June 2, 1997
The Honorable John G. Rowland
Governor of the State of Connecticut
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 financial statements as of April 30, 1997.
The Office of Policy and Management (OPM), pursuant to Section 4-66 of the Connecticut General Statutes, has submitted budget estimates for Fiscal Year 1996-97 that project a General Fund surplus of $198,636,000 and a Transportation Fund surplus of $110,938,000. In accordance with existing statutory requirements, the financial statements attached hereto reflect OPM's projections.
I now project a Fiscal Year 1996-97 General Fund surplus of $268,425,000, which is $69,789,000 greater than that forecast by OPM, and a Transportation Fund surplus of $110,938,000. These projections are based on modified cash accounting, as required under current state law.
My projections now incorporate the spending proposals contained in your budget submission for the 1997-99 biennium. Excluded is $166.7 million of this year's surplus which the Appropriations Bill (sHB 6702) allocates for Economic Recovery Fund payments due in FY 98 and FY 99. If this allocation is approved by the legislature, my projection for the General Fund surplus will be reduced to $101,725,000.
General Fund expenditures for the current fiscal year are estimated to be $193.2 million higher than budgeted. The higher spending consists of $186.4 million in additional agency requirements and $6.8 million in net miscellaneous budget adjustments.
The agencies with significant General Fund deficiencies for the current fiscal year are: the Department of Social Services ($80.4 million); the Department of Children and Families ($35.5 million); Miscellaneous Appropriations administered by the Comptroller - Health Insurance, ($13.9 million); the University of Connecticut ($9.1 million); the Department of Education ($5.8 million); the Judicial Department ($3.1 million); the Board of Education and Services for the Blind ($1.2 million); the State Insurance Purchasing Board ($1.0 million); the Public Defender Services Commission ($.6 million); the Department of Veterans' Affairs ($.4 million); and the County Sheriffs ($.2 million). In addition, the Reserve for Salary Adjustments account ($34.9 million), and agency deficiencies of less than $100,000, result in a total General Fund deficiency of $186.4 million of which $137.1 million has been appropriated through this year's deficiency bill. Inclusion of $6.8 million in net miscellaneous budget adjustments results in the above-referenced $193.2 million additional General Fund expenditures for FY 97.
Almost two-thirds of the projected excess spending is attributable to three accounts: Medicaid ($80.4 million), Foster Care for Children ($23.0 million), and the University of Connecticut -- Operating Expenses ($9.1 million).
Higher than anticipated revenues more than offset the additional spending requirements. I am projecting that total General Fund revenues will end the year $461.6 million higher than budgeted. Net tax receipts are expected to end the year $448.2 million above the budget plan, which represents a 4.1 percent increase over last year's receipts. The higher than expected tax revenues are primarily due to the performance of the personal income tax. I am projecting that income tax receipts will end the year $290.8 million over budget. This is an increase of 9 percent from last year and is especially noteworthy in light of the income tax reductions that were implemented this fiscal year.
These additional revenues are the result of better than expected economic performance, and strong financial markets. Nationally, unemployment fell below 5 percent for the first time in more than two decades in April of this year. Connecticut has now regained about 78,000 of the 158,000 jobs that were lost to recession. Total personal income grew by 4.4 percent between 1995 and 1996. Solid income growth in the state is projected to continue throughout 1997. The reduction of the federal budget deficit from $290 billion five years ago to a projected $67 billion this year has helped to sustain the strong performance of the financial markets which, in turn, have brought high capital gains tax receipts to the state.
A surplus of $110.9 million is projected for the Transportation Fund, reflecting a $31.8 million increase over the projected fund balance for this fiscal year. The $31.8 million fund increase consists of $12.6 million in additional revenue, $4.9 million in lower than expected net spending, and an additional $14.3 million in funds carried forward from the prior fiscal year.
The General Fund projection contained in this report is based upon the modified cash basis of accounting used to formulate and execute the State budget, as currently required by state law. My office also publishes a Comprehensive Annual Financial Report prepared on a modified accrual basis as prescribed by Generally Accepted Accounting Principles (GAAP). The cumulative General Fund GAAP deficit at June 30, 1996 is $640 million.
The difference between the budgetary and GAAP basis projections is primarily due to the recognition under GAAP of projected liabilities, revenues, and other items which will be outstanding at year end and which are not reflected in the modified cash basis currently used for budgetary reporting. The recognition of these adjustments under GAAP results in a more accurate statement of the General Fund's financial position.
If you have any questions, I will be pleased to discuss this report at your convenience.
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