State of Connecticut

Comptroller's Seal
STATE OF CONNECTICUT
  OFFICE OF THE STATE COMPTROLLER  
Kevin Lembo
State Comptroller
55 ELM STREET
HARTFORD, CONNECTICUT
06106-1775
Martha Carlson
Deputy Comptroller

LETTER OF TRANSMITTAL

December 31, 2012

The Honorable Dannel P. Malloy
Governor of the State of Connecticut
State Capitol
Hartford, Connecticut

Dear Governor Malloy:

I write to provide you with the state's financial statements and report for Fiscal Year 2012. This document has been prepared using the budgetary or modified cash basis of accounting. The statements have been audited as indicated by the State Auditors within their Independent Auditors Report.

The General Fund ended Fiscal Year 2012 with a deficit of $143,516,680. The deficit alnounts to less than one percent of General Fund spending. In accordance with Section 28 of Public Act 12-104, $222,393,607 was transferred to the Budget Reserve Fund in June. The necessary portion of the reserve fund was released to eliminate the Fiscal Year 2012 General Fund deficit. The remaining balance in the Budget Reserve Fund is $93,454,179.

General Fund spending in Fiscal Year 2012 was up $936.8 million or 5.2 percent over last fiscal year. The largest components of this increase were as follows: Department of Social Services spending rose $409.4 million, or 7.6 percent as Medicaid caseloads advanced 52 percent during the year; contributions to Teachers' Retirement were up $210.2 million, or 36 percent reflecting full funding of accumulated obligations; Debt Service payments advanced $165.2 million, or 11.4 percent as payment of 2009 Economic Recovery Notes commenced: and, funding for the state employees' retirement rose $89.3 million, or 15.9 percent as full funding of long-term obligations resumed. Salary and wage costs declined by more than 8 percent after adjusting for the disbursement of the twenty-seventh payroll, which occurs once every ten years.

General Fund revenues advanced 4.8 percent or $854.2 million in Fiscal Year 2012. The growth in revenue fell $227 million short of the original budget target. The major reason for the shortfall was the capital gains and bonus component of the income tax. The withholding and final payment portions of the income tax were close to budget projections rising 15.5 percent and 18.2 percent respectively. The gains reflect the tax increases implemented for the fiscal year. The capital gains portion of the tax rose at an 8 percent rate. Overall, the income tax was $239.8 million below projection. Federal receipts in the General Fund declined $628 million or
14.8 percent as stimulus programs ended.

The Transportation Fund ended Fiscal Year 2012 with a surplus of$38,451,326, which brought the year-end accumulated fund balance to $145,816,458.

I also issue a Comprehensive Annual Financial Report (CAFR) that converts the budgetary based financial reporting to Generally Accepted Accounting Principles (GAAP). From a balance sheet prospective, the GAAP shortfall or unreserved fund balance in the General Fund was $1.7 billion as of June 30, 2011. This figure will be updated in January 2013 for Fiscal Year 2012.

If you have any questions on this report, please do not hesitate to contact me.

Sincerely,

Kevin Lembo
State Comptroller