1 million over last month's projection. Two-thirds of the increase is in the Department of Social Services and is largely attributable to Medicaid spending. Over 80 percent of the total projected General Fund deficiency of $131.7 million is related to rising health care costs. 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.

Large revenue losses in the income tax projection this month were more than offset by significant gains in other revenue categories. My income tax estimate was revised downward by $52 million this month to $4.25 billion, the same projection used by OPM. Concern regarding slower than expected receipts in the withholding portion of the income tax explains the downward adjustment. My corporation tax estimate was revised upward by $40 million this month to $500 million due to higher receipts associated with tax increases and better than expected corporate earnings projections. A $15 million gain was also realized this month in the inheritance and estate tax. Federal grant reimbursements are expected to rise $31.3 million due to the increased spending in the partially reimbursable Medicaid program. Overall, I am projecting a 5.3 percent increase in tax revenues this fiscal year due to tax increases and a slowly improving economy. Total General Fund revenues for the fiscal year are expected to increase 9 percent; however, $284.1 million (2.4 percent) of this increase results from one-time revenue transfers. It should be noted that these estimates are premised on slow but sustained economic growth. Further erosion in the employment outlook or general economy will significantly increase the deficit.

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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