Notes To Financial Statements
June 30, 2000
Note 1 Summary of Significant Accounting Policies
a. Basis of Presentation
The accompanying financial statements of the State of
Connecticut have been prepared in conformity with generally accepted accounting
principles as prescribed in pronouncements of the Governmental Accounting
Standards Board (GASB), except for the financial statements of the University of
Connecticut Foundation, Incorporated (an affiliated organization). Those
statements are prepared according to generally accepted accounting principles as
prescribed in pronouncements of the Financial Accounting Standards Board.
b. Financial Reporting Entity
As required by generally accepted accounting principles, the
accompanying financial statements include (1) all funds, agencies, boards,
commissions, and account groups that comprise the State's legal entity, (2)
legally separate organizations for which the State is financially accountable
(component units), and (3) a legally separate organization for which the nature
and significance of its relationship with the State is such that exclusions
would cause the State's financial statements to be misleading (affiliated
organization). Financial accountability exists if (1) the State appoints a
voting majority of the organization's governing board, and (2) the State is
able to impose its will on the organization, or there is a potential for the
organization to provide specific financial benefits to, or impose specific
financial burdens on the State.
Component Units
Component units are reported in the combined financial
statements either in a separate column (discrete presentation) or in combination
with similar funds of the State (blending presentation).
Discretely Presented Component Units
This column includes legally separate organizations for which
the State appoints a voting majority of the organization's governing board and
is contingently liable for the organization's debt or provides significant
funding for the organization's programs (applies only to the Connecticut
Innovations, Incorporated and the Capital City Economic Development Authority).
The financial data of the following organizations is included in this column.
Connecticut Development Authority
The Authority is a public instrumentality and political
subdivision of the State. It was created to stimulate industrial and commercial
development within the State through its Self-Sustaining Bond, Umbrella, and
Insurance programs as well as other economic development programs.
Connecticut Housing Finance Authority
The Authority is a public instrumentality and political
subdivision of the State. It was created for the purpose of increasing the
housing supply and encouraging and assisting in the purchase, development, and
construction of housing for low and moderate income families and persons
throughout the State. The Authority's fiscal year is for the period ending on
December 31, 1999.
Connecticut Resources Recovery Authority
The Authority is a public instrumentality and political
subdivision of the State. It is responsible for implementing the State Solid
Waste Management Plan by determining the location of and constructing solid
waste management projects; owning, operating, and maintaining waste management
projects; or making provisions for operation and maintenance by contracting with
private industry.
Connecticut Higher Education Supplemental Loan Authority
The Authority is a public instrumentality and political
sub-division of the State. It was created to assist students, their parents, and
institutions of higher education to finance the cost of higher education through
its Bond funds.
Connecticut Health and Educational Facilities Authority
The Authority is a public instrumentality and political
subdivision of the State. The purpose of the Authority is to assist certain
health care institutions, institutions of higher education, and qualified
for-profit and not-for-profit institutions in the financing and refinancing of
projects to be undertaken in relation to programs for these institutions.
Connecticut Innovations, Incorporated
The Authority is a public instrumentality and political
subdivision of the State. It was established to stimulate and promote
technological innovation and application of technology within Connecticut and
encourage the development of new products, innovations, and inventions or
markets in Connecticut by providing financial and technical assistance.
Capital City Economic Development Authority
The Authority is a public instrumentality and political
subdivision of the State. It was established in 1998 to stimulate new investment
in Connecticut, to attract and service large conventions, tradeshows,
exhibitions, conferences, and local consumer shows, exhibitions and events, to
encourage the diversification of the state economy, to strengthen Hartford's
role as the region's major business and industry employment center and seat of
government, to encourage residential housing development in downtown Hartford,
and to construct, operate, maintain and market a convention center project in
Hartford.
Condensed financial information for the major component units is disclosed in Note 20. Complete financial statements of the individual component units can be obtained from their respective administrative offices.
Blended Component Unit
The Connecticut Lottery Corporation was created in July 1996
as a public instrumentality and political subdivision of the State. The purposes
of the Corporation are to manage the State's lottery in an entrepreneurial and
business-like manner and to provide continuing and increased revenue to
the people of the State through the lottery. The State appoints a voting majority of the Corporation's governing board, and the Corporation provides revenue to the State. In the combined financial statements, the Corporation is included in the Enterprise funds group (Primary Government).
Affiliated Organization
The University of Connecticut Foundation, Incorporated is a
nongovernmental nonprofit corporation created exclusively to solicit, receive,
and administer gifts and financial resources from private sources for the benefit of all
campuses and programs of the University of Connecticut.
The Foundation is not financially accountable to the University. However, the Foundation is included as a component unit because the nature and significance of its relationship to the University are such that exclusion would cause the University's financial statements to be misleading. The Foundation is reported in a separate column in the higher education funds group (Primary Government).
c. Fund Accounting
The financial activities of the State are accounted for in
individual funds and account groups.
A fund is a fiscal and accounting entity with a self-balancing set of accounts recording cash and other financial resources, together with all related liabilities and residual equities or balances, and changes therein, which are segregated for the purpose of carrying on specific activities or attaining certain objectives in accordance with special regulations, restrictions or limitations. In the financial statements, individual funds are classified in four fund categories and component units. The four fund categories are governmental funds, proprietary funds, fiduciary funds, and higher education funds.
Account groups are accounting entities used to account for the State's general fixed assets and long-term debt. These account groups are not funds because they do not reflect available financial resources and related liabilities. In the financial statements, the account groups are the general fixed asset account group and the general long-term debt account group.
Because the State of Connecticut has a significant number of legal funds, a functional basis combining presentation was chosen to facilitate the preparation and readability of the Comprehensive Annual Financial Report (CAFR). More detailed information on the legal funds can be found in the Annual Report of the Comptroller � a "modified cash" basis document also produced by the Office of the Comptroller.
Following is a description of the fund categories, account groups, and component units used in the accompanying financial statements.
Governmental Funds
Fiduciary Funds
Trust and Agency Funds � These funds are used to account for assets held by the State in a trustee capacity or as an agent for individuals, private organizations, other governmental units, and other funds. These funds include expendable trust funds, nonexpendable trust funds, pension trust funds, an investment trust fund, and agency funds.
Account Groups
Higher Education Funds
The financial activities of the State's higher education
institutions (University of Connecticut, State universities, and community-technical colleges) and an affiliated
organization are accounted for in these funds, which are reported, in a separate
column in the combined financial statements (Primary Government). The following
fund categories and affiliated organization are included:
Component Units
The component units include proprietary type
organizations
that are legally separate from the State but that are considered part of the
reporting entity.
The accounting and financial reporting treatments applied to a fund is determined by its measurement focus and basis of accounting, which are described as follows:
Governmental Funds and Expendable Trust Funds
These funds are accounted for using a current financial
resources measurement focus and a modified accrual basis of accounting. Under the current financial resources
measurement focus, only current assets and liabilities are normally included on
the balance sheet. Fund balance represents a measure of "available
spendable resources." Under the modified accrual basis of accounting,
revenues are recorded when they are susceptible to accrual (i.e. both measurable
and available). The word "available" means that the revenue is
collectible within the current period or soon enough thereafter to pay period
liabilities. Expenditures are recorded when the related fund liability is
incurred except for principal and interest on general long-term debt which are
recorded as expenditures when due.
Major revenue sources that are treated as susceptible to accrual include sales and use taxes, personal income taxes, public service corporation taxes, and special fuel taxes. Revenues from restricted grants (federal or other) are recorded when the related expenditure has been incurred. Medicaid revenue is recorded when the related receivable is recorded.
Proprietary Funds, Nonexpendable Trust Funds, Pension Trust
Funds, Investment Trust Fund, Component Units, and Affiliated Organization
These funds are accounted for using a flow of economic
resources measurement focus and an accrual basis of accounting. Under the flow
of economic resources measurement focus, all assets and liabilities are included
on the balance sheet. Fund equity (proprietary funds and component units) is
segregated into contributed capital and retained earnings components. Under the
accrual basis of accounting, revenues are recorded when earned and expenses are
recorded when incurred.
According to GASB Statement No. 20, these funds (except for the affiliated organization) must comply with all applicable GASB pronouncements and all applicable pronouncements issued by the Financial Accounting Standards Board (FASB) and its predecessors as follows (provided those pronouncements do not conflict with or contradict GASB pronouncements):
| Fund Type |
FASB Statements Issued on or Prior to 11/30/89 |
FASB Statements Issued to Date |
|---|---|---|
| Proprietary Funds: | ||
| John Dempsey Hospital | X | |
| Others | X | |
| Nonexpendable Trust Funds | X | |
| Pension Trust Funds | X | |
| Investment Trust Funds | X | |
| Component Units: | ||
| CT Development Authority | X | |
| CT Housing Finance Authority | X | |
| CT Resources Recovery Authority | X | |
| CT Higher Education Supplemental | ||
| Loan Authority | X | |
| CT Health & Educational Facilities | ||
| Authority | X | |
| CT Innovations, Inc. | X | |
| Capital City, EDA | X |
Agency Funds
These funds are accounted for using a modified accrual basis
of accounting. Agency funds are custodial in nature (assets equal liabilities)
and do not measure nor report results of operations.
Higher Education Funds
These funds (excluding the affiliated organization) are
accounted for using a current financial resources measurement
focus and an accrual basis of accounting with the following exceptions:
e. Budgeting Process
By statute, the Governor must submit the State budget to the General Assembly in February of every other year. Prior to June 30, the General Assembly enacts the budget through the passage of appropriation acts for the next two fiscal years and sets forth revenue estimates for the same period for the following funds: the General Fund, the Transportation Fund, the Mashantucket Pequot Fund, the Workers' Compensation Administration Fund, the Banking Fund, the Consumer Counsel and Public Utility Control Fund, the Insurance Fund, the Criminal Injuries Fund, the Soldiers, Sailors, and Marines Fund and the Regional Market Operations Fund. Under the State Constitution, the Governor has the power to veto any part of the itemized appropriations bill and to accept the remainder of the bill. However, the General Assembly may separately reconsider and repass the disapproved items by a two-thirds majority vote of both the Senate and the House.
Budgetary control is maintained at the individual appropriation account level by agency as established in authorized appropriation bills and is reported in the Annual Report of the State Comptroller. A separate document is necessary because the level of legal control is more detailed than reflected in the CAFR. Before an agency can utilize funds appropriated for a particular purpose, such funds must be allotted for the specific purpose by the Governor and encumbered by the Comptroller upon request by the agency. Such funds can then be expended by the Treasurer only upon a warrant, draft or order of the Comptroller drawn at the request of the responsible agency. The allotment process maintains expenditure control over special revenue, enterprise, and internal service funds that are not budgeted as part of the annual appropriation act.
The Governor has the power under Connecticut statute to modify budgetary allotment requests for the administration, operation and maintenance of a budgeted agency. However, the modification cannot exceed 3 percent of the fund or 5 percent of the appropriation amount. Modifications beyond those limits, but not in excess of 5 percent of the total funds, require the approval of the Finance Advisory Committee. The Finance Advisory Committee is comprised of the Governor, the Lieutenant Governor, the Treasurer, the Comptroller, two senate members, not of the same political party, and three house members, not more than two of the same political party. Additional reductions of appropriations of more than 5 percent of the total appropriated fund can be made only with the approval of the General Assembly.
All funds except fiduciary funds use encumbrance accounting. Under this method of accounting, purchase orders, contracts, and other commitments for the expenditures of the fund are recorded in order to reserve that portion of the applicable appropriation. All encumbrances lapse at year-end and, generally, all appropriations lapse at year-end except for certain continuing appropriations (continuing appropriations are defined as carry forwards of spending authority from one fiscal budget into a subsequent budget). The continuing appropriations include: appropriations continued for a one-month period after year-end which are part of a program that was not renewed the succeeding year; appropriations continued the entire succeeding year, as in the case of highway and other capital construction projects; and appropriations continued for specified amounts for certain special programs. Carried-forward appropriations are reported as reservations of the fund balance in the financial statements.
The budget is prepared on a "modified cash" basis of accounting under which revenues are recognized when received, except for certain taxes and Federal and other restricted grant revenues of the General and Trans-portation funds which are recognized when earned. Tax revenues recognized when earned include the following: sales and use, personal income, corporation, public service corporations, petroleum companies, cigarettes, alcoholic beverages, gasoline, special motor fuel, and motor carrier road. Under the modified cash basis, expenditures are recognized when paid. A comparison of actual results of operations recorded on this basis and the adopted budget is presented in the financial statements for all governmental funds for which a budget is legally adopted.
f. Budgetary vs. GAAP Basis of Accounting
The major differences between the budgetary (legal) and the GAAP (generally accepted accounting principles) basis of accounting are as follows:
Because of the above differences, a reconciliation between the budgetary and GAAP basis is presented in Note 2.
g. Assets and Liabilities
Cash and Cash Equivalents (see Note 4)
In addition to petty cash and bank accounts, this account
includes cash equivalents � short-term, highly liquid investments with
original maturities of three months or less when purchased. Cash equivalents
include investments in the Short-Term Investment Fund ("STIF") and the
Tax Exempt Proceeds Fund, Inc. ("TEPF"). TEPF is a short-term,
tax-exempt money market fund reported under the Investment Company Act of 1940.
Investments in STIF and TEPF are reported at the fund's share price.
Investments (see Note 4)
Equity in Combined Investment Funds is reported at fair value
based on the funds' current share price.
The external investment pool is reported at amortized cost.
Other investments are reported at fair value, except for the following investments which are reported at cost or amortized cost:
Fair value is determined based on quoted market prices except for:
The State invests in derivatives. STIF and the Combined Investment Funds hold these investments.
Inventories
Inventories are reported at cost. Cost is determined by the
first-in first-out (FIFO) method. Inventories in the governmental funds consist
of expendable supplies held for consumption whose cost was recorded as an
expenditure at the time the individual inventory items were purchased. Reported
inventories in these funds are offset by a fund balance reserve to indicate that
they are unavailable for appropriation.
Fixed Assets and Depreciation
General fixed assets are reported at historical or estimated
historical cost. Donated fixed assets are valued at estimated fair value on the
date donated. The cost of interest incurred during construction of
infrastructure fixed assets (highways, bridges, etc.) is not capitalized. No
depreciation is provided for general fixed assets. Fixed assets in the
enterprise and internal service funds are reported at cost. Interest cost
incurred during construction at Bradley International Airport is capitalized as
part of the assets. Depreciation of these fixed assets is determined using the
straight-line method and is based upon the assets' estimated useful lives.
Fixed assets in the higher education funds are reported at cost. No depreciation is recorded on these fixed assets, except for the University of Connecticut's fixed assets. Depreciation of these fixed assets is determined using the straight-line method and is based on the assets' estimated useful lives.
Fixed assets of the component units are reported at cost. Depreciation of these fixed assets is determined using the straight-line method and is based upon the assets' estimated useful lives.
Food Stamps
Food stamps distributed to recipients during the year are
recognized as both an expenditure and a revenue in the operating statement.
Securities Lending Transactions (see Note 4)
Assets, liabilities, income, and expenses arising from
securities lending transactions of the Combined Investment Funds are allocated
ratably to the pension and nonexpendable trust funds based on their equity in
the Combined Investment Funds.
Deferred Revenues
This liability account represents:
In subsequent periods, when the State has a legal claim to the cash received, or when the revenues become available, the liability for deferred revenues is removed from the balance sheet and revenue is recognized.
Capital Appreciation Bonds
Capital appreciation (deep-discount) bonds issued by the
State, unlike most bonds, which pay interest semi-annually, do not pay interest
until the maturity of the bonds. An investor who purchases a capital
appreciation bond at its discounted price and holds it until maturity will
receive an amount which equals the initial price plus an amount which has
accrued over the life of the bond on a semiannual compounding basis. The net
value of the bonds is accreted (the discount reduced), based on this semiannual
compounding, over the life of the bonds. This deep-discount debt is reported in
the general long-term debt account group at its net or accreted value rather
than at face value.
Other Long-term Obligations
The portion of the net pension obligation, workers'
compensation claims, capital leases, claims and judgements, and accumulated
compensated absences that are expected to be liquidated with available
expendable financial resources is reported as an expenditure and a fund
liability of the governmental and expendable trust funds that will pay it. The
remaining portion that is not expected to be liquidated with available expendable financial resources is reported in the general
long-term debt account group. In the proprietary funds, higher education funds,
and component units such obligations are recorded as fund liabilities.
Vacation and sick policy is as follows: Employees hired on or before June 30, 1977, and mangers regardless of date hired can accumulate up to a maximum of 120 vacation days. Employees hired after that date can accumulate up to a maximum of 60 days. Upon termination or death, the employee is entitled to be paid for the full amount of vacation days owed. No limit is placed on the number of sick days that an employee can accumulate. However, the employee is entitled to payment for accumulated sick time only upon retirement, or after ten years of service upon death, for an amount equal to one-fourth of his/her accrued sick leave up to a maximum payment equivalent to sixty days.
The State recognized a liability to the federal government for excess earnings received from investing special tax obligation bond proceeds (rebatable arbitrage). This liability is reported as a liability for claims and judgements.
h. Fund Equity
Contributed Capital
The amount of permanent capital in the enterprise funds,
internal service funds, and component units which is contributed by governments
and others.
Reserved Retained Earnings
The portion of retained earnings in the enterprise funds and
component units which is legally restricted for specific future use.
Reserved Fund Balances
The portion of fund balances in the governmental, fiduciary,
and higher education funds which is legally reserved for a specific future use,
or which is not available for appropriation or expenditure.
i. Revenues, Expenditures, and Interfund Transactions
Taxes
Certain tax revenues that accrue to the State are considered
"available" if the payer incurs the obligation to the State before
year-end and payment is received within sixty days after year-end (see Note 6).
Licenses, Permits, and Fees
These items are not susceptible to accrual and are recognized
as revenues when the cash is collected.
Interest Rate Swap Agreements
The State has entered into interest rate swap agreements to
modify interest rates on outstanding debt. Other than the net interest
expenditures resulting from these agreements, no amounts are recorded in the
financial statements (see Note 14).
Interfund Transactions
Interfund transactions are recorded as follows:
(1) Transfers, which are from funds that are receiving revenues to funds in which the resources are to be expended, are classified as operating transfers.
(2) Transactions that would be treated as revenues, expenditures or expenses if they involved organizations external to the State are treated similarly by the funds of the State.
(3) Reimbursements from one fund to another are treated as expenditures or expenses of the reimbursing fund and as a reduction of the expenditures or expenses of the reimbursed fund.
(4) Non-recurring or non-routine transfers of equity between funds and capital contributions to proprietary funds are classified as equity transfers.
j. Pension Trust Funds Transactions
Plan member contributions are recognized in the period in which the contributions are due. State contributions are recognized in the period in which the contributions are appropriated. Benefits and refunds are recognized when due and payable in accordance with the terms of each plan.
Investment income and related expenses of the Combined Investment Funds (including securities lending transactions) are allocated ratably to these funds based on their equity in the Combined Investment Funds.
k. External Investment Pool
Assets and liabilities of the Short-Term Investment Fund
are allocated ratably to the External Investment Pool Fund based on its equity
in the Short-Term Investment Fund (see Note 4). Pool income is determined
based on distributions made to the pool's participants.
l. Use of Estimates
The preparation of the financial statements in conformity
with GAAP requires management to make estimates and assumptions that affect
the reported amounts and disclosures in the financial statements. Actual
results could differ from those estimates.
m. Total Columns � Memorandum Only
Total columns captioned "Memorandum Only" are presented only to facilitate financial analysis. Data in these columns do not present the financial position, the results of operations or cash flow in conformity with generally accepted accounting principles nor is such data comparable to a consolidation.
The State invests in derivatives to enhance investment returns or as in the case of foreign exchange contracts to facilitate trade settlements and to serve as foreign currency