State of Connecticut


The following discussion and analysis is supplementary information required by the Governmental Accounting Standards Board (GASB), and is intended to provide an easily readable explanation of the information provided in the attached basic financial statements. It is by necessity highly summarized, and in order to gain a thorough understanding of the state's financial position, the financial statements and footnotes should be viewed in their entirety. New standards issued by GASB have significantly changed the format of the basic financial statements. Due to these changes, few comparisons have been made between the current and prior year. In subsequent years, the MDA will focus on year-to-year comparisons.


Assets of the state's governmental activities were $4.6 billion less than liabilities, a deterioration in financial position of $1.9 billion related to current year operations. Assets of the state's business type activities exceeded liabilities by $3.8 billion, an increase of $0.2 billion related to current year operations. In total, net assets went from $0.9 billion to a negative $0.8 billion, a decrease in total net assets of $1.7 billion.

As noted above, the liabilities of the state exceeded its assets by $4.6 billion as of June 30, 2002. Of this amount, the unrestricted net asset portion was a negative $8.2 billion. One of the primary reasons is the state's reliance on issuing bonds for operating purposes. Non-capital asset related bonded debt stood at $4.9 billion at the end of the fiscal year, with local school construction alone representing $1.3 billion in outstanding debt. Additionally, long-term obligations such as net pension, compensated absences and worker's compensation obligations of $3.7 billion, with no offsetting assets, further contributed to the state's negative financial position.

Fund Level:
Governmental fund assets exceeded liabilities resulting in a fund balance of $1.5 billion, of which $1.7 billion was reserved leaving a negative unreserved balance of $0.2 billion. The unreserved undesignated fund balance of the General Fund was also negative at $0.9 billion at June 30, 2002.

Enterprise Fund assets exceeded liabilities resulting in total net assets of $3.8 billion, of which $3.7 billion was restricted or invested in capital assets, and the balance of $0.1 billion was unrestricted.

Debt Issued and Outstanding:
Long-term bonded debt of governmental activities totaled $11.7 billion (see Note 15). Other long-term liabilities totaled $3.8 billion.


There are three major parts to the basic financial statements: 1) government-wide financial statements, 2) fund financial statements, and 3) notes to the financial statements. This report also contains other supplementary information in addition to the basic financial statements.

GOVERNMENT-WIDE STATEMENTS (Reporting the State as a Whole)

Governments have traditionally focused their reporting on groupings of funds rather than on the government taken as a whole. The new financial reporting model, upon which this report is based, retains this traditional focus on funds and adds an additional focus on the overall government's financial position and operations.

The Statement of Net Assets and the Statement of Activities are two financial statements that report information about the state as a whole and its activities. These statements help to demonstrate how the state's financial position as a whole changed due to the year's operating activities. These statements include all non-fiduciary assets and liabilities using the accrual basis of accounting.

The Statement of Net Assets presents all of the state's assets and liabilities, with the difference between the two reported as net assets. Over time, increases and decreases in net assets measure whether the state's financial position is improving or not.

The Statement of Activities presents information showing how the state's net assets changed during the most recent fiscal year. All changes in net assets are reported as soon as the underlying event giving rise to the change occur, regardless of the timing of related cash flows. Therefore, revenues and expenses are reported in these statements for some items that will result in future fiscal year cash flows (e.g., earned but unused vacation time).

Both statements report three activities:

Financial reporting for governmental activities traditionally has focused on changes in current spend able resources rather than on changes in total resources. This traditional focus has been retained for purposes of fund reporting. However, as governmental activities are included with other activities in the new government-wide financial statement format, the focus for these activities shifts to changes in total resources. In other words, all activities reported in government-wide financial statements are reported in a manner similar to private-sector accounting. To increase the readers understanding, a summary reconciliation of the difference between the governmental fund financial statements and the government-wide financial statements is provided as part of the basic financial statements.


Fund financial statements focus on individual parts of the state's operations in more detail than the government-wide statements. Funds are accounting devices that governments use to keep track of specific sources of funding and spending for particular purposes. The state of Connecticut is required to report four categories of fund statements - governmental, proprietary, and fiduciary funds, to the extent that state activities meet the criteria for using these funds, and "combining statements" for its component units.

As a practical matter, governments have traditionally been combining similar individual funds into groupings or "fund types" (i.e., general fund, special revenue funds, debt service funds, capital projects funds, enterprise funds, internal service funds and trust & agency funds). In the past, it was these fund types, rather than individual funds, that have been the focus of the combined financial statements presented in financial reports. Under the new financial reporting model, as presented here, however, governments focus on major individual funds rather than on fund types (with aggregated information presented for the total of all non-major funds).

Major Governmental Fund Financial Statements:

Governmental fund reporting focuses primarily on the sources uses and balances of current financial resources and often has a budgetary orientation. The state's major government funds include the General Fund, the Transportation Fund and the Debt Service Fund.

General Fund. The General Fund functions as the chief operating fund for the state government. All of the state's activities are reported in the General Fund unless there is a compelling reason to report them elsewhere.

Transportation Fund. The Transportation Fund is a special revenue fund that accounts for motor vehicle taxes, receipts and transportation related federal revenues collected for the purpose of payment of debt service requirements and for making appropriations budgeted for the Department of Transportation and the Department of Motor Vehicles and related expenses. The Department of Transportation is responsible for all aspects of the planning, development, maintenance and improvement of the state transportation system.

Debt Service Fund. The Debt Service Fund is a governmental fund, which accounts for the accumulation of resources for, and the payment of, general long-term debt principal and interest.

Changes in budgetary reporting. Traditionally, governments have included a budget-to-actual comparison as one of their basic financial statements. The final amended budget has provided the budgetary amounts used for this presentation. The new financial reporting model brings three important changes to traditional practice.

Major Proprietary Fund Financial Statements:

Proprietary funds (enterprise and internal service) are accounted for using the flow of economic resources measurement focus and the accrual basis of accounting where all assets and liabilities are reported on the balance sheet. Revenues are recorded when earned and expenses are recorded when incurred. Some of the important changes that relate to the new reporting standard include the following:

Enterprise funds report activities that provide goods or services to the general public. An example is the Connecticut Lottery. Internal service funds report activities that provide supplies and services to the state's other programs and activities. An example is the state's motor fleet operations. Internal service funds are reported as governmental activities on the government-wide statements

Fiduciary Fund Financial Statements:

The fiduciary fund category includes pension (and other employee benefit) trust funds, investment-trust fund, private-purpose-trust fund and agency funds. These fund types should be used to report resources held and administered by the state when it is acting in a fiduciary capacity for individuals, private organizations or other governments. Some of the important changes to traditional reporting include the following:

Limitation on the use of fiduciary funds. The use of fiduciary funds will henceforth be limited to accounting for resources that are not available to support a government's operations and programs. This limitation resulted in the non-fiduciary reclassification of numerous expendable and non-expendable trust funds reported in the traditional financial reporting model, which is no longer used.

Changes in fiduciary funds. The distinction between expendable and non-expendable trust funds has been eliminated. Instead, some expendable trust funds have been reclassified and are now reported as special revenue funds while others have been replaced by the "private-purpose" trust fund. This newly created fund type is used to report all trust arrangements under which principal and income are to be used to benefit individuals, private organizations or other governments. Non-expendable or endowment-like arrangements available to support the operations or programs of the government (e.g., cemetery perpetual care funds) are accounted for in a governmental fund type, newly created by GASB statement 34, called "permanent funds."

Component Unit Combining Statements:

The same GASB 34 reporting rules regarding the determination of major funds are applied to the states component units. The Component units of the State of Connecticut are:

Connecticut Housing Finance Authority. Classified as the State's major component unit, the CHFA is a public instrumentality and political subdivision 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.

Connecticut Development Authority. CDA's purpose is to stimulate commercial development.

Connecticut Resources Recovery Authority. CRRA's purpose is solid waste management.

Connecticut Higher Education Supplemental Loan Authority. CHESLA's purpose is to provide resources for student loans.

Connecticut Health and Educational Facilities Authority. CHEFA's purpose is to provide resources for financing major projects for health and educational institutions.

Connecticut Innovations, Incorporated. CI's purpose is to stimulate application of new technology.

Capital City Economic Development Authority. CCEDA's purpose is to stimulate economic development in the city of Hartford.


Notes To The Financial Statements. The notes provide additional information that is essential to a full understanding of the data provided in the government-wide and the fund financial statements.

Required supplementary information. The RSI provides additional information regarding the States progress on funding its obligation to provide pension benefits to its employees.

Combining Financial Statements. Combining statements for non-major funds are not required to be presented or audited under generally accepted accounting principals. Nevertheless, Connecticut presents these statements as supplementary information, in the optional part of this report.



The following table was derived from the government-wide Statement of Net Assets. The state's combined net assets declined $1.7 billion over the course of Fiscal Year 2002 operations. The net assets of governmental activities decreased $1.9 billion, while net assets from business-type activities increased $0.2 billion.

State Of Connecticut's Net Assets
(in Millions)

Governmental Business-type Total
Activities Activities Primary Government
2002 2002 2002
Current and Other Non-
current Assets $ 3,369.3 $ 3,931.0 $ 7,300.3
Capital Assets 9,125.8 2,306.1 11,431.9
Total Assets 12,495.1 6,237.1 18,732.2
Current Liabilities 2,535.4 488.4 3,023.8
Long-term Liabilities 14,576.6 1,948.7 16,525.3
Total Liabilities 17,112.0 2,437.1 19,549.1
Net Assets:
Invested in Capital Assets,
Net of Related Debt 2,348.4 1,847.5 4,195.9
Restricted 1,231.4 1,846.1 3,077.5
Unrestricted (8,196.7) 106.4 (8,090.3)
Total Net Assets $ (4,616.9) $ 3,800.0 $ (816.9)

The following condensed financial information was derived from the government-wide Statement of Activities and reflects the nature of the state's change in net assets throughout Fiscal Year 2002.

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

Governmental Business-Type
Activities Activities Total
2002 2002 2002
Program Revenues
Charges for Services $ 942.9 $ 2,409.7 $ 3,352.6
Operating Grants and Contributions 3,320.1 447.7 3,767.8
Capital Grants and Contributions 509.1 37.8 546.9
General Revenues -
Taxes 8,292.6 - 8,292.6
Casino Gaming Payments 369.0 - 369.0
Other 224.6 89.4 314.0
Total Revenues 13,658.3 2,984.6 16,642.9
Legislative 80.2 - 80.2
General Government 1,340.0 - 1,340.0
Regulation and Protection 627.4 - 627.4
Conservation and Development 434.4 - 434.4
Health and Hospitals 1,664.1 - 1,664.1
Transportation 1,366.1 - 1,366.1
Human Services 3,882.7 - 3,882.7
Education, Libraries and Museums 3,000.3 - 3,000.3
Corrections 1,355.1 - 1,355.1
Judicial 538.4 - 538.4
Interest and Fiscal Charges 592.5 - 592.5
Higher Education - 1,869.9 1,869.9
Bradley International Airport - 50.4 50.4
CT Lottery Corporation - 672.1 672.1
Employment Security - 736.3 736.3
Second Injury & Compensation Assurance - 61.2 61.2
Clean Water - 30.9 30.9
Other - 19.2 19.2
Total Expenses 14,881.2 3,440.0 18,321.2
Excess(Deficiency) Before Transfers
and Special Items (1,222.9) (455.4) (1,678.3)
Transfers (657.0) 657.0 -
Special Items - (4.5) (4.5)
Increase(Decrease) in Net Assets (1,879.9) 197.1 (1,682.8)
Net Assets(Deficit) - Beginning (2,737.0) 3,602.9 865.9
Net Assets(Deficit) - Ending $ (4,616.9) $ 3,800.0 $ (816.9)


The following charts depict the distribution of revenues and expenses for Fiscal Year 2002.

Revenues Governmental Activities Fiscal Year 2002

Expenses - Governmental Activities Fiscal Year 2002

Expenses and Program Revenues- Governmental Activities Fiscal Year 2002


Within governmental activities, Fiscal Year 2002 program and general revenue receipts were $1.9 billion less than expenses. During Fiscal Year 2002, budget projections indicated that this gap between revenues and expenses would widen in future fiscal years. In an effort to improve the state's future operating results, revenue enhancements were enacted and appropriations reduced during the course of the 2002 legislative session. Specific appropriation reductions and revenue enhancements impacting Fiscal Year 2003 have been implemented and additional measures are under consideration at this writing.

Business-type activities saw an increase of $0.2 billion or 5.5 percent through Fiscal Year 2002 operations. Higher-Education expenses accounted for 54.3 percent of business-type expenses and 37.5 percent of program revenues. Program revenues exceeded expenses in the Connecticut Lottery Corporation by $0.2 billion.


The state completed Fiscal Year 2002 with a balance of $1.5 billion in its governmental funds. There is a small shortfall or negative balance of $0.1 billion in the unreserved portion of this fund balance. Fiscal Year 2002 operations reduced the balance in governmental funds by $1.1 billion from the prior year.

General Fund

The General Fund is the chief operating fund of the state. At the end of Fiscal Year 2002, the General Fund had a negative unreserved fund balance of $0.9 billion. Fiscal Year 2002 operations reduced the total fund balance in the General Fund by $1.3 billion. Lower tax receipts associated with a national economic recession were the primary cause of the deterioration in fund balance. On a budgetary accounting basis, actual revenues fell $1.1 billion short of the original budget plan estimates.

By the end of the first quarter of Fiscal Year 2002, budget forecasts were showing a large deficit building for the year. In response, deficit mitigation legislation was enacted. These mitigation plans resulted in net appropriation reductions after transfers of $0.3 billion. An increase in the state's cigarette tax was also enacted. The deficit mitigation initiatives implemented during the course of Fiscal Year 2002 were not sufficient to keep pace with declining revenues and the General Fund ended the year with a large operating deficit. This deficit was partially offset by a $0.6 billion balance in the state's Budget Reserve Fund. The remaining budgetary base General Fund operating deficit for Fiscal Year 2002 of $0.2 billion was financed through the issuance of economic recovery notes.

Transportation Fund

The Transportation Fund ended Fiscal Year 2002 with an unreserved fund balance of $0.2 billion. The change in fund balance through Fiscal Year 2002 operations was negligible.

The variance in Fiscal Year 2002 actual revenues from the original budget plan was less than fifty million dollars in this Fund.

Other Funds

The other funds category includes the state's special revenue funds. These funds had a total unreserved balance of $0.6 billion on June 30, 2002. The total fund balance as of that date was $1.0 billion.

In Fiscal Year 2002, expenditures exceeded revenues by $1.4 billion in the other funds category. Bonds issued in the amount of $1.6 billion provided an offset to this deficit. The state has a long history of utilizing bond proceeds to offset operating deficits within these funds.


Capital Assets.

The State of Connecticut's investment in capital assets for its governmental and business-type activities as of June 30, 2002 amounts to $11.4 billion (net of accumulated depreciation). The increase in capital assets for governmental activities was 2.1% while the increase for business-type activities was 12.1%. Depreciation charges for the fiscal year totaled $0.9 billion.

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

Governmental Business-type Total
Activities Activities Primary Government
2002 2001 2002 2001 2002 2001
Land $ 863.6 $ 819.9 $ 46.1 $ 44.0 $ 909.7 $ 863.9
Buildings 701.4 522.9 1,311.6 1,195.5 2,013.0 1,718.4
Improvements Other than Buildings 45.4 127.7 198.8 182.9 244.2 310.6
Equipment 547.4 559.4 365.4 352.8 912.8 912.2
Infrastructure 5,719.7 5,794.6 - - 5,719.7 5,794.6
Construction in Progress 1,248.3 1,116.7 384.2 282.3 1,632.5 1,399.0
Total $ 9,125.8 $ 8,941.2 $ 2,306.1 $ 2,057.5 $ 11,431.9 $ 10,998.7

Additional information on the State of Connecticut's capital assets can be found in Note 9 on page 70 of this report.

Long-term Debt.

The state, pursuant to various public and special acts, has authorized a variety of types of debt which fall into the following categories: direct general obligation debt, which is payable from the state's general fund; special tax obligation debt, which is payable from specified taxes and other funds; and special obligation and revenue debt, which is payable from specified revenues and other funds.

State of Connecticut's Outstanding Debt
General Obligation and Revenue Bonds (in Millions)

Governmental Business-type Total
Activities Activities
2002 2001 2002 2001 2002 2001
General Obligation Bonds $ 8,527.4 $ 7,812.1 $ - $ - $ 8,527.4 $ 7,812.1
Transportation Related Bonds 3,174.9 3,100.1 - - 3,174.9 3,100.1
Revenue Bonds - - 1,504.8 1,464.1 1,504.8 1,464.1
Total $ 11,702.3 $ 10,912.2 $ 1,504.8 $ 1,464.1 $ 13,207.1 $ 12,376.3

The state issued approximately $2.9 billion of bonds in fiscal year 2002 including $1.2 billion in refunding bonds with a net increase of 7.2% in outstanding debt for governmental activities and 2.8% for business-type activities. The state's general obligation bonds are rated Aa2, AA and AA by Moody's, Standard and Poor's and Fitch IBCA, respectively, while transportation-related special tax obligation bonds are currently rated Aa3, AA- and AA-, respectively.

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.

Additional information on the State of Connecticut's long-term debt can be found in Notes 15 and 16 on pages 73-77 of this report.


By the second quarter of Fiscal Year 2002, it became clear that the state was facing a structural imbalance between projected revenues and estimates of spending requirements. The General Fund deficit for Fiscal Year 2003 was estimated to be $0.6 billion on a budgetary (non-GAAP) accounting basis. The deficit for Fiscal Year 2004 was projected at $2 billion.

In February 2003, the legislature passed a deficit reduction plan that reduces appropriations by approximately $0.2 billion and is expected to produce over $0.4 billion in additional General Fund revenue in Fiscal Year 2003 almost entirely eliminating the deficit. Many of the spending reductions and revenue enhancements will continue into future fiscal years and significantly alleviate the structural budget imbalances. The legislature and governor are continuing their work to ensure that budgets are balanced in future fiscal years.

To date, 2,800 state employees have been terminated in an attempt to mitigate the budget deficit. If these employees are not recalled, future state services and operations will be impacted. The specific operational consequences of the reduction in the state's workforce is not known at this time.


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.