MANAGEMENT'S DISCUSSION AND ANALYSIS (MDA)

INTRODUCTION
The following is a discussion and analysis of the State's financial performance and condition providing an overview of the State's activities for the fiscal year ended June 30, 2016. The information provided here should be read in conjunction with the letter of transmittal in the front of this report and with the State's financial statements, which follow this section.

FINANCIAL HIGHLIGHTS
Government-wide Financial Statements
The State's total net position (deficit) increased $2.5 billion (or 7.0 percent) as a result of this year's operations. Net position (deficit) of governmental activities increased by $3.2 billion (or 7.9 percent) and business-type activities increased by $770 million (or 14.0 percent). At year-end, net position (deficit) of governmental activities and business-type activities totaled a negative $44.1 billion and $6.30 billion, respectively.

Component units reported net position of $2.35 billion, a decrease of $24.4 million or 1.0 percent from the previous year. The majority of the net position is attributable to the Connecticut Housing Finance Authority, a major component unit.

Fund Financial Statements
The governmental funds reported combined ending fund balance of $1.8 billion, a decrease of $0.3 million in comparison with the prior year. Of this total fund balance, $191.6 million represents nonspendable fund balance, $2.3 billion represents restricted fund balance, $354.8 million represents committed fund balance, and $24.9 million represents assigned fund balance. A negative $1.0 billion unassigned fund balance offsets these amounts. This deficit, which belongs primarily to the General Fund, increased by $265.7 million during the fiscal year.

The State's stabilization account, the General Fund Budget Reserve Account (Rainy Day Fund) ended the fiscal year with a balance of $235.6 million.

Personal income tax revenues in the governmental funds increased $904.2 million or 11.0 percent, compared to $434.4 million or 5.6 percent increase in the prior fiscal year. General fund tax revenues increased $433.6 million or 2.9 percent.

The Enterprise funds reported net position of $6.3 billion at year-end, an increase of $770.1 million during the year, substantially all of which was invested in capital assets or restricted for specific purposes.

Long-Term Debt
Total long-term debt was $62.7 billion for governmental activities at year-end, of which $23.9 billion was bonded debt.

Total long-term debt was $1.9 billion for business-type activities at year-end, of which $1.5 billion was bonded debt.

OVERVIEW OF THE FINANCIAL STATEMENTS

This discussion and analysis is 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. The report also contains other supplementary information to provide additional support to the basic financial statements.

Government-wide Financial Statements - Reporting the State as a Whole
The Statement of Net Position and the Statement of Activities beginning on page 35 together comprise the government-wide financial statements. These 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. All revenues and expenses are recognized regardless of when cash is received or spent, and all assets, deferred outflows of resources, liabilities and deferred inflows of resources, including capital assets and long-term debt, are reported at the entity level. The government-wide statements report the State's net position and changes in net position. Over time, increases and decreases in net position measure whether the State's overall financial condition is getting better or worse. Non-financial factors such as the State's economic outlook, changes in its demographics, and the condition of capital assets and infrastructure should also be considered when evaluating the State's overall condition.

The statement of net position presents information on all of the State's assets and deferred outflows of resources, and liabilities and deferred inflows of resources with the difference between all reported as net position. Net position is displayed in three components - net investment in capital assets; restricted; and unrestricted.

The statement of activities presents information showing how the State's net position changed during fiscal year 2016. All changes in net position 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).

Both the Statement of Net Position and Statement of Activities report three separate activities. These activities are described as follows:

Fund Financial Statements - Report the State's Most Significant Funds
The fund financial statements beginning on page 36 provide detailed information about individual major funds, not the State as a whole. A fund is a group 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.

Reconciliation between Government-wide and Fund Statements
The financial statements include schedules on pages 41 and 43 which reconcile and explain the differences between the amounts reported for governmental activities on the government-wide statements (full accrual basis of accounting, long-term focus) with amounts reported on the governmental fund statements (modified accrual basis of accounting, short-term focus). The following are some of the major differences between the two statements.

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. The notes to the financial statements can be found immediately following the component unit fund financial statements.

Required Supplementary Information (RSI)
Following the basic financial statements are budgetary comparison schedules for major funds with legally adopted budgets. In addition, within the RSI there is a reconciliation schedule for budgetary vs. GAAP basis of accounting. The RSI also includes information regarding the State's funding progress and employer contributions for pension and other postemployment benefits, and change in employers' net pension liability.

Supplementary Information
The combining financial statements for the State's nonmajor governmental, nonmajor enterprise, nonmajor fiduciary funds, and nonmajor discretely presented component units.

Statistical Section
This section provides up to ten years of financial, economic, and demographic information.

FINANCIAL ANALYSIS OF THE GOVERNMENT AS A WHOLE

Net Position
The combined net position deficit of the State increased $2.5 billion or 7.0 percent. In comparison, last year the combined net position deficit decreased $2.7 billion or 6.6 percent. The net position deficit of the State's governmental activities increased $3.2 billion (7.9 percent) to $44.1 billion during the current fiscal year.

State Of Connecticut's Net Position
(Expressed in Millions)

               Total Primary
   Governmental Activities       Business-Type Activities     Government
   2016    2015*    2016    2015    2016    2015*
ASSETS                   
Current and Other Assets    $4,674    $4,566    $4,166    $4,104    $8,840    $8,670
Capital Assets    13,706    13,031    4,539    4,151    18,245    17,182
Total Assets    18,380    17,597    8,705    8,255    27,085    25,852
Deferred Outflows of Resources    2,656    2,357    12    16    2,668    2,373
LIABILITIES                   
Current Liabilities    4,501    4,149   715  829    5,216    4,978
Long-term Liabilities    60,580    55,256    1,714    1,926    62,294    57,182
Total Liabilities    65,081    59,405    2,429    2,755    67,510    62,160
Deferred Inflows of Resources    83    1,429    19    17    102    1,446
NET POSITION                   
Net Investment in Capital Assets    4,531    4,958    3,794    3,449    8,325    8,407
Restricted    1,977    1,885    1,090    1,154    3,067    3,039
Unrestricted    (50,636)    (47,723)   1,385  896    (49,251)    (46,827)
Total Net Position (Deficit)    $(44,128)    $(40,880)    $6,269    $5,499    $(37,859)    $(35,381)

*Restated for comparative purposes

Total invested in capital assets net of related debt was $4.5 billion (buildings, roads, bridges, etc.) and $2.0 billion was restricted for specific purposes, resulting in an unrestricted net position deficit of $50.6 billion for governmental activities. This deficit is the result of having long-term obligations that are greater than currently available resources. The State has recorded the following outstanding long-term obligations which contributed to the deficit; a) general obligation bonds issued in the amount of $10.0 billion to finance various municipal grant programs (e.g., school construction) and $2.2 billion issued to finance a contribution to a pension trust fund, and b) other long-term obligations in the amount of $38.7 billion, which are partially funded or not funded by the State (e.g., net pension liability and OPEB obligations and compensated absences).

Net position of the State's business-type activities increased $770.1 million (14.0 percent) to $6.3 billion during the current fiscal year. Of this amount, $3.8 billion was invested in capital assets and $1.1 billion was restricted for specific purposes, resulting in unrestricted net positions of $1.4 billion. These resources cannot be used to make up for the net position deficit of the State's governmental activities. The State can only use these net positions to finance the ongoing operations of its Enterprise funds (such as the University of Connecticut and Health Center and others).

Changes in net position for the years ended June 30, 2016 and 2015 were as follows:

State of Connecticut's Changes in Net Position
(Expressed in Millions)

       Governmental Activities      Business-Type Activities       Total     % change
   2016    2015*    2016    2015    2016    2015*    16-15
REVENUES                      
Program Revenues                      
Charges for Services    $1,998    $1,902    $2,820    $2,600    $4,818    $4,502    7.0%
Operating Grants and Contributions    7,179    7,096    594    676    7,773    7,772    0.0%
Capital Grants and Contributions    779    717    6    33    785    750    4.7%
General Revenues                     
Taxes    16,204    15,707    -    -    16,204    15,707    3.2%
Casino Gaming Payments    266    268    -    -    266    268    -0.7%
Lottery Tickets    335    320    -    -    335    320    4.7%
Other    207    141    13    12    220    153    43.8%
Total Revenues    26,968    26,151    3,433    3,321    30,401    29,472    3.2%
EXPENSES                     
Legislative    140    109    -    -    140    109    28.4%
General Government    2,545    1,717    -    -    2,545    1,717    48.2%
Regulation and Protection    968    1,032    -    -    968    1,032    -6.2%
Conservation and Development    1,104    924    -    -    1,104    924    19.5%
Health and Hospital    2,772    2,176    -    -    2,772    2,176    27.4%
Transportation    2,238    1,767    -    -    2,238    1,767    26.7%
Human Services    9,116    6,753    -    -    9,116    6,753    35.0%
Education, Libraries, and Museums    5,315    4,407    -    -    5,315    4,407    20.6%
Corrections    2,308    1,825    -    -    2,308    1,825    26.5%
Judicial    1,135    876    -    -    1,135    876    29.6%
Interest and Fiscal Charges    829    797    -    -    829    797    4.0%
University of Connecticut & Health Center    -    -    2,255    2,155    2,255    2,155    4.6%
Board of Regents    -    -    1,363    1,319    1,363    1,319    3.3%
Employment Security    -    -    686    751    686    751    -8.7%
Clean Water    -    -    38    35    38    35    8.6%
Other    -    -    67    69    67    69    -2.9%
Total Expenses    28,470    22,383    4,409    4,329    32,879    26,712    23.1%
Excess (Deficiency) Before Transfers    (1,502)    3,768    (976)    (1,008)    (2,478)    2,760    
Transfers    (1,746)    (1,726)    1,746    1,726    -    -    
Increase (Decrease) in Net Position    (3,248)    2,042    770    718    (2,478)    2,760    
Net Position (Deficit) - Beginning (as restated)    (40,880)    (42,922)    5,499    4,781    (35,381)    (38,141)    
Net Position (Deficit) - Ending    (44,128)    (40,880)    6,269    5,499    (37,859)    (35,381)    7.0%

*Restated for comparative purposes

Changes in Net Position
This year the State received 60.1 percent of its revenue from taxes and 29.5 percent of its revenues from grants and contributions. In the prior year, taxes accounted for 60.1 percent and grants and contributions were 27.1 percent of total revenues. Charges for services such as licenses, permits and fees, rents and fines, and other miscellaneous collections comprised 7.4 percent of total revenue in fiscal year 2016, compared to 7.3 percent in fiscal year 2015.

Governmental Activities
The following graph is a representation of the Statement of Activities revenues for governmental activities. Governmental activities revenues increased by $817 million, or 3.1 percent. This increase is primarily due to an increase of $497 million from taxes.

The following graph is a representation of the Statement of Activities expenses for governmental activities. Governmental activities expenses increased by $6.1 million, or 27.2 percent. The increase is mainly attributable to increased spending in human services.

Business-Type Activities
Net position of business-type activities increased by $770.1 million during the fiscal year. The following chart highlights the changes in net position for the major enterprise funds.

During the year, total revenues of business-type activities increased 3.0 percent to $3.4 billion, while total expenses increased 1.3 percent to $4.4 billion. In comparison, last year total revenues remained steady, while total expenses decreased 2.8 percent. The increase in total expenses of $80.0 million was due mainly to an increase in University of Connecticut and Health Center expenses of $100.0 million or 4.6 percent. Although, total expenses exceeded total revenues by $976.2 million, this deficiency was reduced by transfers of $1,746 million, resulting in an increase in net position of $770.1 million.

FINANCIAL ANALYSIS OF THE STATE'S GOVERNMENTAL FUNDS
As of the end of the fiscal year, the State's governmental funds had fund balances of $1.8 billion, a decrease of $265.4 million over the prior year ending fund balances. Of the total governmental fund balances, $2.3 billion represents fund balance that is considered restricted for specific purposes by external constrains or enabling legislation; $191.6 million represents fund balance that is non-spendable; $379.7 million represents fund balance that is committed or assigned for specific purposes. A negative $1.01 billion unassigned fund balance offsets these amounts.

General Fund
The General Fund is the chief operating fund of the State. At the end of the fiscal year, the General Fund had a fund balance deficit of $614.2 million, an increase of $424.3 million in comparison with the prior year. Of this total fund balance, $384.7 million represents non-spendable fund balance or committed for specific purposes, leaving a deficit of $998.9 million in unassigned fund balance.

Specific changes to the General Fund balance included the following:

At the end of fiscal year 2016, General Fund revenues were 1.5 percent, or $260.9 million, higher than fiscal year 2015 revenues. This change in revenue results from increases of $538.3 million primarily attributable to taxes ($433.6 million), licenses, permits, and fees ($39.2 million), and other revenue ($65.5 million). These increases were offset by decreases of $277.4 million primarily attributable to federal grants and aid ($275.2 million), and other revenue ($2.2 million).

At the end of fiscal year 2016, General Fund expenditures were 3.0 percent, or $508.0 million, higher than fiscal year 2015. This was primarily attributable to increases in legislative, general government, regulations, conservation and development, human services, corrections, and judicial of $4.1 million, $337.5 million, $12.1 million, $81.2 million, $18.2 million, and $30.7 million respectively. Net other financing sources and uses increased by $29.6 million.

Debt Service Fund
At the end of fiscal year 2016, the Debt Service Fund had a fund balance of $738.2 million, all of which was restricted, an increase of $69.8 million in comparison with the prior year.

Transportation Fund
The State's Transportation Fund had a fund balance of $211.9 million at the end of fiscal 2016. Of this amount, $29.7 million was in nonspendable form and $182.2 million was restricted or committed for specific purposes. Fund balance decreased by $45.4 million during the current fiscal year.

At the end of fiscal year 2016, Transportation Fund revenues increased by $21.8 million, or 1.6 percent, and expenditures increased by $38.8 million, or 4.3 percent. The increased revenue is primarily due to an increase in taxes.

Restricted Grants and Accounts Fund
At the end of fiscal year 2016, the Restricted Grants and Accounts Fund had a fund balance of $197.9 million, all of which was restricted for specific purposes, an increase of $113.1 million in comparison with the prior year.

Total revenues were 5.5 percent, or $352.0 million, higher than in fiscal year 2015. Overall, total expenditures were 4.1 percent, or $267.9 million, higher than fiscal year 2015.

Grant and Loan Programs
As of June 30, 2016, the Grant and Loan Programs Fund had a fund balance of $689.4 million, all of which was restricted for specific purposes, a decrease of $63.6 million in comparison with the prior year.

FINANCIAL ANALYSIS OF THE STATE'S PROPRIETARY FUNDS
Proprietary funds report activities of the State that are similar to for-profit business. Proprietary fund financial statements provide the same type of information as the government-wide financial statements, only in more detail. Accordingly, a discussion of the financial activities of the Proprietary funds is provided in that section.

FINANCIAL ANALYSIS OF THE STATE'S FIDUCIARY FUNDS
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. The net positions of the State's Fiduciary funds totaled $30.9 billion, a decrease of $234.2 million when compared to the prior year ending net position.

Budget Highlights-General Fund
The State budget is formulated during odd-numbered years; the General Assembly generates a two-year (biennial) budget. The process begins with the Executive Branch, when the governor asks the commissioner of each state agency to prepare draft budgets for the following biennium. Over several months the governor's budget office, the Office of Policy and Management (OPM), compiles this information, makes changes as it sees fit, and then works to match the agencies' spending projections with revenue estimates for the same period.

The result referred to as the 'governor's budget,' is delivered to the General Assembly in a formal address by the governor in early February. The annual budget address often includes policy, initiatives, spending proposals, and vehicles through which additional revenue may be generated. In the address, the governor identifies his priorities for the biennium.

Thereafter, the legislature goes through a similar process to determine spending priorities and corresponding revenue requirements. Later in the session, the Appropriations and Finance Committees approve a budget, which is often different from the governor's. Negotiations with the governor's office reconcile the two versions and determine the final budget language and the state's fiscal path for the following two years. Lastly, the budget must be voted on and passed by both the House and Senate and signed into law by the governor.

The General Fund ended Fiscal Year 2016 with a deficit of $170,418,432. A transfer from the Budget Reserve Fund eliminated the shortfall returning the unappropriated balance of the fund to zero on the budgetary accounting basis. After the transfer to the General Fund, the Budget Reserve Fund had a balance of $235,582,921. The reserves at the beginning of Fiscal Year 2016 were $406,001,353.

In evaluating the Fiscal Year 2016 General Fund deficit, it is instructive to recall that as the fiscal year budget formulation process began, projections indicated that maintaining existing levels of programs and services would produce a deficit of $1.1 billion.

In order to pass a balanced budget for Fiscal Year 2016, policy changes were implemented to reduce current service spending in the General Fund by $519 million. The actual changes in spending between Fiscal Years 2015 and 2016 are discussed below. In addition to the spending changes, adjustments were enacted to generate an anticipated $802.1 million more in gross General Fund revenue. The largest revenue changes were to the income tax ($169.3 million), the corporation tax ($258.1 million), and the health provider tax ($224.8 million). The gain in the health provider tax was to be partially offset by higher payments to hospitals. Since the hospital tax (Public Act 11-6) was implemented in Fiscal Year 2012 as a method of maximizing federal reimbursements, redistribution of the tax back to hospitals has steadily declined.

Within the first two months of Fiscal Year 2016, it became clear that General Fund revenue would fall short of budget targets. A significant stock market correction in August of 2015 dampened hopes of meeting income tax estimates, especially with respect to the capital gains portion of the tax. By the time of the November 10, 2015 consensus revenue forecast, General Fund revenues were projected to be $217.5 million short of budget expectations and a Fiscal Year 2016 General Fund deficit emerged. In December, a deficit mitigation target of $350 million was negotiated and Public Act 15-1 was passed to rebalance the budget. Public Act 15-1 made line-item reductions to agency budgets and delayed revenue transfers to the Transportation Fund and to the Municipal Revenue Sharing Account, among other changes.

Revenue estimates continued to deteriorate throughout the fiscal year and on March 16, 2016, the Governor issued budget rescissions totaling $78.7 million across all branches of government. At the end of Fiscal Year 2016, the General Fund deficit estimate was $279.4 million, which was prior to accrual activity. Positive accrual results have reduced the General Fund deficit number for Fiscal Year 2016 to $170.4 million as cited above.

General Fund spending of $17,921.3 million in Fiscal Year 2016 grew by $501.6 million or 2.9 percent over last fiscal year. Almost 80 percent of this spending increase was attributable to two appropriation line-items: Debt Service increased by $265.5 million or 18.7 percent and the State Employees' Retirement System Contribution grew by $125.9 million or 13 percent. The functional program areas with the largest dollar reductions in spending from last fiscal year were general government administration (down $34 million or 5.1 percent), health and hospitals (down $19.4 million or 1.1 percent) and conservation and development (down $11 million or 5.3 percent). The largest functional program area increase was to education, which grew by $96.6 million or 1.9 percent. Education is the largest single program area accounting for almost 30 percent of General Fund expenditures.

In Fiscal Year 2016, General Fund revenue expanded by $498.8 million or 2.9 percent from the prior fiscal year. This gain was primarily due to the revenue policy changes discussed above, and it was well below initial budget expectations. The largest variance from the original budget estimates was in the income tax, which fell $652.8 million short of the target. Compared with the previous fiscal year, the payroll driven withholding portion of the income tax grew by 3.4 percent in Fiscal Year 2016. However, the estimated and final payments portions of the income tax, which are related to capital gains and bonus payments, dropped by 4.4 percent despite an increase in the upper bracket tax rate.

The disappointing revenue results for Fiscal Year 2016 were largely produced by an economy that has yet to reach past recovery growth levels, as well as considerable stock market volatility.

CAPITAL ASSETS AND DEBT ADMINISTRATION

Capital Assets

The State's
investment in capital assets for its governmental and business-type activities as of June 30, 2016 totaled $18.2 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 $1.01 billion.

Major capital asset events for governmental activities during the fiscal year include additions to buildings and land of $523 million and depreciation expense of $988.0 million.

The following table is a two-year comparison of the investment in capital assets presented for both governmental and business-type activities:

State of Connecticut's Capital Assets
(Net of Depreciation, in Millions)

Governmental Activities Business-Type Activities Total
Primary Government
  2016 2015 2016 2015 2016 2015
Land $1,747 $1,709 $68 $68 $1,815 $1,777
Buildings 2,605 2,505 3,253 2,868 5,858 5,373
Improvements Other Than Buildings 141 156 184 166 325 322
Equipment - 62 348 332 348 394
Infrastructure 4,613 4,934 - - 4,613 4,934
Construction in Progress 4,545 3,665 686 717 5,231 4,382
Total $13,651 $13,031 $4,539 $4,151 $18,190 $17,182


Additional information on the State's capital assets can be found in Note 9 of this report.

Long-Term Debt - Bonded Debt

At the end of the current fiscal year, the State had total debt outstanding of $25.3 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:

State of Connecticut's Bonded Debt (in millions)
General Obligation and Revenue Bonds
 

Governmental
Activities
Business-Type
Activities
Total Primary
Government
  2016 2015 2016 2015 2016 2015
General Obligation Bonds $17,395 $16,403 $- $- $17,395 $16,403
Transportation Related bonds  4,520 4,090 - - 4,520 4,090
Revenue Bonds - - 1,271 1,357 1,271 1,357
Long-Term Notes 353 520 - - 353 520
Premiums and Deferred Amounts 1,672 1,417 102 111 1,774 1,528
Total $23,940 $22,430 $1,373 $1,468 $25,313 $23,898

The State's total bonded debt increased by $1.4 billion (5.9 percent) during the current fiscal year. This increase resulted mainly from an increase in general obligation bonds of $992 million.

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 July 2016, the State had a debt incurring margin of $2.9 billion.

Other Long-Term Debt
State of Connecticut Other Long - Term Debt (in millions)  

  Governmental Activities  Business-Type  Activities Total
Primary Government
2016  2015*  2016  2015  2016  2015*
Net Pension Liability $27,460 $26,115 $- $- $27,460 $26,115
Net OPEB Obligation 9,928 8,983 - - 9,928& 8,983
Compensated Absences;  511    499    192    186    703    685
Workers Compensation    684    651    -    -    684    651
\Federal Loan Payable    -    -    -    103    -    103
Other    148    150    349    351    497    501
Total    $38,731    $36,398    $541    $640    $39,272    $37,038

*Restated for comparative purposes

The State's other long-term obligations increased by $2.2 billion (6.0 percent) during the fiscal year. This increase was due mainly to an increase in the net pension liability (Governmental activities) of $1.3 billion or 5.1 percent. Additional information on the State's long-term debt can be found in Notes 16 and 17 of this report.

Economic Outlook and Next Year's Budget
Despite the deep recession of 2008 and the slow pace of recovery, Connecticut continues to be a wealthy State. According to current census data, in 2015 Connecticut had a per capita personal income (PCPI) of $68,704. This PCPI was 143 percent of the national average of $48,112. Connecticut had a median adjusted family income of $91,388 in 2015 ranking it second among all States.

Connecticut's high income is partially explained by the educational achievement of its citizens. Almost 22 percent of the State's
adult population has a bachelor's degree and nearly 17 percent possess a graduate degree or higher. This ranks Connecticut 7th and 3rd respectively among the States in the educational attainment of its adult population.

The State continues to be a leader in technology and innovation within its industries. Total spending within the state on research and development activities places Connecticut 5th among all states. In 2015, Connecticut ranked 8th nationally in patents granted per population. The state's principal industries today produce jet engines and parts, submarines, electronics and electrical machinery, computer equipment, and helicopters. Much of Connecticut's manufacturing is for the military. Finance, insurance and real estate (FIRE) are important sectors that in 2015 contributed the highest dollar amount to the State's
Real Gross Domestic Product.

As in many other States, Connecticut's traditional core sectors are being reshaped by national trends and global competition. Manufacturing's contribution to the State economy as measured by Gr the past four decades. The 2008 recession significantly reduced employment in the State's FIRE sector. Jobs in the financial sector remain approximately 13,000 below the 2008 pre-recession peak. These are some of the highest paying jobs within the State. Over the past ten years in Connecticut, the strongest job gains have been in industries with below average wages. The largest gains have been posted in educational services, health care and social assistance, and accommodation and food services, but wages in these sectors are 20 percent below the statewide average.

Looking forward Connecticut has numerous competitive advantages and challenges in shaping its economy. As discussed in the introductory section above, Connecticut has been steadily adding jobs and those gains have now spread to all major employment sectors. There are also indications of pay gains in many sectors. The State's
labor force has the 3rd highest productivity rate in the country, which should help sustain higher wages into the future. Connecticut can boast of a high quality of life in attracting and retaining businesses. Forbes magazine ranked Connecticut 3rd in quality of life measures. The State has the 2nd lowest violent crime rate among neighboring states and the 9th lowest in the nation. State residents also enjoy the 3rd highest life expectancy in the country. Connecticut surely has challenges ahead in stabilizing its state budget, improving its transportation system and revitalizing its urban centers to accommodate growing preferences for urban living. Our State is well positioned to create a strong economy moving into the future. The stability of future State budgets is dependent on this economic growth. Job growth, wage growth and capital gains have been dependable indicators of State revenue growth and the resulting budget balance.

CONTACTING THE STATE'S OFFICES OF FINANCIAL MANAGEMENT

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.