June 30,1997
(Amounts in thousands unless otherwise stated)

Note 23

COMMITMENTS AND CONTINGENCIES

1. Commitments
   At June 30, 1997, the State, including its component units, had the following outstanding commitments:
   1. Infrastructure (highways, roads, etc.) and other construction contracts and miscellaneous contracts with various vendors totaling approximately $1,993 million of which $1,386 million is expected to be reimbursed by Federal grants.
   2. School construction and alteration grants with various towns for $838 million and interest costs of $337 million for a total of $1,175 million. Funding for these projects is expected to come from bond sales.
   3. Loan commitments, mortgage and grant programs, and loan guarantees totaling approximately $348 million. Funding for these programs is expected to come from bond sales.
2. Contingent Liabilities
   The Division of Special Revenue, the agency responsible for the Lottery Fund, has entered into agreements with insurance companies under which the Lottery Fund purchases annuities under group contracts which provide payments corresponding to the State's obligation to prize winners. Notwithstanding these annuity contracts, the State of Connecticut is contingently liable for the prize payments due lottery winners. At June 30, 1997, amounts due lottery winners totaled $859 million. As of July 1, 1997, legislation has authorized the transfer to the Connecticut Lottery Corporation the above prize liabilities along with the annuity contracts to liquidate these liabilities.
   
   The Legislature has enacted legislation to assist the City of West Haven by authorizing the State to guarantee debt issued by the City in an amount up to $35 million. At year end, the debt outstanding guaranteed by the State was $21 million.
   
   The State has entered into a contractual agreement with H.N.S. Management Company, Inc. and ATE Management and Service Company, Inc. to manage and operate the bus transportation system for the State. The State shall pay all expenses of the system including all past, present and future pension plan liabilities of the personnel employed by the system and any other fees as agreed upon. When the agreement is terminated the State shall assume or make arrangements for the assumption of all the existing obligations of the management companies including but not limited to all past, present and future pension plan liabilities and obligations.
   
   The State has coordinated a review of its computer systems to identify areas that could be affected by the "year 2000" issue and has begun to modify computer programs to fix the problem of computer programs being written using two digits rather than four to define the applicable year. The State presently believes that, with modifications to existing software and converting to new software, the year 2000 problem will not post significant operational problems for the State's computer systems as so modified and converted. However, if such modifications and conversions are not completed in a timely manner, the year 2000 problem may have a material impact on the operations of the State.
   
3. Litigation
   The State, its units and employees are parties to numerous legal proceedings many of which normally occur in governmental operations. Most of these legal proceedings are not, in the opinion of the Attorney General, likely to have a material adverse impact on the State's financial position.
   
   There are, however, several legal proceedings which, if decided adversely against the State, may require the State to make material future expenditures for expanded services or capital facilities or may impair future revenue sources. It is neither possible to determine the outcome of these proceedings nor to estimate the possible effects adverse decisions may have on the future expenditures or revenue sources of the State.

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