|STATE OF CONNECTICUT|
THE STATE COMPTROLLER
LETTER OF TRANSMITTAL
December 31, 2008
The Honorable M. Jodi Rell
Governor of the State of Connecticut
Dear Governor Rell:
It is my pleasure to provide you with the Annual Report of the State Comptroller- Budgetary Basis for Fiscal Year 2008. The statements have been prepared on a modified cash basis of accounting to allow for a financial presentation that is consistent with the budget formulation and budget implementation process adopted by the Governor and State Legislature.
Fiscal Year 2008 ended with a General Fund surplus of $99.4 million. The entire surplus has been reserved for Fiscal Year 2009 spending. In the absence of legislation reserving the surplus for spending initiatives, that money would have been deposited into the State's Budget Reserve Fund. The Budget Reserve Fund has a current balance of $1,381,748,346.01. This is equal to 8 percent of net General Fund appropriations for Fiscal Year 2009, and falls short of its statutory target by $325 million.
Final results for Fiscal Year 2008 show General Fund spending growth of 8.8 percent or $1.3 billion. This is a relatively high rate of growth based on recent historical trends. Since 1991, General Fund spending has exceeded 9 percent only three times and has been below 3 percent five times. This high rate of spending was largely supported through the carry forward of prior year funds. Carry forward funding is a method of using prior year revenues to support current year spending. Meeting current year spending needs through prior year revenue windfalls is not sustainable and historically has worsened the State's fiscal position in times of recession by building spending into the budget that can not be supported in the absence of revenue windfalls.
The carry forward from Fiscal Year 2007 to Fiscal Year 2008 was $831.1 million. The carry forward from Fiscal Year 2008 to Fiscal Year 2009 was $504.1 million. Had this funding not been used for operating expenditures it would have been used to fill the rainy day fund and to pay down state debt.
Some notable areas of increased General Fund spending in Fiscal Year 2008 are as follows: Department of Social Services up $408 million, a majority of the increase was in Medicaid; Teacher's Retirement up $106.6 million to fund pension obligations; Department of Education increased $257.4 million primarily to fund higher grant payments to towns; Department of Corrections spending increased by $65.9 million; Department of Children and Families was up $50.3 million; and, fringe benefit costs grew by more than $100 million.
General Fund revenue grew by 4.3 percent or $676.2 million in Fiscal Year 2008. This occurred despite the poor economic indicators that were reported throughout most of the fiscal year. The income tax grew 11.3 percent or $763.2 million offsetting losses in other tax categories. The largest of those losses was in the corporation tax, which fell by $156.8 million.
The Transportation Fund ended Fiscal Year 2008 with a fund balance of $178.3 million. This is a $14.7 million reduction in fund balance from the prior year. Revenues in the Transportation Fund were $63.3 million short of Fiscal Year 2008 budget expectations largely due to falling demand for gasoline in the wake of rising prices. Lower spending helped to mitigate the revenue shortfall.
During Fiscal Year 2008, initial figures show Connecticut added 6,000 payroll jobs. In Fiscal Year 2007, the State gained 20,800 jobs. The State's unemployment rate ended the fiscal year at 5.5 percent, its highest rate since August of 2003. Existing home sales in Connecticut hit a ten year low during Fiscal Year 2008, while new housing permits declined 25 percent. Taxable sales were weak expanding 2.5 percent. Personal income in Connecticut grew by close to 4 percent throughout most of Fiscal Year 2008 and ranked in the top quarter of all states for income growth. Connecticut's export industries continue to show strength with exports continuing to expand at double-digit rates coming into the fiscal year.
I also issue a Comprehensive Annual Financial Report. This report is prepared in accordance with Generally Accepted Accounting Principles (GAAP). The cumulative General Fund deficit as of June 30, 2007 was $994.3 million down $64.4 million from the prior year. Over the past three fiscal years the GAAP deficit has averaged $1.030 billion. The Fiscal Year 2008 GAAP figures will be released at the end of next month.
I would be happy to provide any additional information that you require, or
to discuss this report with you at your convenience.