Introduction

The State of Florida at the State-level has approximately $48.79 billion of the taxpayer's money it is not using, i. e. surpluses equal to $2,843 for every man, woman and child in Florida or $11,374 for a family of 4. This does not include all the additional surpluses that exist in the school districts, cities, or counties in Florida.

The Exhibit A below shows the results of the FY 2003 review.

What are these surpluses we refer to?

Government surpluses, as used in this report, are funds that are not required or needed for the operation of all government operations, funds, accounts, agencies, etc., directly or indirectly, for the year(s) covered by the budget which is usually one year. Theoretically, at the end of every fiscal year, governments should have little or no cash/investments on hand. But what we have found is that most governments have huge amounts of cash and investments on hand at the end of the fiscal year. And somehow these cash and investments are not being recycled back through the budget process the next year, but are being held year-after-year.

A Government Can Have a Budget Deficits/Shortfalls and Financial Surpluses At The Same Time.

This is the most deceiving topic that governments, politicians, and the news media have conveyed to the public about governmental financial matters. In realty, a government can simultaneously have a budget shortfall and a financial surplus of the taxpayers' money.

The problems are focused in four areas:

1. The budget only covers a small portion of the State's financial condition. There are a group of funds not part of the budget process. The complete list of funds and budgetary requirements are found in the Comprehensive Annual Financial Report (CAFR). This report depicts the complete financial status of the State. The budget only covers a portion of the financial resources of the government.

A Little Background:

The CAFR usually has four categories.

Governmental Funds
Proprietary Funds
Fiduciary Funds
Component Units

Governmental Funds involve activities of the government including most basic services such as environmental resources, general government, transportation, education, health and human services, and protection of persons and property. Most of the cost of these activities are financed by taxes, fees , and federal grants.

Proprietary Funds are used when a government charges customers for the services it provides, whether to outside customers or to other agencies with the state. For example, Enterprise Funds, a component of proprietary funds, are for activities that provide goods and services to outside (non-government) customers, which includes the general public. Fees, charges for services or goods, assessments, fines, licenses, etc. are the major revenue sources.

Fiduciary Funds are activities in which the state acts as a trustee or fiduciary to hold resources for the benefit of others. These funds are pension trust funds, investment trusts, and agency funds (which are for assets held for distribution by the government as an agent for other governmental units, other organizations, or individuals).

Component Units reportedly are legally separated organizations for which the government is financially accountable. Usually fees, charges for services or goods, assessments, fines, penalties, licenses, etc. are the major revenue source.

The budget, as commonly known to the public, only involves the Governmental Funds and may not even include all of the governmental-type funds. The remainder of the Funds shown above are not part of the budget and are commonly called "off-budget" items.

2. Next year's budget consists only of next year's estimated revenues and next year's estimated expenditures. Previous years' revenues not used (spent) are normally not considered in the next year's budget, but should be. In other words, the previous years' revenues (as shown in the CAFR) are not recycled back to the budget process.

Historically, a budget consists of three parts: 1) Funds brought forward (funds not previously spent); 2) Next year's estimated revenues; and 3) Next year's estimated expenditures.

But somewhere along the way the funds brought forward category was lost. In accounting, the previous years' revenues are no longer called revenue but have been converted to Cash and Investments. Since they no longer called Revenues governments have forgotten about them to the public. They are there but not considered in the budget process, but should be.

Florida does use the balance brought forward in its budget process, which is good. However, they tend to over budget for expenditures and carry a fund balance.

3. The budgeted items and non-budgeted items (off budget) should be budgeted to zero (usually referred to as zero-based budgeting). In addition, the government should be on a pay-as-you-go basis, no reserves for future years. What this means is that you budget to have a zero fund balance. If you plan to spend $100 you budget for $100 with no excess or reserve allowed.

For example, the State of Florida Special Revenue Funds (Governmental Funds), considered part of the budget, had FY 2002 fund balances of $751 million. In FY 2003, they had fund balances of $1.26 billion. That is an increase of $509 million, a huge increase.

4. Budgeted expenditures should be last year's expenditures (as shown in the CAFR) with an adjustment for increase in requirements (costed out) or reductions in requirements. In most cases the CAFR expenditures are not considered in the next year's budget because the CAFR in many cases is published after next year's budget is considered and sometimes approved.

Running Surpluses is Stealing

Although taxation is legitimate, running a government surplus isn't. It represents a taking by the state, because it exceeds the government's contract with the community. It is no different than if a federal agency were to take a person's land or possessions without just compensation (an activity barred by the Fifth Amendment). Excess taxation isn't what the people bargained for.

In presuming entitlement or authority not ceded by the community, the state abrogates its moral pact with those it governs. Its power is no longer derived from the people, whose rights to liberty and property it boldly denies.

The Governor and the Legislators

The Governor and the legislators should include in the next year's budget the previous years revenues not spent as indicated by the CAFR. These were once a revenue and should still be considered revenue for budgetary purposes.

Also, they should consider a zero-balance budget concept for all budget and non-budgetary items in the CAFR including the College and Universities and the Component Units.

Budgeted expenditures (for the budget) should be last year's expenditures (from the CAFR) adjusted for demonstrated requirement changes in project, program or services. An increase in requirements should include the costs of these additional requirements. Conversely, a decrease in requirements should result in a decrease in costs associated with the decreased requirements.

The Governor and legislators should take into consideration the entire financial condition/status of the State in the budgetary process by including all of the funds in the CAFR as being a part of the budget.

This system is covered in the CAFR Budget System. This system needs to be implemented in all governments.

If the State holds the excesses/surplus, it will earn 4% to 5% on that money. If the State returns the money to the people it will receive 20% in revenue because of the increased economic activity. This is elementary economics.

Laws need to be changed.

Every thing done by governments is by law. There are laws that state this or that regarding the use of some of the funds. Man made the laws, man can change the laws. How much effort would it be to include at the end of every law "...or if considered excess or not needed for the current operation that the funds will be refunded to the taxpayers?" See how easy it is.

At one time every law had its place, but things change. The laws need to be reviewed for change to meet the current needs of the government and the people to release these funds for use/refunded.

If this were accomplished, the State would have a huge surplus to refund (rebate or tax reductions) to the taxpayers. Such a refund would create considerable wealth and jobs, increase wages, increase State and local government revenues, dramatically increase the economy, and create the greatest economic expansion in the history of the State. Everyone wins.

If you want to know the financial condition of your government(s), do not look at the budget. Get the CAFR.

The Synergistic Magic of Economics.

What happens when the government holds the $48.79 billion.

Here is what happens when the $48.79 billion is returned to the taxpayers (the private economy).

In addition, 1,102,424 jobs are created. This is why it is disastrous for governments to hold excesses/reserves of the taxpayers money.

Note: The economic impact analysis is further explained at Economic Impact Analysis.

The business community suffers the most.

Before the 9-11 tragedy, President Bush and Congress provided tax rebates which averaged $427 for every American. This was to create an additional $60 billion in consumer (economic) spending, turn the economy around and create jobs for the unemployed. However, 9-11 change that.

As the above economic impact chart shows, if the State returned the $48.79 billion in surpluses to the people the State economy would grow by $6,424 per capita. That is 15 times the amount the Federal government used to stimulate the U.S. economy. Businesses net incomes could double or triple. This is elementary economics.

Examples

The Health and Family Services, a Governmental Fund, had net expenditures of $181 million. It also had reserves (cash and investments) of $861 million. That represents 5 years of reserves.

The University of Florida, a Component Unit and not part of the budget, had net expenses of $410 million and cash and investment reserves of $2.2 billion. The reserves represent 5 years of expenditures.

Citizens Property Insurance Corporation, another Component Unit and not part of the budget made a profit of $473 million . It had reserves of $3.5 billion.

Internal Service Funds are government activities that charge other government agencies/departments for goods and services they provide. Other words, this is entirely in-house operations. Communications and Facilities, an Internal Service Fund, made a profit of $7.6 million and had cash/investment reserves of $104 million.

These only represent four of the 57 funds shown below that had cash and investment reserves not being used.

What to do?

Unless the budget flaws are corrected and the entire State finances are used in the budget process, the problems that created the surpluses will continue to exist. The budget deficits reported by the Governor and legislatures will be used year after year for the excuses for tax increases and/or to reduce needed services.

Just stopping a tax increase or a reduction in services will not solve the problems. The problems will come back the next year.

I have provided the details of the surpluses and explained the ways the surpluses are accumulated. The data is accurate because it comes directly from the government's own financial statement, the CAFR. You must provide the where-with-all to convince the Governor and legislatures that the surpluses exist and what should be done about it. I live in Arizona. It is not my money that is at stake.

Exhibit A

The 2003 CAFR is located at:

http://www.fldfs.com/pressoffice/cafr2003/index.html

Items not Included

The following items are not included in the amount of surplus shown:

-Buildings, roads, bridges, land (not for sale), and equipment.

-Deferred compensation plans for employees. These are plans in which the employee contributes to his/her retirement over and above the normal employee retirement contribution.

-Any fund that is 100% supported by donations, bequests, gifts, endowments, etc. These are not taxpayers money.

-For Colleges and Universities. All endowment and similar-type funds should not be included as surpluses. Sometimes these funds are combined with other college/university funds. We are interested in surpluses, so in these cases the total amount should not be included.

-Funds in which the revenues/contributions are 100% held for other individuals, organizations or another government.

-Funds that are required by law in which a bank, financial institution, insurance companies, etc. are required to deposit with the government a certain amount for insurance against the entity going bankrupt. These are not taxpayers' money.

-Retirement/Pension Funds - only included are 1/2 of the actuarially determined excesses, the taxpayers portion. The other 1/2 is the government employees portion.

  Review of The State of Florida CAFR- FY 2003

CAFR Page	List of Investments By Fund (In thousands)	Surpluses	Notes
	Governmental Funds:
28	General	4,046,490
28	Environment, Recreation and Conservation	1,837,565
28	Health and Family Services	860,802
28	Transportation	796,976
28	Public Education	1,576,053
29	Tax Collection and Administration	553,218
29	Employment Services	321,025
29	Lawton Chiles Endowment Fund	1,881,631
	Special Revenue Funds:
134	Government Administration	76,363
134	Business and Community Development	68,282
134	Regulation and Licensing	175,501
134	Tobacco Settlement	32,779
134	Public Safety	82,073
135	Corrections	28,034
135	Consumer Protection and Safety	22,073
135	Agriculture	51,353
135	Juvenile Justice	38,226
135	Judicial Services	24,607
135	Military and Veterans' Affairs	16,156
136	Citrus Commission	29,618
136	State Board of Administration
136	School For the Deaf and Blind	9,412
136	Wireless Emergency Telephone System	89,689
136	Workforce Florida Inc.	12,250
137	Florida Water Pollution Control Financing Corporation	173,194
137	Inland Protection Financing Corporation	11,471
137	Investment Fraud Restoration Corporation	981
137	Surplus Lines	5,065
137	Partnership in Correctional Excellence	271
	Capital Projects Funds:
158	General Government
158	Right-Of-Way and Bridge Construction	21,747
158	Juvenile Justice
158	Health Services	653
158	Agriculture	102
159	Veterans' Affairs	102
159	School for the Deaf and Blind	2,315
159	Other	169
130	Debt Service Fund	89,271
	Proprietary Funds:
	Enterprise Funds:
38	Transportation	570,316
38	Lottery	4,224,129
38	Unemployment Compensation	1,642,785
38	State Board of Administration	5,832,696
164	Other	220,161
164	Florida Engineer Management Corporation	185
	Internal Services:
170	Data Centers	18,287
170	Communications and Facilities	104,137
170	Other	3,875
	Fiduciary Funds
	Private Purpose Trust Funds:
176	Trust Escrow Administration	828,101
176	Unclaimed Property
176	Student Loan Guaranty Reserve
176	Florida Prepaid College Program
177	Other
	Pension: (1/2 the actuarial determined excess)
124	Pension Trust Fund (July 1, 2003)	6,327,697
181	Deferred Compensation Plan
181	Employee Health, Life and Disability Plans
181	Retiree Health Insurance Subsidy
	Agency Funds
189	Treasury Investment Administration	3,690,132
189	Tax Distribution and Administration
189	School for the Deaf and the Blind
189	State Board of Administration
189	Other
48	Investment Trust Fund		1
	Component Units:
52	Florida Housing Finance Corporation	1,614,486
52	South Florida Water Management District	349,885
52	University of Florida	2,158,874
52	Florida State University	929,973
53	University of South Florida	673,443
53	Citizens Property Insurance Corporation	3,535,138
195	Other Water Management Districts	339,417
195	Other State Universities	1,138,684
195	Community Colleges	1,134,781
195	Other Nonmajor Component Units	520,788
	Total Surpluses…	48,793,487
	Per Capita…	2,843
	Family of 4…	11,374
Note
1	Page 47 of the CAFR states:	$17,903,006
	"INVESTMENT TRUST FUND
	This blended component unit includes the internal reporting funds used to account for the external portion of investment pools reported by the State."
	I am not sure what that means. However, Page 63 states:
	"Investment Trust Fund- used to report the external portion of investment pools reported by the State."
	Also on Page 63 it states:
	"…Investments of the Local Government Surplus Funds Trust Fund, a Securities and Exchange Commission Rule 2a7-like external investment pool, are reported at amortized cost."
	The question is, does this $17.9 billion in investments include State money, component units money, the Local Government Surplus Funds Trust Fund, or all or a portion of the above?
	It is a lot of money and would greatly increase the per capita surpluses if all or a portion was considered State or component unit money.

Note: For those familiar with governmental accounting, for surpluses we basically used GFOA Balance Sheet Account Classification Codes 101, 102, 103, 151, 153, and 170.

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This report was prepared by: Gerald R. Klatt Lieutenant Colonel, USAF, Retired www.cafrman.com Qualifications Contact

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