Comptroller's Seal


November 3, 1998

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 30,1998.

Under the state's current modified cash basis of accounting, the General Fund posted a net Fiscal Year 1998 surplus of $312,911,356, the highest dollar surplus since Fiscal Year 1987. The Transportation Fund ended the year with a net surplus from operations of $31,421,980.

In accordance with the provisions of Article XXVIII of the State Constitution, the net General Fund surplus of $312,911,356 has been allocated as follows: $161,694,130 was transferred to the Budget Reserve Fund, bringing the fund up to its statutory level of 5% of net General Fund appropriations for Fiscal Year 1999; the remaining $151,217,226 of surplus was used for the retirement of bonded debt. Pursuant to Section 3 of Public Act 97-309, the Transportation Fund operating surplus of $31,421,980 is to be used by the State Treasurer for debt retirement leaving the fund balance at its beginning year level of $20 million.

Fiscal Year 1998 General Fund expenditures inclusive of federal and other grant accounts increased by 5.6% over the prior fiscal year. This increase is more than three times the rate of general inflation and, therefore, represents a historically high level of adjusted spending growth. During Fiscal Year 1998 General Fund appropriations rose $487,462,994 above the budget plan. The higher appropriations were comprised of $108.6 million in agency deficiencies, $61.9 million in lower than expected programmatic savings, $18.3 million for the HUSKY health plan and Medicaid expansion, $80 million for year 2000 conversion, $32 million for timely payment of Medicaid billings, $40 million in additional payments to towns, $124.5 million in tax rebates and administrative costs, $1.7 million to provide food stamps to legal immigrants, $3 million for school books, $1.8 million for the University of Connecticut endowment fund, and $15.6 million in miscellaneous adjustments. 

I am concerned that the state's constitutional cap on spending had to be exceeded by $194.1 million in order to support these expenditures. This is the first time that the spending cap has been exceeded since it came into existence in 1991, and it sets a dangerous fiscal precedent.

General Fund expenditures above the average growth of 5.6% for Fiscal Year 1998 occurred in the following functional areas: General Government expenditures grew 11% as a result of tax rebate payments; Health and Hospital spending increased 7.3% primarily due to higher expenditures for mental health and addiction services programs; Judicial spending rose 7% as a result of the higher cost associated with the Juvenile Alternative Incarceration program; and, the Non-Functional area grew 7.8% resulting, in part, from higher grant payments to towns. Notably lower than average expenditure growth was posted in the following functions: Regulation and Protection spending grew 2%; Social Services spending increased at a slow 2.9% due in part to a 10.4% decline in income support payments; and, increases of less than 1% were recorded for Conservation and Development and Corrections expenditures.

The higher than anticipated General Fund expenditures were more than offset by revenues that were 6.4% above the prior fiscal year's receipts. The higher revenues were led by a 15.6% rise in gross income tax receipts and a 6.2% increase in the sales tax receipts. The income tax finished Fiscal Year 1998 $461.1 million over budget expectations. The sales tax was $77.6 million over budget. These two tax sources contributed 63% of all General Fund revenue. A strong economy explains the phenomenal growth in revenues. Connecticut experienced a 2.1% growth in employment during Fiscal Year 1998, adding 33,900 jobs. The state's unemployment rate at the close of the fiscal year was 3.8%. Weekly earnings showed surprising strength, increasing 4.4% during Fiscal Year 1998. Strong financial markets also boosted revenues through higher capital gains. The overall General Fund surplus for Fiscal Year 1998 is revenue driven surplus. It is not the result of exceptional spending control.

This report has been prepared on a modified cash basis in accordance with current state law. My office also publishes a Comprehensive Annual Financial Report (CAFR) in conformance with Generally Accepted Accounting Principles. The CAFR will be issued in January of 1999.


Nancy Wyman
State Comptroller

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