1. www.CTCPAs.org Connecticut’s State and Local Government Crisis: Fixing Our Future 1

2. www.CTCPAs.org 2 Full Accrual=Long-Term Health Modified Accrual=Short-Term Health Budget Basis can be anything! “Modified Cash” for the State Either of the above are GAAP

3. www.CTCPAs.org SHORT-TERM FINANCIAL HEALTH 3

4. www.CTCPAs.org State of CT–ST Balance Sheet 4

5. www.CTCPAs.org Equity Compared to Others 5 Source: National Association of State Budget Officers The Fiscal Survey of the States – Fall 2011

6. www.CTCPAs.org LONG-TERM FINANCIAL HEALTH 6

7. www.CTCPAs.org State of CT – LT Balance Sheet 7 Summarized for discussion purposes from page 29 of 6/30/11 audited statements

8. www.CTCPAs.org Pension & OPEB Obligations What is this? –B–Benefits we owe retired employees –B–Benefits that current employees have earned OPEB - What is included in the liability? –B–Being “amortized” onto the books starting in 08 –O–On these 6/30/11 statements only 4/30 th included – That means 24/30 th are not included yet! Most of this debt (80%) is NOT on the books yet! 8

9. www.CTCPAs.org Percent of Pension Funded 9 Source: The Pew Center on the States – 2011 report

10. www.CTCPAs.org 10 Source: The Pew Center on the States – 2011 report

11. www.CTCPAs.org OPEB Costs per Year 11 Source: The Pew Center on the States

12. www.CTCPAs.org 12

13. www.CTCPAs.org State of CT–LT Balance Sheet 13

14. www.CTCPAs.org State of CT – LT Balance Sheet 14 Summarized for discussion purposes from page 29 of 6/30/09 audited statements

15. www.CTCPAs.org Long-Term Health Over Time 15 Zero -46,000,000,000 -48,000,000,000 -50,000,000,000 -52,000,000,000 -54,000,000,000 -56,000,000,000 -58,000,000,000 -60,000,000,000 -62,000,000,000 -64,000,000,000

16. www.CTCPAs.org BUDGET BASIS 16

17. www.CTCPAs.org Spending Cap Basic Rule: – Budgeted Expenditures Must Equal Est. Revenues Expenditure Limitations: – % increase capped at higher of: Annual growth in personal income Annual inflation Excludes: Debt Service, Certain Grants, Mandates Any Surplus must: – Reduce Debt or Increase the Rainy Day Fund – Exception by Gov. and 3/5ths Gen’l Assembly (This has normally occurred in surplus years) 17

18. www.CTCPAs.org 1-Time Fixes to Balance Budget 2009: – $916 Million in Borrowing due 2012 to 2016 – $400 Million in Federal Stimulus Temporary Funding 2010: – $1.3 Billion in “Rainy Day Funds” – $844 Million in Federal Stimulus Temporary Funding – $164 Million in Delayed Pension Payments 2011: – $103 Million in “Rainy Day Funds” – $745 Million in Federal Stimulus Temporary Funding – $100 Million in Delayed Pension Payments – $647 Million in Borrowing paid with utility surcharges – $449 Million in “Carry forwards” 18

19. www.CTCPAs.org Recommendations from the CPAs! 19

20. www.CTCPAs.org Basis of Accounting 20 Not for Operating Fund the ARC We Wanted We Got Audit Scope Limitation

21. www.CTCPAs.org Our Recommendations for the State Real “Rainy Day Funds” – Set a 10% to 15% threshold – No offsetting negatives! – Excess committed to pensions/OPEB Obligation Strategic Planning including: – Long-term budgeting (5 to 10 years out) – Manage the Full Accrual Balance Sheet It can no longer be business as usual 21

22. www.CTCPAs.org We must FIX OUR FUTURE now! 22 Stay connected at www.CTCPAs.org/fixfuture