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, 2013

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 audited financial statements for Fiscal Year 2013.

The General Fund ended Fiscal Year 2013 with a surplus of $398,035,312. Of the surplus total, $220.8 million has been reserved for future fiscal year activity and $177.2 million will be deposited to the Budget Reserve Fund. This will bring the Budget Reserve Fund balance to $270.7 million.

General Fund spending in Fiscal Year 2013 was up $244 million or 1.3 percent over the prior fiscal year. To put this level of growth into historical context, in the four fiscal years leading up to the 2008 recession, average annual General Fund budget growth was 7.3 percent.

A decline in state employee payroll spending in Fiscal Year 2013 contributed to the slower growth. General Fund payroll line-item expenditures in Fiscal Year 2013 were at their lowest level since Fiscal Year 2006. Payroll spending was $103.1 million or 3.8 percent below the Fiscal Year 2012 level. While this reduction in Fiscal Year 2013 was largely attributable to the absence of a 27th payroll, the overall payroll spending trend was down. Favorable interest rates also helped to lower debt service costs. Debt service spending from the General Fund in Fiscal Year 2013 was $49.9 million or 3.1 percent below the previous fiscal year. The state’s largest agency, the Department of Social Services (DSS), posted spending growth of $113.7 million or 2 percent in Fiscal Year 2013. This is well below the growth of over 7 percent that had occurred in each of the two previous fiscal years. The General Fund contribution to the State Employees Retirement System was up by $68.9 million or 10.5 percent in Fiscal Year 2013. This accelerated contribution rate will help to lower long-term liabilities in the pension fund. Spending by the Department of Education grew by $111 million or 4 percent in Fiscal Year 2013.

General Fund revenues advanced 4.5 percent or $843 million in Fiscal Year 2013. The growth in revenue exceeded the original budget target by $261 million. The income tax, the largest single revenue source in the General Fund, grew 4.9 percent over last fiscal year and was $164.9 million in excess of initial budget estimates. The growth was largely driven by strong stock market performance and an increase in the federal capital gains tax rate that pushed future year gains into FY 13. The payroll component of the income tax, which accounts for 60% of total income tax receipts, was down slightly from last fiscal year. The more volatile components of the tax, estimated and final payments, grew 17.9 percent and 12.6 percent respectively.

The inheritance and estate tax also experienced a significant revenue windfall in Fiscal Year 2013. The tax ended the fiscal year $273.3 million over initial budget projections. The sales tax continued to post slow growth in Fiscal Year 2013, up 1.7 percent. The sales tax fell $148.9 million short of the budget target.

The Transportation Fund ended Fiscal Year 2013 with a surplus of $18,796,914, which brought the year-end accumulated fund balance to $164,613,372.

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 $1.146 billion as of June 30, 2012. This figure will be updated in late January 2014 for Fiscal Year 2013.

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

Sincerely,

Kevin Lembo
State Comptroller