State of Connecticut

Notes to the Financial Statements

June 30, 2010

Note 26 Commitments and Contingencies

A. Commitments
Primary Government

Commitments are defined as "existing arrangements to enter into future transactions or events, such as long-term contractual obligations with suppliers for future purchases at specified prices and sometimes at specified quantities." As of June 30, 2010, the Departments of Transportation and Public Works had contractual commitments of approximately $2,873 million for infrastructure and other construction projects. Additionally, other commitments were approximately as follows:

School construction and alteration grant program $2,908 million.
Clean and drinking water loan programs $425 million.
Various programs and services $1,998 million.

All commitments are expected to be funded by federal grants, bond proceeds, and other resources.

Component Units
As of December 31, 2009, the Connecticut Housing Finance Authority had mortgage loan commitments of approximately $187 million.

B. Contingent Liabilities
The State 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.

In 2002 the City of Waterbury issued $97.5 million of General Obligation Special Capital Reserve Fund Bonds. These bonds are secured by a Special Capital Reserve Fund for which the State may be contingently liable as explained previously in Note 18 - Component Units.

Grant amounts received or receivable by the State from federal agencies are subject to audit and adjustment by these agencies. Any disallowed claims, including amounts already collected, may constitute a liability of the applicable funds. The amount, if any, of expenditures that may be disallowed by the federal government cannot be determined at this time, although the State expects such amounts, if any, to be immaterial.

C. Litigation
The State, its units and employees are parties to numerous legal proceedings, many of which normally occur in government operations. Most of these legal proceedings are not, in the opinion of the Attorney General, likely to have a material adverse impact on the States 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.

Public Act 10-179 authorizes the State to issue "Economic Recovery Revenue Bonds" backed by the competitive transition adjustment and conservation charges currently imposed on electric bills. General Fund revenue for Fiscal Year 2011 anticipates $646.6 million in receipts from the sale of such bonds. At the time of this report (January 28, 2011), the issuance of these bonds has been delayed by a lawsuit seeking to enjoin and declare invalid the financing order of the Department of Public Utility Control which imposed assessments on Connecticut Light and Power and United Illuminating utility bills that is intended to cover the cost of issuance and debt service for these bonds.