Comptroller's Seal


December 30, 1999

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, 1999.

The General Fund posted a net surplus of $71,759,186 in Fiscal Year 1999. This is the eighth consecutive fiscal year in which the General Fund closed with a surplus. The Fiscal Year 1999 surplus amounts to less than one percent of total General Fund spending, which is the smallest year-end percentage recorded since 1994. In accordance with the provisions of Article XXVIII of the Connecticut State Constitution, the surplus will be apportioned as follows: $30,473,982 will be transferred to the Budget Reserve Fund, bringing the fund up to its statutory level of 5% of net General Fund appropriations for Fiscal Year 2000; the remaining $41,285,204 will be used for the retirement of bonded debt.

The Transportation Fund recorded a net operating surplus of $51,918,766 in Fiscal Year 1999. In accordance with the provisions of Connecticut General Statutes, Section 13b-68, this operating surplus will be used to reduce Transportation Fund debt. This leaves a Transportation Fund balance of $20 million, which was the balance held in the Fund at the start of 1999.

Between Fiscal Year 1998 and 1999,General Fund spending increased 6.2% (almost three times the general rate of inflation), the fastest rate of growth in four years. General Fund appropriations in 1999 were $572.6 million higher than initially budgeted. A majority of these expenditures are non-recurring. It should be noted that Fiscal Year 1999's single year of excess spending is $43.5 million higher than the total accumulation in the Budget Reserve Fund. The additional appropriations required a declaration of extraordinary circumstances to allow the constitutional cap on state spending to be exceeded. This is the second consecutive year in which the spending cap was exceeded. In 1998 appropriations were $194.1 million over the cap.

Some notable areas of increased appropriations in 1999 are as follow: $90 million to cover additional personnel costs related to a 27th payroll; $80 million for Hartford redevelopment; $78 million to prepay certain Medicaid costs; $60 million to pay outstanding liabilities in the state employees health account; $20.2 million for various legal settlements; $20 million for local capital improvement projects; and, $15 million in year 2000 conversion costs. In addition, $96.2 million for tax rebates was approved, and $55 million was set aside for school construction projects.

The dramatic increase in General Fund expenditures for Fiscal Year 1999 was accompanied by higher levels of state debt. Outstanding bonded debt redeemable from General and Transportation Fund revenues increased by $356.7 million in Fiscal Year 1999 with $1,268.6 million additions and $911.9 million in debt retired or defeased.

Exceptional revenue performance more than compensated for the higher than expected state expenditures in Fiscal Year 1999. General Fund revenues closed the year $624.4 million higher than expected. Over 67% of this windfall came from income tax receipts. In Fiscal Year 1999, total General Fund revenues increased 4.7% over the prior year, while income tax receipts rose 6.3% during the period. Each of the state's three largest tax categories, which account for 87% of all state tax receipts, outperformed budget expectations as follows: the income tax was $420.6 million higher than budgeted; the sales tax topped projections by $53.3 million; and, the corporation tax was $33.1 million higher than expected. The strong increase in state revenues results from continued economic growth. During Fiscal Year 1999, the state gained over twenty thousand jobs, driving the unemployment rate down to 3.4%, and weekly earnings rose by slightly over 3 percent. The strength of the financial markets also were a significant factor in the rise in tax receipts.

The state cannot continue to rely on exceptional revenue growth compensating for historically high spending levels. It is difficult to effectively analyze and control state expenditures using the outdated financial management information systems that are currently in place. I therefore renew my call for the development of new automated financial systems that will support real performance-based budgeting controls. I look forward to working cooperatively with your administration to implement these cost saving technologies.

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 of 2000. Please contact me if you have any questions concerning this report.



Nancy Wyman
State Comptroller

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