October 1, 1997
The Honorable John G. Rowland
Governor of the State of Connecticut
Hartford, Connecticut 06106
Dear Governor Rowland:
In accordance with Section 3-115 of the General Statutes and with my duty to render all public accounts under Article IV, Section 24, of the State Constitution, I am submitting the financial statements as of August 31, 1997.
The Office of Policy and Management (OPM), pursuant to Section 4-66 of the Connecticut General Statutes, has submitted budget estimates for Fiscal Year 1997-98 that project a General Fund surplus of $14,078,000 and a Transportation Fund surplus of $30,030,000. In accordance with existing statutory requirements, the financial statements attached hereto reflect OPM's projections.
I now project a Fiscal Year 1997-8 General Fund surplus of $25,300,000 and a Transportation Fund surplus of $30,030,000. These projections are based on modified cash accounting, as required under current state law.
General Fund expenditures for the current fiscal year are estimated to be $75.1 million higher than budgeted. This relatively high level of overspending at this early point in the new fiscal year is cause for concern. For the third consecutive year, state spending may exceed the budget by more than $100 million. It is this pattern of expenditures exceeding budgeted appropriations that has kept the state from reaching its full financial potential in paying down debt and filling the Budget Reserve Fund. The higher spending consists of $58.5 million in additional agency requirements, an OPM estimate of a $15.7 million decrease in the savings attributed to the early retirement program, and miscellaneous adjustments of $.9 million. The agencies with significant General Fund deficiencies for the current fiscal year are: the Department of Social Services ($55.0 million), the Department of Children and Families ($2.3 million), OPM (.5 million), and the Department of Public Works ($.7 million). About half of the Social Services deficiency is in the Medicaid account, and the remainder is in income support payments. The deficiency in the Department of Children and Families results from the addition of 66 staff members in accordance with the Juan F.consent decree.
Higher than anticipated revenues more than offset the additional spending requirements. I am projecting that total General Fund revenues will end the year $100.4 million higher than budgeted. Net tax receipts are expected to end the year $110.6 million above the budget plan. A strong national economy continues to propel tax receipts above budget expectations. Connecticut has gained 33,000 new jobs over the past year, and earnings have risen at a 3.3% annual rate. The slower growth in the national economy that is projected for the remainder of the year could moderate the present dramatic rate of state revenue growth. As the state Department of Labor and the Department of Community Development note in their September issue of the Economic Digest, "[t]he Connecticut economy cannot long maintain its forward momentum without a strong national economy". I have factored a degree of moderation into my present revenue projections to account for a potential slow down in national economic activity. These projections are subject to revision as we discern more about trends in the national economy.
A surplus of $30 million is projected for the Transportation Fund. Pursuant to Section 3 of P.A. 97-309, the amount of last year's $114.6 million surplus in excess of $20 million was appropriated to the State Treasurer for purposes of retiring outstanding special tax obligation indebtedness. An anticipated increase in this fiscal year's revenue from operations of $10.2 million and miscellaneous adjustments of $.2 million result in the above-referenced projected surplus of $30 million.
The General Fund projection contained in this report is based upon the modified cash basis of accounting used to formulate and execute the state budget, as currently required by state law. My office also publishes a Comprehensive Annual Financial Report prepared on a modified accrual basis as prescribed by Generally Accepted Accounting Principles (GAAP). The cumulative General Fund GAAP deficit as of June 30, 1997 is projected at $640 million.
The difference between the budgetary and GAAP basis projections is primarily due to the recognition under GAAP of projected liabilities, revenues, and other items which will be outstanding at year end and which are not reflected in the modified cash basis currently used for budgetary reporting. The recognition of these adjustments under GAAP results in a more accurate statement of the General Fund's financial position.
If you have any questions, I will be pleased to discuss this report at your convenience.
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