Comptroller's Seal




December 31, 2001

The Honorable John G. Rowland
Governor of the State of Connecticut
State Capitol
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 Annual Report of the State Comptroller for the fiscal year ended June 30, 2001.

The General Fund posted a net surplus of $30,659,754 in Fiscal Year 2001. The gross surplus for Fiscal Year 2001 totaled $606,880,155 prior to supplemental appropriations from excess revenues realized during the fiscal year. The supplemental appropriations are specified in Special Act 01-1, JSS, Section 47(a). This is the tenth consecutive fiscal year with a General Fund surplus. The Fiscal Year 2001 net surplus amounts to less than 1% of General Fund expenditures. In accordance with the provisions of Article XXVIII of the Connecticut State Constitution, the entire $30,659,754 surplus will be transferred to the Budget Reserve Fund, bringing its balance to $594,697,530 (5% of net General Fund appropriations for Fiscal Year 2002). In order to realize sufficient surplus resources to maintain the Budget Reserve Fund at its statutory (CGS, Section 4-30a) target level, $31,923,205 in Fiscal Year 2001 supplemental appropriations were rescinded. Supplemental appropriations declined from an original level of $608,143,606 to a revised $576,220,401. The rescissions were implemented in accordance with the provisions of Special Act 01-1, JSS, Section 47 (w) and represent a 5.9% reduction to non-exempt appropriations.

To make supplemental appropriations of $576,220,401 in Fiscal Year 2001, it was necessary to lift the constitutional cap on state spending. Over the past four fiscal years the cap has been lifted to permit slightly over $1.5 billion in supplemental spending. Over the past three fiscal years the vast majority of supplemental spending was termed "one-time"; however, over $40 million of the Fiscal Year 2001 additional appropriations are clearly in continuing program areas. In addition, after four consecutive years of "one-time" spending increases that have inflated the General Fund expenditure base, it is fair to question the temporary nature of the upward trend in General Fund outlays.

Between Fiscal Year 2000 and 2001, General Fund expenditures increased $681,796,417 or 6.1%, close to the average annual growth rate that had been experienced in the previous three fiscal years. General Fund revenues grew by $771,824,730 or 6.9% in Fiscal Year 2001, well above the 5.4% annual average of the last three fiscal years.

Spending growth above the state-wide 6.1% average for Fiscal Year 2001 occurred in the following function of government categories: Health and Hospitals, Conservation and Development, Education, and Judicial. Lower than average expenditure growth rates were recorded in the following categories: Human Services, Corrections, Regulation and Protection, General Government, Legislative and Miscellaneous functions. The above average growth rates were largely attributable to increased outlays for mental health and addiction services, economic development, school construction, special needs education funding, and justice programs. A large portion of the below average spending growth is explained by an 11.9% decline in cash assistance through the Temporary Assistance to Needy Families Program (the decline for the previous three fiscal years averaged 16.6%), a slowing of the exponential growth in the state's prison population, a decline in Year 2000 computer upgrade spending, a decline in litigation costs, and the elimination of the tax rebate programs that had provided outlays of $116,876,573 to taxpayers in Fiscal Year 2000 and distributed $218,708,698 over the past three fiscal years. Additional detail regarding appropriations and expenditures can be found in Schedule B-3 of this report.

Higher levels of state debt accompanied the increase in General Fund spending for Fiscal Year 2001. Outstanding bonded debt redeemable from General and Transportation Fund revenues increased by $527,373,000 in Fiscal Year 2001, more than double the amount of increase posted in Fiscal Year 2000. Debt outstanding as of June 30, 2001 was $10,353,411,000. None of the gross surplus dollars arising in Fiscal Year 2001 were directed to paying down outstanding debt; however, about 30% of the supplemental appropriations could be classified as debt avoidance.

General Fund tax revenues grew 5.2% in Fiscal Year 2001, which is close to their three-year historical growth rate. Non-tax revenue sources exceeded past performance in Fiscal Year 2001 with double-digit growth in investment income receipts and tobacco settlement deposits and a strong rise in federal reimbursements due to higher spending in federally reimbursed program areas. Notable declines in the second half of Fiscal Year 2001 were experienced in income tax withholdings, sales tax and corporation tax receipts. Income tax withholding payments dropped from a year-to-date increase of 11.4% in January to 8.2% by year-end; sales tax receipts slipped from year-to-date growth of 6.5% in December to 3.3% for June; and the corporation tax showed the sharpest decline moving from 12.8% year-to-date growth in January to an actual decline in year-to-date receipts of 11.3% by the year-end. A slowing economy explains the sharp revenue decline in the second half of the fiscal year. After growth of over 1% in each of the first three quarters of the fiscal year, Gross Domestic Product grew just 0.2% in the last quarter of the fiscal year. In Fiscal Year 2001, the state experienced its slowest rate of job growth since Fiscal Year 1993. Slower increases in consumer spending and declining corporate profits also contributed to declining revenue growth.

The Transportation Fund recorded a net operating surplus of $45,498,391 in Fiscal Year 2001. This amount is combined with the July 1, 2000 fund balance of $90,222,196 yielding an unappropriated surplus as of June 30, 2001 of $135,720,587. The operating surplus is 5.4% of Fiscal Year 2001 budgeted expenditures. Spending increased 3.2% while revenues declined 3.7% for the year due primarily to a reduction in the motor fuels tax.

This modified cash basis report is in compliance with current state law. My office also publishes a Comprehensive Annual Financial Report (CAFR), which follows the more appropriate standards of Generally Accepted Accounting Principles. The CAFR will be issued in January 2002. Please contact me if you have any questions concerning this report.



Nancy Wyman
State Comptroller