MANAGEMENT'S DISCUSSION AND ANALYSIS (MDA)
The following discussion and analysis is intended to provide readers of the State's financial statements with a narrative overview and analysis of the financial activities of the State for the fiscal year ended June 30, 2012. The information provided here should be read in conjunction with additional information provided in the letter of transmittal and in the basic financial statements.
As of June 30, 2012, the State had a combined net asset deficit of $10.6 billion, an increase of $603 million when compared to the prior year ending deficit balance. This increase resulted from an increase of $885 million in the net asset deficit of governmental activities, which was offset by an increase of $282 million in the net assets of business-type activities.
The governmental funds had a total fund balance of $1.7 billion at year end. Of this amount, $2.5 billion represents fund balance that is considered restricted for specific purposes by external constraints or enabling legislation and $1.2 billion represents unassigned fund balance deficit. The General Fund's share of the deficit is $1.1 billion, which decreased by $603 million this fiscal year.
The Enterprise funds had total net assets of $4.5 billion, substantially all of which was invested in capital assets or restricted for specific purposes.
Total long-term debt was $28.2 billion for governmental activities, of which $18.7 billion was bonded debt.
Total long-term debt was $2.6 billion for business-type activities, of which $1.5 billion was bonded debt.
OVERVIEW OF THE FINANCIAL STATEMENTS
This discussion and analysis is intended to serve as an introduction to the State's basic financial statements. The State's basic financial statements comprise three components: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements themselves.
Government-wide Financial Statements
The government-wide financial statements are designed to provide readers with a broad overview of the State's finances, in a manner similar to a private-sector business.
The statement of net assets presents information on all of the State's non-fiduciary assets and liabilities, with the difference between the two reported as net assets. Over time, increases or decreases in net assets may serve as a useful indicator of whether the financial position of the State is improving or deteriorating.
The statement of activities presents information showing how the State's net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occurs, regardless of the timing of the related cash flows. Thus, revenues and expenses are reported in this statement for some items that will result in cash flows in future fiscal periods (e.g., uncollected taxes and earned but unused vacation leave).
The government-wide financial statements are intended to distinguish functions of the State that are principally supported by taxes and intergovernmental revenues (governmental activities) from other functions that are intended to recover all or a significant portion of their costs through user fees and charges (business-type activities). The governmental activities of the State include legislative, general government, regulation and protection, conservation and development, health and hospitals, transportation, human services, education, libraries, and museums, corrections, and judicial. The business-type activities of the State include the University of Connecticut and Health Center, State Universities, Bradley International Airport, Connecticut Lottery Corporation, Employment Security, and Clean Water, which are considered major funds, while the remaining business-type activities are combined into a single aggregate presentation.
The government-wide financial statements include not only the State itself (known as the primary government), but also the activities of nine legally separate Component Units for which the State is financially accountable: the Connecticut Housing Finance Authority, the Connecticut Health and Educational Facilities Authority, the Connecticut Development Authority, the Connecticut Higher Education Supplemental Loan Authority, the Connecticut Resources Recovery Authority, Connecticut Innovations, Incorporated, the Capital City Economic Development Authority, the University of Connecticut Foundation, Incorporated, and the Clean Energy Finance and Investment Authority. Financial information for these Component Units is reported separately from the financial information presented for the primary government itself. Financial information of the individual component units can be found in the basic financial statements following the fund statements, and complete financial statements of the individual component units can be obtained from their respective administrative offices.
Fund Financial Statements
A fund is a grouping of related accounts that is used to maintain control over resources that have been segregated for specific activities or objectives. The State uses fund accounting to ensure and demonstrate compliance with finance-related legal requirements. All of the funds of the State can be divided into three categories: governmental funds, proprietary funds, and fiduciary funds.
Governmental funds are used to account for essentially the same functions reported as governmental activities in the government-wide financial statements. However, unlike the government-wide financial statements, governmental fund financial statements focus on near-term inflows and outflows of spendable resources, as well as on balances of spendable resources available at the end of the fiscal year. Such information may be useful in evaluating the State's near-term financing requirements.
Because the focus of governmental funds is narrower than that of the government-wide financial statements, it is useful to compare the information presented for governmental funds with similar information presented for governmental activities in the government-wide financial statements. By doing so, readers may better understand the long-term impact of the State's near-term financing decisions. Both the governmental fund balance sheet and the governmental fund statement of revenues, expenditures, and changes in fund balance provide a reconciliation to facilitate the comparison between governmental funds and governmental activities.
Information is presented separately in the governmental fund balance sheet and in the governmental fund statement of revenues, expenditures, and changes in fund balances for the General Fund, the Debt Service Fund, the Transportation Fund, and the Restricted Grants and Accounts Fund, all of which are considered major funds. Data from other governmental funds is combined into a single, aggregated presentation. Individual fund data for each of these nonmajor governmental funds is provided in the form of combining statements elsewhere in this report.
Fund balance (difference between assets and liabilities) of governmental funds is classified as nonspendable, restricted, and unrestricted (committed, assigned or unassigned).
The State adopts a biennial budget for the General Fund, the Transportation Fund, and other Special Revenue funds. A budgetary comparison statement has been provided for the General Fund and the Transportation Fund to demonstrate compliance with the current fiscal year budgets.
Proprietary funds (Enterprise funds and Internal Service funds) are used to show activities that operate more like those of commercial enterprises. Enterprise funds charge fees for services provided to outside customers. They are used to report the same functions presented as business-type activities in the government-wide financial statements. Internal Service funds are an accounting device used to accumulate and allocate costs internally among the State's various functions. The State uses Internal Service funds to account for correction industries, information technology, and administrative services. Because these services predominately benefit governmental rather than business-type functions, they have been included within governmental activities in the government-wide financial statements.
Fiduciary funds are used to account for resources held by the State in a trustee or agency capacity for others. Fiduciary funds are not included in the government-wide financial statements because the resources of those funds are not available to support the State's own programs. The accounting used for fiduciary funds is much like that used for proprietary funds.
Notes to the Financial Statements
The notes to the financial statements provide additional information that is essential to a full understanding of the data provided in the government-wide and fund financial statements.
Required Supplementary Information
The basic financial statements are followed by a section of required supplementary information that further explains and supports the information in the financial statements. The required supplementary information includes information regarding the State's progress on funding its obligation to provide pension and other postemployment benefits to its employees.
In addition to the basic financial statements and accompanying notes, this report also contains the following information.
FINANCIAL ANALYSIS OF THE GOVERNMENT AS A WHOLE
As noted earlier, net assets may serve over time as a useful indicator of the State's financial position. During the current fiscal year, the combined net asset deficit of the State increased 6.1 percent to $10.6 billion. In comparison, last year the combined net asset deficit increased 5.4 percent.
|Governmental Activities||Business-Type Activities||Government|
|Current and Other Assets||$ 3,944||$ 4,489||$ 4,070||$ 4,236||$ 8,014||$ 8,725|
|Invested in Capital Assets,|
|Net of Related Debt||5,305||4,905||2,953||2,819||8,258||7,724|
|Total Net Assets (Deficit)||$ (15,031)||$(14,146)||$ 4,475||$ 4,193||$ (10,556)||$ (9,953)|
* Restated for comparative purposes. See Note 23.
The net asset deficit of the State's governmental activities increased $885 million (6.3 percent) to $15.0 billion during the current fiscal year. Of this amount, $5.3 billion was invested in capital assets (buildings, roads, bridges, etc.) and $1.6 billion was restricted for specific purposes, resulting in an unrestricted net asset deficit of $21.9 billion. This deficit is the result of having long-term obligations that are greater than currently available resources. Specifically, the State has recorded the following outstanding long-term obligations which contributed to the deficit; a) general obligation bonds issued in the amount of $5.8 billion to finance various municipal grant programs (e.g., school construction) and $2.3 billion issued to finance a contribution to a pension trust fund, and b) other long-term obligations in the amount of $9.5 billion, which are partially funded or not funded by the State (e.g., net pension and OPEB obligations and compensated absences).
Net assets of the State's business-type activities increased $282 million
(6.7 percent) to $4.5 billion during the current fiscal year. Of this amount,
$3.0 billion was invested in capital assets and $1.1 billion was restricted for
specific purposes, resulting in unrestricted net assets of $0.4 billion. These
resources cannot be used to make up for the net asset deficit of the State's
governmental activities. The State can only use these net assets to finance the
ongoing operations of its Enterprise funds (such as the University of
Connecticut and Health Center, Bradley International Airport, and others).
Changes in net assets for the years ended June 30, 2012 and 2011 were as follows:
|Governmental Activities||Business-Type Activities||Total||%change|
|Charges for Services||$ 1,952||$ 1,647||$ 3,617||$ 3,416||$ 5,569||$ 5,063||10.0%|
|Operating Grants and Contributions||5,771||6,350||1,412||1,790||7,183||8,140||-11.8%|
|Capital Grants and Contributions||716||725||18||40||734||765||-4.1%|
|Casino Gaming Payments||345||360||-||-||345||360||-4.2%|
|Regulation and Protection||853||790||-||-||853||790||8.0%|
|Conservation and Development||693||536||-||-||693||536||29.3%|
|Health and Hospitals||2,476||2,331||-||-||2,476||2,331||6.2%|
|Education, Libraries and|
|Interest and Fiscal Charges||816||874||-||-||816||874||-6.6%|
|University of Connecticut &|
|Bradley International Airport||-||-||64||68||64||68||-5.9%|
|CT Lottery Corporation||-||-||781||738||781||738||5.8%|
|Increase (Decrease) in|
|Net Assets (Deficit) |
|Beginning (as restated)||(14,146)||(13,640)||4,193||4,285||(9,953)||(9,355)||6.4%|
|Net Assets (Deficit) - Ending||$ (15,031)||$ (14,146)||$ 4,475||$ 4,193||$ (10,556)||$ (9,953)||6.1%|
*Restated for comparative purposes. See note 23.
The following charts provide a two-year comparison of governmental activities revenues and expenses.
During the year, total revenues of governmental activities increased 6.0
percent to $23.5 billion, while total expenses increased 7.2 percent to $23.5
billion. In comparison, last year total revenues increased 7.2 percent, while
total expenses decreased 4.6 percent. The increase in total revenues of $1.3
billion was due mainly to an increase in taxes of $1.6 billion or 12.5 percent.
The increase in total expenditures of $1.6 billion was due mainly to an increase
in general government and human services expenditures of $1.0 billion or 11.1
percent. Although, total revenues exceeded total expenses by $33 million, this
excess was reduced by transfers of $918 million, resulting in a decrease in net
assets of $885 million.
The following charts provide a two-year comparison of business-type activities revenues and expenses.
During the year, total revenues of business-type activities decreased 3.8 percent to $5.1 billion, while total expenses decreased 7.3 percent to $5.7 billion. In comparison, last year total revenues increased 2.2 percent, while total expenses decreased 4.1 percent. The decrease in total expenses of $449 million was due mainly to a decrease in Employment Security expenses of $484 million or 21.0 percent. Although, total expenses exceeded total revenues by $636 million, this deficiency was reduced by transfers of $918 million, resulting in a increase in net assets of $282 million.
The focus of the State's governmental funds is to provide information on near-term inflows, outflows, and balances of spendable resources. Such information is useful in assessing the State's financing requirements. In particular, unassigned fund balance serves as a useful measure of the State's net resources available for spending at the end of the fiscal year.
As of June 30, 2012, the State's governmental funds had fund balances of $1.7
billion, showing a slight improvement over the prior year ending fund balances.
Of the total governmental fund balances, $2.5 billion represents fund balance
that is considered restricted for specific purposes by external constrains or
enabling legislation; $0.1 billion represents fund balance that is non-spendable;
$0.2 billion represents fund balance that is committed or assigned for specific
purposes by the Legislature and $1.1 billion represents unassigned fund balance
The General Fund is the chief operating fund of the State. As of June 30, 2012, the General Fund had a fund balance deficit of $0.9 billion. Of this amount, $0.2 billion represents fund balance that is non-spendable or committed for specific purposes by the Legislature, leaving a deficit of $1.1 billion in unassigned fund balance. Fund balance deficit decreased by $212 million during the current fiscal year.
As of June 30, 2012, the Debt Service Fund had a fund balance of $703 million, all of which was restricted. Fund balance decreased by $5 million during the current fiscal year.
As of June 30, 2012, the Transportation Fund had a fund balance of $209 million. Of this amount, $31 million was in nonspendable form and $178 million was restricted for specific purposes. Fund balance increased by $39 million during the current fiscal year.
As of June 30, 2012, the Restricted Grants and Accounts Fund had a fund balance of $394 million, all of which was restricted for specific purposes. Fund balance decreased by $50 million during the fiscal year.
The State's Proprietary funds provide the same type of information found in the government-wide financial statements, but in more detail. Accordingly, a discussion of the financial activities of the Proprietary funds has been provided in that section.
The State maintains Fiduciary funds for the assets of Pension and Other Employee Benefit Trust funds, an Investment Trust fund, and a Private-Purpose Trust fund. As of June 30, 2012, the net assets of the State's Fiduciary funds totaled $24.9 billion, a decrease of $0.9 billion when compared to the prior year ending net asset balance.
For fiscal year 2012, the General Fund had an estimated budget surplus of $81 million at the start of the fiscal year. However, due to continued slow economic recovery during the fiscal year, the fund had, instead, an estimated budget deficit of $120 million by the end of the fiscal year. The budget was balanced by the State Legislature mandating the release of the fund's 2011 surplus reserve.
Although actual fund expenditures exceeded revenues by $220 million, this deficiency was reduced by other financing sources of $220 million (including the release of the fund's 2011 surplus reserve of $143 million), resulting in a balanced budget for the fiscal year.
Actual revenues were lower than originally budgeted by $227 million for the fiscal year. This decrease in estimated revenue resulted mainly from a decrease in estimated tax revenue of $215 million, mainly personal income taxes. For the fiscal year, there was no significant difference between final and original budgeted appropriations.
The State's investment in capital assets for its governmental and business-type activities as of June 30, 2012 totaled $14.6 billion (net of accumulated depreciation). This investment in capital assets includes land, buildings, improvements other than buildings, equipment, infrastructure, and construction in progress. The net increase in the State's investment in capital assets for the fiscal year was $171 million, due mainly to an increase in business-type activities' capital assets of $129 million or 3.7 percent.
Major capital asset events for governmental activities during the fiscal year included the following:
• Additions to equipment and infrastructure of $854 million
• Depreciation expense of $926 million
The following table is a two-year comparison of the investment in capital assets presented for both governmental and business-type activities:
|Land||$ 1,639||$ 1,595||$ 65||$ 65||$ 1,704||$ 1,660|
|Improvements Other than Buildings||167||176||245||247||412||423|
|Construction in Progress||2,585||2,340||423||295||3,008||2,635|
|Total||$ 10,966||$ 10,924||$ 3,597||$ 3,468||$ 14,563||$ 14,392|
Additional information on the State's capital assets can be found in Note 10 of this report.
At the end of the current fiscal year, the State had total bonded debt of $20.2 billion. Pursuant to various public and special acts, the State has authorized the issuance of the following types of debt: general obligation debt (payable from the General Fund), special tax obligation debt (payable from the Debt Service Fund), and revenue debt (payable from specific revenues of the Enterprise funds).
The following table is a two-year comparison of bonded debt presented for both governmental and business-type activities:
|General Obligation Bonds||$13,965||$ 13,794||$ -||$ -||$13,965||$ 13,794|
|Transportation Related Bonds||3,287||3,358||-||-||3,287||3,358|
|Premiums and deferred amounts||709||526||46||51||755||577|
|Total||$ 18,709||$ 18,594||$ 1,485||$ 1,607||$ 20,194||$ 20,201|
The State's total bonded debt for fiscal year 2012 remained almost unchanged when compared to the prior year balance.
Section 3-21 of the Connecticut General Statutes provides that the total amount of bonds, notes or other evidences of indebtedness payable from General Fund tax receipts authorized by the General Assembly but have not been issued and the total amount of such indebtedness which has been issued and remains outstanding shall not exceed 1.6 times the total estimated General Fund tax receipts of the State for the current fiscal year. In computing the indebtedness at any time, revenue anticipation notes, refunded indebtedness, bond anticipation notes, tax increment financing, budget deficit bonding, revenue bonding, balances in debt retirement funds and other indebtedness pursuant to certain provisions of the General Statutes shall be excluded from the calculation. As of February 2012, the State had a debt incurring margin of $7.3 billion.
|Net Pension Obligation||$ 2,496||$ 2,447||$ -||$ -||$ 2,496||$ 2,447|
|Net OPEB Obligation||5,756||4,960||-||-||5,756||4,960|
|Federal Loan Payable||-||-||632||810||632||810|
|Total||$ 9,467||$ 8,600||$ 1,117||$ 1,310||$ 10,584||$ 9,910|
*Restated for comparative purposes. See note 23.
The State's other long-term obligations increased by $674 million (6.8
percent) during the fiscal year. This increase was due mainly to an increase in
the net OPEB obligation (Governmental activities) of $796 million or 16.0
percent. Additional information on the State's long-term debt can be found in
Notes 17 and 18 of this report.
The national economy as measured by real GDP grew at a moderate rate of just over 2 percent on an averaged quarterly basis during Fiscal Year 2012. Growth slowed during the first half of Fiscal Year 2013.
Connecticut added 7,300 payroll jobs in Fiscal Year 2012. This compares to 12,500 job additions in Fiscal Year 2011. The State's unemployment rate peaked at 9.4 percent in August of 2010. The unemployment rate was 8.1 percent at the close of Fiscal Year 2012. During the fiscal year, the State's strongest employment sector was education and health services with the addition of 11,700 payroll jobs, followed by transportation and public utilities with 3,000 job additions. The most significant job losses were in the government and financial activities sectors down 3,000 jobs and 4,400 jobs respectively.
At the close of Fiscal Year 2012, Connecticut's personal income was growing at a rate of 2 percent from the same period one year ago. During that same time period wage and salary income grew at about the same rate.
Nationally, retail sales were expanding at a 3.5 percent rate at the close of Fiscal Year 2012. Connecticut's sales tax receipts were up 14.2 percent over the prior fiscal year due primarily to an expansion of taxable categories. Connecticut's strong export sector closed Fiscal Year 2012 up almost 17 percent from the close of the prior year.
The housing market in the Northeast continued a slow recovery with existing home sales at the close of Fiscal Year 2012 advancing 1.9 percent from a year ago with prices up 1.8 percent.
For fiscal year 2013, the budget for the General Fund had an estimated $3.1 million surplus at the start of the fiscal year. Budgeted revenues were expected to increase 1.9 percent to $19.1 billion, while budgeted appropriations were expected to increase 2.3 percent to $19.1 billion. By the end of the second quarter of the fiscal year, the General fund had, instead, an estimated budget deficit of $64.4 million due mainly to a decrease in estimated budgeted revenue of $163.7 million.
This financial report is designed to provide our citizens, taxpayers, customers, investors, and creditors with a general overview of the State's finances and to demonstrate the State's accountability for the money it receives. If you have any questions about this report, please contact the State Comptroller's Office at 1-860-702-3350.