|STATE OF CONNECTICUT|
THE STATE COMPTROLLER
LETTER OF TRANSMITTAL
December 31, 2003
The Honorable John G. Rowland
Governor of the State of Connecticut
Hartford, Connecticut 06106
Dear Governor Rowland:
In accordance with Section 3-115 of the Connecticut General Statutes, I write to provide you with the Annual Report of the State Comptroller for Fiscal Year 2003. The statements have been prepared on the budgetary, modified cash basis of accounting as detailed on the inside front cover of this report.
The General Fund ended Fiscal Year 2003 with a deficit of $96,614,935. The Treasurer has been authorized to issue economic recovery notes for the purpose of funding this deficit. In addition, the Treasurer has been authorized to issue notes in an amount sufficient to fund any retrospective reimbursements billed to the state by hospitals for recipients of medical services under the State Administered General Assistance program prior to the conversion of that program as provided by Section 43 of Public Act 03-3 of the June Special Session.
The General Fund shortfall for Fiscal Year 2003 would have been higher absent deficit mitigation legislation that was signed into law on February 28, 2003. The deficit mitigation provisions of Public Act 03-2 raised Fiscal Year 2003 revenues by an estimated $485 million and reduced expenditures by approximately $108 million. These spending reductions were in addition to allotment reductions that had already been made in accordance with state law. Notable revenue changes were as follows: an increase in the personal income tax top rate from 4.5 to 5 percent, imposition of a 20 percent surtax on corporate earnings, elimination of various sales and use tax exemptions, an increase in the cigarette tax from $1.11 per pack to $1.51 per pack, and one-time transfers to the General Fund of $72 million. Significant reductions to expenditures included: early retirements and layoffs estimated to save $44.2 million, restrictions on participation in and subsidies to health insurance programs designed to save in excess of $10 million, reductions in municipal grant payments, and $43.2 million in various other savings.
The General Fund deficit for Fiscal Year 2003 amounts to less than one percent of budgeted expenditures for the fiscal year.
There was little increase in budgeted General Fund spending between Fiscal Years 2002 and 2003. Spending in Fiscal Year 2003 increased by less than one half of one percent. Most areas of government experienced spending reductions in Fiscal Year 2003. Expenditures by agencies in the General Government functional area declined by just over 20 percent. Health and Hospitals, Human Services and Corrections posted spending growth of less than 5 percent. Over the last three fiscal years, budgeted General Fund spending growth has averaged 3 percent. Over the past five-year period, budgeted General Fund outlays increased at an average annual rate of 5 percent. This comparison illustrates the slowing growth trend in General Fund spending.
In Fiscal Year 2003, budgeted General Fund revenues increased by $1,177,899,741 or 10.9 percent. This increase resulted from tax changes and one-time transfers to the General Fund. Absent the tax increases and transfers (one-time transfers totaled $351.5 million), General Fund budgeted revenue growth would have been relatively flat in Fiscal Year 2003. Even with these changes, realized revenue in Fiscal Year 2003 was $68,574,978 below the original budget target. Over the past three fiscal years, budgeted General Fund revenues grew at an average annual rate of 2.7 percent. Over a five-year period, the average annual growth rate was 3.7 percent. Despite recent tax increases and one-time transfers to the General Fund, budgeted revenue growth has been on a slowing trend.
The poor performance of the economy explains the revenue shortfalls and resulting budget difficulties. In Fiscal Year 2003, Connecticut lost 19,100 payroll jobs. The state has lost approximately 50,000 jobs during the recent recession. In addition to job losses, capital gains income in Connecticut declined by over 40 percent at the start of the recession, and has not recovered. As the economy improves, the state's budget outlook should improve.
The Transportation Fund ended Fiscal Year 2003 with a positive balance of $132,948,201. This is a reduction of $56,733,657 from the Fiscal Year 2002 ending balance of $189,681,858. The reduction in fund balance in Fiscal Year 2003 is primarily attributable to the transfer of $52 million from the Transportation Fund to the General Fund.
I would be happy to discuss any information contained in this report with you at your convenience.