State of Connecticut - Office of the State Comptroller - The Comptroller's Report - January 1999 - The State's Financial Position

State of Connecticut

The State's Financial Position

This graph is a pie chart of General Tax Revenues by Source for fiscal year 1998. For a text representation of this chart click on this image. Remarkably, the enormous growth in state tax receipts came at a time of continued reductions in tax rates and bases. In 1993, Connecticut began to take a serious look at its revenue structure in light of the exceptional performance of the income tax. At that time, a trend toward phased-in tax reductions began, and each year has seen more tax cuts implemented. The major tax reductions include: a cut in the corporate tax rate from 11.5 percent to 7.5 percent by the year 2000; a cut from 4.5 percent to 3 percent in the income tax rate at various income levels based on filing status; a property tax credit of up to $350 on the income tax; elimination of the inheritance tax by 2005; exemption of various items and services from the sales tax; and, a reduction in the gasoline tax from 39 cents to 32 cents per gallon. By Fiscal Year 2002, these tax cuts will reduce state revenues by over 1 billion dollars.
Reporting Format
The financial data presented below was developed in accordance with Generally Accepted Accounting Principles (GAAP). GAAP is the standard for financial reporting in both the public and private sectors. To date, however, the State of Connecticut has not yet adopted GAAP as its legal form of budgetary accounting. Therefore, the financial information below varies from much of the budget reporting that is familiar to the general public. In short, the financial information that follows is more accurate from an accounting perspective than the information normally reported on the state budget.
Fiscal Year 1998 Performance-
Results for a Single Year of Governmental Operations
General Fund Revenues
  • The General Fund is the state's largest operating fund, accounting for about 85 percent of Connecticut's total governmental spending.
  • In Fiscal Year 1998, the state recorded a General Fund operating surplus of 389 million dollars, the largest surplus posted to the General Fund in more than a decade.
  • The General Fund surplus is primarily the result of exceptionally strong revenue growth.
  • In Fiscal Year 1998, General Fund revenues increased 6.2 percent over the prior year. This trend was led by double-digit (14 percent) growth in state income tax receipts.
  • Income tax revenue increased from 2.8 billion dollars in Fiscal Year 1997 to 3.2 billion dollars in Fiscal Year 1998.
  • Overall, tax collections and federal payments to the state account for over 90 percent of all General Fund revenue.

The following financial information is presented in a table format.  For a plain text version of this information, please click here .

 

STATE OF CONNECTICUT          
General Fund Revenues by Source          
Last Five Fiscal Years          
(Expressed in Millions)          
SOURCE (1) FY 1994 FY 1995 FY 1996 FY 1997 FY 1998
Taxes $ 5,995 $ 6,350 $ 6,831 $ 7,054 $ 7,585
Licenses, Permits, and Fees 118 107 112 125 123
Federal & Other Receipts 2,480 2,562 2,644 2,585 2,646
Charges for Services 154 175 188 244 287
Fines, Forfeits, and Rents 31 35 24 30 34
Investment Earnings 25 28 26 37 53
Miscellaneous 188 116 129 128 117
Subtotal 8,991 9,373 9,954 10,203 10,845
Transfers in:          
Lottery 218 250 262 252 267
Other 2 21 3 10 -
Subtotal 220 271 265 262 267
Total $ 9,211 $ 9,644 $ 10,219 $ 10,465 $ 11,112
SOURCE: Office of the State Comptroller          

 

General Fund Expenditures

The following financial information is presented in a table format.  For a plain text version of this information, please click here.

 

 

State of Connecticut
General Governmental Expenditures By Function
Last Five Fiscal Years          
(Expressed in Millions)          
SOURCE (1) FY 1994 FY 1995 FY 1996 FY 1997 FY 1998
Legislative $ 46 $ 47 $ 47 $ 52 $ 55
General Government 1,034 1,110 1,183 716 784
Regulation and Protection 396 397 415 415 417
Conservation and Development 227 264 221 265 263
Health and Hospitals 758 793 827 896 956
Transportation 350 352 358 360 343
Human Services 2,917 3,395 3,450 3,512 3,554
Education, Libraries, and Museums(2) 2,258 2,339 2,421 2,446 2,581
Corrections 738 801 846 948 935
Judicial 229 242 272 304 321
Federal and Other Grants 1,009 922 876 679 780
Debt Service 972 1,262 1,305 1,158 1,318
Total Expenditures $ 10,934 $ 11,924 $ 12,221 $ 11,751 $ 12,307
(1) Includes General, Special Revenue, and Debt Service Funds. (2) Includes Higher Education Expenditures Treated as Operating Transfers from the State's General Fund.
Source: Office of the State Comptroller.

Beyond the General Fund -
 Total Governmental Operations

The state undertakes various activities that do not appear in the General Fund. These activities include transportation and housing programs, grants to municipalities, loan programs and other services. When these activities are combined with those of the General Fund, a true picture of governmental operations emerges.

Combined governmental operating results for Fiscal Year 1998 show a surplus of 7 million dollars. This surplus, although small, follows nine consecutive years of governmental operating deficits.

Traditionally, the state borrows money in order to cover its annual operating expenses. This is the first year in a decade that current resources were at a level sufficient to cover all operating outlays.

This is a graph that compares Operating Results for the General Fund and All Governmental Funds. For a text representation of this chart click on this image.

 

Overall Financial Position of the State

The Balance Sheet

In evaluating the state's financial performance, there is a tendency to focus exclusively on a single year of state operations. This approach does not provide an overall, long-term view of the state's financial health. To better evaluate the overall fiscal position of the state, it is necessary to look at the balance sheet. The balance sheet shows state assets, liabilities and fund balances at the close of each fiscal year.
  • At the end of Fiscal Year 1998, the General Fund balance sheet displayed a cumulative GAAP deficit of 694.3 million dollars. Although the rate of growth in the deficit is slowing, it is now almost 50 percent higher than it was five years ago.
  • The main reason for the cumulative deficit is the state's continued reliance on a flawed system of budgeting, which distorts the state's true fiscal picture.
  • For legal budgeting purposes, the state uses what is best described as modified cash accounting. Under this system, certain tax revenues are counted before they are actually earned, but expenditures are not recorded until months after the liability arises.
  • The cumulative result of these accounting manipulations to the annual budget is the state's GAAP balance sheet deficit.
  • Those who invest in Connecticut by buying state bonds or notes, or by relocating their businesses to the state, analyze their decisions, in part, on state government's overall health as reflected on the balance sheet.
  • The way to stop the gradual worsening of the state's balance sheet position is clear: adopt GAAP as the legal basis for state budgeting.
This is a graph that shows the Cumulative General Fund GAAP (Generally Accepted Accounting Principles) Deficit at the end of the past five fiscal years. For a text representation of this chart click on this image.

 

This is a graph that shows the Net State Debt at the end of the last five fiscal years. For a text representation of this chart click on this image. Debt Position
  • Connecticut ranks first in the nation in state tax supported debt per capita. Bonded debt per capita has more than doubled since 1990, growing to 2 thousand 820 dollars by the end of Fiscal Year 1998.
  • Many argue that high-income states can afford to take on higher debt levels than lower income states. However, even when the state's high resident income is considered, Connecticut's debt burden ranks second in the nation.
  • The state's debt to income ratio is 19.7 percent, more than three times the national average of 5.9 percent.
  • Connecticut's debt position is not improving, and there are no signs that debt reform initiatives will be undertaken in the near future.
  • In Fiscal Year 1998, Connecticut added another 70 million dollarsto its outstanding debt load, bringing its net debt to 9.3 billion dollars.
  • Large amounts of debt require high annual debt service (principal and interest) payments. In Fiscal Year 1998, debt service payments consumed almost eleven cents of every dollar spent by state government.
  • Debt service is a fixed cost that cannot be quickly adjusted when state revenue growth slows and budget deficits are projected. In difficult economic times, a high debt load can cripple a state's ability to respond effectively to the fiscal challenges it faces.
  • Bonded debt tends to be the central focus of most analyses of state debt. In Connecticut, however, bonded debt represents only about half of state government's long-term obligations.
This is a graph that shows Debt Service as a Percent of governmental operating expenditures for the last five fiscal years. For a text representation of this chart click on this image.

 

*Debt service includes Economic Recovery Note payments.

The following financial information is presented in a table format.  For a plain text version of this information, please click here.

State of Connecticut
Trends in Long Term Debt
Last Five Fiscal Years
(Expressed in Millions )
DEBT CATEGORY FY 1994 FY 1995 FY 1996 FY 1997 FY 1998
Bonded Debt $ 7,994 $ 8,412 $ 8,981 $ 9,229 $ 9,299
Pension Debt 6,008 6,090 6,334 6,597 6,761
Workers' Compensation 295 287 268 283 279
279 Employee Leave Accumulations 267 257 262 260 264
Capital Leases 55 56 54 49 48
Total $ 14,619 $ 15,102 $ 15,899 $ 16,418 $ 16,651
Source: Office of the State Comptroller

 

  • In addition to bonded debt, the state has unpaid pension debt, workers' compensation claims, employee compensation accumulations, and capital leases. These obligations added to bonded debt bring the state's Fiscal Year 1998 long-term debt total to 16.7 billion dollars.  
  • Long-term debt will become the shared obligation of current and future generations of taxpayers. Individuals not yet of voting age will shoulder much of the financial burden for Connecticut's current debt practices.
This is a graph that shows the level of Connecticut's Total Long-Term Debt at the end of the last five fiscal years. For a text representation of this chart click on this image.

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