Introduction

The State of Illinois at the State-level has approximately $17.47 billion of the taxpayer's money it is not using, i. e. surpluses equal to $1,386 for every man, woman and child in Illinois or $5,544 for a family of 4. This does not include all the additional surpluses that exist in the school districts, cities, or counties in Illinois.

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.

Categories	Amount of Surplus(In thousands)	Per Capita Surplus	Family of Four
Governmental Funds	5,754,140	457	1,827
Proprietary Funds	1,914,757	152	608
Fiduciary Funds	5,638,853	447	1,790
Component Units	4,158,314	330	1,320
Total...	17,466,064	1,386	5,544

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.

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 Illinois Special Revenue Funds (Governmental Funds), considered part of the budget, have fund balances of $1,407 million that probably will not be considered in the next year's budget. The total cash and investments, funds that were not used during the current year, was $2,077 million (surplus) and should be part of the next year's budget. So if next year there is a "budget deficit" ask about these funds not being considered or used.

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.

"Collecting more taxes than is absolutely necessary is legalized robbery" - Calvin Coolidge

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 $17.47 billion.

Here is what happens when the $17.47 billion is returned to the taxpayers (the private economy).

In FY 2003 unemployment was 415,719. If the $17.47 billion is returned to the people, 457,364 jobs will be created. There would be a labor shortage in Illinois. 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 $17.47 billion in surpluses to the people the State economy would grow by $3,630 per capita. That is 9 times the amount the Federal government used to stimulate the U.S.A.. economy. Businesses net incomes could double or triple. This is elementary economics.

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.ioc.state.il.us/Office/ResearchFiscal/Index.cfm?FuseAction=CAFR

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 Illinois CAFR- FY 2003

CAFR Page	List of Investments By Fund (In thousands)	Surpluses	Notes
No	Governmental Funds:
CAFR	General:
Pages	General Revenue Account	629,127
	Education Assistance Account	211,646
	Common School Account	133,808
	Medicaid Provider Assessment Program:
	University of Illinois Hospital Service Account	16,715
	County Hospital Service Account	5,690
	Long-Term Care Provider Account	56,654
	Other Medicaid Provider Assessment Accounts	8,515
	Road Fund	464,539
	Motor Fuel Tax Fund	114,647
	State Construction Account	245,172
	Special Revenue Funds:
	Treasurer:
	Tobacco Settlement Recovery Fund	42,246
	Children and Family Services:
	DCFS Training Fund	6,451
	DCFS Childrens' Services Fund	39,170
	DCFS Federal Projects Fund	3,171
	Commerce and Community Affairs:
	Supplemental Low Income Energy Assistance Fund	22,557
	Fund for Illinois' Future	71,234
	Tourism Promotion Fund	19,131
	Low Income Home Energy Assistance Block Grant	14
	Community Development /Small Cities Block Grant	25
	Build Illinois Capital Revolving Loan Fund	33,549
	Human Services:
	Prevention and Treatment of Alcoholism and Substance          Abuse Block Grant Fund	121
	Vocational Rehabilitation Fund	4,804
	DHS Special Purposes Trust Fund	45,831
	Old Age Survivors Insurance Fund	57
	Early Intervention Services Revolving Fund	30,720
	USDA Women, Infants and Children Fund	7,593
	Community Mental Health Medicaid Fund	1,329
	Local Initiative Fund	8,028
	Maternal and Child Health Services Block Grant Fund	9
	Food Stamp and Commodity Fund
	Public Aid:
	Special Education Medicaid Matching Fund
	Trauma Center Fund	8,023
	Child Support Enforcement Trust Fund-Administrative	40,388
	Public Assistance Recoveries Trust Fund	1,111
	Revenue:
	State Gaming Fund	29,919
	State and Local Sales Tax Reform Fund	27,906
	County and Mass Transit District Fund	43,321
	Local Government Tax Fund	223,658
	Illinois Sports Facilities Fund	3,500
	Illinois Tax Increment Fund	5,296
	Local Government Distribution Fund	45
	Municipal Telecommunications Fund	50,783
	Personal Property Tax Replacement Fund	162,430
	Build Illinois Fund	13,168
	Transportation:
	Federal/Local Airport Fund	2,558
	State Rail Freight Loan Repayment Fund	13,535
	Public Transportation Fund
	Downstate Public Transportation Fund	12,755
	Natural Resources:
	Open Space Lands Acquisition and Development Fund	27,022
	Parks and Conservation Fund	9,860
	Other Department Funds:
	Services for Older Americans Fund	127
	Wireless Service Emergency Fund	6,131
	Department of Corrections Reimbursement Fund	321,263
	Title II Social Security and Employment Service Fund	35,207
	State Pension Fund	33,226
	Public Health Services Fund	6,454
	Environmental Protection Agency:
	Brownfields Redevelopment Fund	9,574
	Hazardous Waste Fund	31,190
	Vehicle Inspection Fund	6,335
	State of Board of Education:
	Drivers Education Fund	3,506
	SBE Federal Department of Agriculture Fund	506
	SBE Federal Department of Education Fund	1,440
	School Technology Revolving Loan Program Fund	44,714
	Other Agencies, Boards and Authorities:
	School Infrastructure Fund	3,844
	Juvenile Accountability Incentive Block Grant Fund	11,811
	Rate Adjustment Fund	3
	McCormick Place Expansion Project Fund
	Help Illinois Vote Fund	44,935
	Underground Storage Tank Fund	35,546
	Student Assistance Commission:
	Federal Student Loan Fund	47,004
	Other	710,832
	Debt Service Funds:
	General Obligation Bond Retirement and Interest Fund	1,037,538
	ESCO Debt Service Fund	4,422
	Illinois Civic Center Bond Retirement and Interest Fund	21,462
	Build Illinois Bond Retirement and Interest Fund	137,919
	Other	5,957
	Capital Projects Funds:
	Build Illinois Bond Fund	125
	Conservation 2000 Projects Fund	11,691
	Transportation	110,608
	Capital Development Board	148,263
	Anti-Pollution Fund	17,840
	Other	6,836
	Permanent Funds:
	Other Funds
	Proprietary Funds:
	Enterprise:
	Unemployment Compensation Trust Fund	105,674
	Water Revolving Fund	309,147
	Designated Account Purchase Program Fund	774,965
	Nonmajor Enterprise Funds:
	Central Management Services	52,230
	State Lottery Fund	29,454
	Prepaid Tuition Fund	343,567
	Other	80,966
	Internal Service Funds:
	Central Management Services	205,820
	Working Capital Revolving Fund	1,735
	Other	11,199
	Fiduciary Funds
	Pension Trust Funds
	Investment Trust Funds	5,402,138	1
	Private Purpose Trust Fund
	Agency Funds:
	Department of Insurance
	Department of Public Aid
	Department of Revenue	109,404
	Other	127,311
	Component Units:
	Illinois Housing Development Authority	969,113
	Toll Highway Authority	552,477
	Other Authorities	200,783
	Illinois State University	114,114
	Northern Illinois University	89,448
	Southern Illinois University	260,626
	University of Illinois	1,795,939
	Other Universities	175,814
	Related Organizations: Financial Data Not Provided
	Central Midwest Interstate Low-Level Radioactive Waste    Commission
	Havana Regional Port District
	Kaskaskia Regional Port District
	Mt. Carmel Regional Port District
	Shawneetown Regional Port District
	Southwest Regional Port District
	Tri-City Regional Port District
	Waukegan Port District
	White County Regional Port District
	Illinois Community College System Foundation
	Total Surpluses…	17,466,064
	Per Capita…	1,386
	Family of 4…	5,544
Notes:
1	This is a broad based investment pool and the explanation of the money in this fund are not sufficient to make a determination of exactly how much would be potential surpluses.

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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