some excuses stated by various State and local government officials regarding
the surplus issue and our responses to these issues. The list will grow as more
excuses are provided.
We had a reserve or rainy-day funds but we used these to
balance the budget and surpluses do not exist?
the General Fund which may include a reserve or rain-day fund, all of the other
funds listed are neither the reserves nor "rainy-day funds". What are all of
these excesses? [Note: All the funds shown on the Exhibit A of each report.]
The surpluses include fixed assets that cannot be returned to
do not include:
Fixed assets such as
buildings, roads, equipment, and land held not for resale;
Endowments, gifts, donations,
contributions , bequests, etc.;
Trust and agency funds held
for other individuals or other governments;
compensation or similar type funds; and
Employee retirement system
actuarially determined requirements.
actuarially determined requirements are excluded. That is the amounts necessary
to pay off all the employees their determined amount of vested interest in the
funds. Any amount in excess of that amount is determined to be surplus with 1/2
for the taxpayer and 1/2 for the employee.
The surpluses do not exist. We have a budget
If one speaks
of the budget, then he probably is stating the truth. There may not be little
or no surpluses but my experience has been that even claimed budget deficits
really have financial surpluses. .
government includes the CAFR then it is not telling the truth unless the
government believes it has a right and need to hold excesses of the taxpayers
money for an "emergency, rainy-day, etc." If one actually believes in the
reserves concept then he/she is stating that he is intellectually challenged on
elementary economics. Alan Greenspan said it and we prove it.
private sector (you, me and businesses), the holding of reserves for whatever
reason is prudent money management because the private sector has only one
place to go when funds run out - to borrow the money.
governments this is not the case. If the government runs out of money it can go
to the taxpayer for more money. It has the power to tax. If the taxpayers
disapprove of the request, then governments must do with what the taxpayers
provide. In almost every instance when there are emergencies, etc., and the
government has a legitimate reason for the request for additional funds, the
taxpayers approve of the governments request. You and I do not have that option
of asking the taxpayer for more money. So the holding of reserves is not a
Most are restricted funds or other funds that have to be used
for specific voter approved projects.
funds are not mostly restricted funds. They are all kinds of funds.
governments are nonprofit and should use a pay-as-you-go system of meeting its
obligations with a few exceptions. If an obligation is paid then the excess
should be considered surpluses.
If the funds
cannot be used because it is designated for a specific purposes then when the
elected officials ask for a pay raise or additional perks, then just tell them
that there is a law that says what the amount will be and pay raise is denied.
Or when there is a budget proposal that says that taxes need to be increased,
then just tell them there is a law that says it cannot be changed.
Do you see
how ridiculous this idea is. Man made the laws. Man can change the laws. When
there is more than what is needed to meet the obligations of a fund, then the
excess should be returned to the people.
If these are
restricted funds that can only be used for certain purposes then why are there
excesses (reserves) in these funds. Could it be that the taxpayers were taxed
too much for these restricted projects and that is why the reserves are being
held and invested?
The strategic reserve protects our bond rating which saves
money for the taxpayers.
returning of the reserves to the people will provide more revenue for the
government and a host of other economic benefits. These benefits far exceed the
bond rating protection differential between what interest rate the city would
pay with a good or a bad rating. This has been shown in the economic impact
analysis both economically and mathematically.
the government and any other individual to demonstrate that holding reserves
(surpluses) of the taxpayers' money for bond ratings will equal or exceed the
benefits outlined above. If they can, then we will reconsider our
Some of the "fund balances" are actually capital assets which
would have to be liquidated to be used.
probably true for "fund balances", but "fund balances" are not included in our
analysis because they are not germane to the reserves issue. The accounts used
for potential reserves were liquid asset accounts, such as Cash/Deposits/Pooled
Investments; Investments; Cash/Investments with Fiscal Agents; Restricted
Assets: Cash and Cash Equivalents; Restricted Assets: Other Restricted Assets;
Assets; Amount; and Other Assets. It is true that these assets would
have to be liquidated to provide refunds to the taxpayer. The liquidation would
be very simple.
The amount shown do not include the
There are two
kinds of liabilities, current and long-term.
The best way
to understand this concept is to think of a mortgage on a residence. The total
outstanding mortgage (say $100,000) is a long-term liability. The monthly
payments made (say $6,000 for the year) are the current liability.
In the budget
process, whether for a government or an individual, is the current liability
($6,000) or the long-term liability ($100,000) included? Does any individual
say I have a $100,000 outstanding mortgage therefore next year I need $100,000
in income in order to balance my budget for the year? No, the individual and a
government use the current liability amount ($6,000) for budgeting and
cash/investment approach I assume the following: The government has paid all of
its obligations (including current liability payments) for the year because the
CAFR is prepared as of the end of the governments fiscal year. Other words the
government did not default on any obligations. If a government has paid all its
obligations for each program/project/service that it provides, then any
cash/investments still remaining were not needed to properly fund/operate the
programs/projects/service. Hence, these are considered potential surpluses of
funds that should be returned to the people in one form or another.
The liabilities were properly considered.
Almost $1 billion is listed under the Unemployment Compensation Fund as a
"surplus". This is money held by the State in a trustee capacity for the
benefit of the participants (employers in the State whose employees may become
unemployed and need to collect unemployment
with the above statement; however, it does not justify the government holding
excess funds in this area.
revenues for the Unemployment Compensation Fund are taxes, intergovernmental,
earnings on investments and fines, forfeitures and penalties.
Governments hold between 2 to 6 years of expenditures for the unemployment
expenditures. In a pay-as-you-go system the amount needed is the payment of the
current years unemployment because the funds are being received on a regular
as paying the tax, the consumers pay the tax because if the consumers did not
pay the tax then a business would go bankrupt. The business writes the checks
for the tax but the consumers pay the tax. Initially, the surpluses should be
returned to the people and thereafter the tax should be adjusted on a
The Workers Compensation Fund should not be included as a
surplus because it represents funds designated for those who are injured on the
job and they are entitled to receive these
the workers compensation funding should be on a pay-as-you-go system which
means that the amounts should be close the zero at the end of the fiscal year.
However, this is not the case. In those States that use the pay-as-you-go
system there are excesses over and above the amounts to make the
assumed that if the State goes bankrupt and ceases to exist that the money
would be available to pay off these claims. When was
the last time a State went bankrupt and ceased to exist? The States
have the power to tax, unlike an insurance company.
for those States that use the solvency/reserve method of handling workers
compensation the situation is a disaster for the taxpayer. In fact most States
have even more reserves than what an insuance company would be required to
maintain. California, Texas, and New York, three of our largest States, use the
pay-as-you-go method of handling workers compensations. But States like
Washington and Ohio are a disaster and growing each year.
has over $20 billion and Washington over $9 billion in workers compensation
funds not being used.
the businesses write the checks for workers compensation but the consumers pay
for workers compensation. It is in the price of the products and services they
Almost $3 billion is listed as Treasurer Custodial Securities Fund. These are
securities deposited by private corporations (most of it with the Insurance
Department) with the state to ensure performance of their business. The money
belongs to the private sector.
Normally a fund like the Treasurer Custodial Securities Fund is not
included as surpluses. But the $3.0 billion is rather high for a State the size
as Arizona. It could be that the amount necessary is based on an actuarial-type
evaluation/analysis and the amounts collected are reasonable. However, this
requires more analysis that cannot be done from a review of the CAFR. I would
like to see an actuarial study of the necessity for the $3
However, if it is determined that amounts collected from these firms
are reasonable, then the $3.0 billion should not be included as
surpluses. But remember this would deduct $3.0 billion from the $14.08 billion,
leaving $10.07 billion in other potential surpluses, or approximately $2,000
per capita, $8,000 for a family of 4.
The State Compensation Fund is legally a separate entity whose
assets belong to its policyholders.
of the CAFR:
State Compensation Fund was established by the Legislature for the purpose of
insuring employers against liability for workers' compensation; occupational
disease compensation; and medical, surgical and hospital benefits. The State
Compensation Fund is governed by a board of directors that consists of five
members appointed by the Governor for staggered terms of five years. Annually
the Governor appoints a chairman from among the board members. The State is
required by statute to review and approve the operating and capital outlay
budget of the State Compensation Fund."
Although legally separated, there is little doubt that the State
Compensation Fund is a State agency. The Government Accounting Standards Board
(GASB) refer to these type entities as "Special Governments."
[activity] is legally separate from the government." This is a favorite excuse
that the government has no responsibility of what takes place with that
activity. If the activity is included in the CAFR the activity is part of the
government. In most cases it is a "public corporation" or similar entity.
Although it may not make the basic day-to-day decisions of the major government
it was created by the major government and has a major say in its activities.
Utilities are one of the favorites of this type of activity.
are a few things you should understand.
Governments are not going to confess that they have been overtaxing the people
and have accumulated reserves (surpluses). Such a confession would be political
protect their actions, governments will use any excuse to justify their
position/actions. This is not only human nature, but survival.
Getting involved with a government in this type of dialogue is a waste of time.
issue is so important that if the politicians do not understand it and take
appropriate action, their challengers during the next election will.
using many excuses, the government is hoping that one item will stick and then
demand that the baby be thrown out with the bath water.
This is the
key response to all excuses raised by
governments/politicians regarding reasons they should hold reserves of the
government official/politician can demonstrate that holding and investing the
surpluses individually or in total, for any reason including "it is the law",
is equal to or greater than the amounts demonstrated in my economic impact
analysis when reserves are returned to the people, then we will gladly
reconsider our position.
is proven to our and the public's satisfaction, the maximum benefits to the
taxpayers are when the excesses are returned to the people (elementary
economics). When governments hold reserves, the taxpayers pay dearly. (See
Economic Impact Section)