Introduction

The State of Louisiana at the State-level has approximately $9.65 billion of the taxpayer's money it is not using, i. e. surpluses equal to $2,152 for every man, woman and child in Louisiana or $8,606 for a family of 4. This does not include all the additional surpluses that exist in the school districts, cities, or counties in Louisiana.

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.

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.

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 $9.65 billion.

Here is what happens when the $9.65 billion is returned to the taxpayers (the private economy).

In FY 2002 unemployment was 123,000. If the $9.65 billion was returned to the people, 192,904 jobs are created. There would be a labor shortage in Louisiana. 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 $9.65 billion in surpluses to the people the State economy would grow by $4,303 per capita. That is 10 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

Now I want you to read this carefully. Louisiana has 162 Special Revenue Funds. These are usually part of the budget. Of these 162 funds 135 of them had no expenses. Other words, no activity in these funds for FY 2003. Yet, they had $1.1 billion in cash and investments just sitting there doing nothing but earning interest.

Louisiana Education Quality Trust Fund, a Governmental Fund, made a profit of $13 million. It had no expenses but it had cash and investment reserves of $870 million.

Medicaid Trust For The Elderly, a Governmental Fund, made a profit of $63 million. It had no expenses but it had reserves of $909 million.

Unemployment Trust Fund, an Enterprise Fund and not part of the budget, had net expenditures of $49 million. It cash/investment reserves of $1.5 billion. That is 31 years of reserves.

Louisiana Economic Development Corporation, a Component Unit and not part of the budget, had expenses of $7.7 million. It also had cash/investment reserves of $105 million. That represents 14 years of reserves.

These only represent five of the 58 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.state.la.us/osrap/CAFR-2.htm

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 Louisiana CAFR- FY 2003

CAFR Page	List of Investments By Fund (In Thousands)	Surpluses
	Governmental Funds:
29	General	183,607
29	Bond Security and Redemption Fund	269,937
29	Louisiana Education Quality Trust Fund	869,670
29	Medicaid Trust For The Elderly	909,247
115	Special Revenue Funds - 162 funds	1,394,056
	Debt Service Funds:
115	Parish Royalty Sinking Fund
115	Transportation Infrastructure Model For Economic       Development	522,769
115	Capital Outlay Escrow Fund	508,391
	Permanent Funds:
115	Education Excellence Fund	505,737
115	Fuller-Edwards Arboretum Trust Fund	185
116	Health Excellence Fund	377,116
116	W.R. Irby Bequest Fund
116	Lifetime License Endowment Trust Fund
116	Tops Funds	376,396
	Proprietary Funds:
	Enterprise:
33	Louisiana Lottery Corporation	180,559
33	Unemployment Trust Fund	1,538,195
	Nonmajor Enterprise Funds:
118	Boards and Commissions	26,151
118	Drinking Water Revolving Loan Fund	3,876
118	Louisiana Correctional Facilitates Corporation	5,803
118	Louisiana Federal Property Assistance Agency	793
118	Louisiana Office Building Corporation	3,636
119	Louisiana Opportunity Loan Fund	1,415
119	Louisiana Property Assistance Agency	1,943
119	Municipal Facilities Revolving Loan Fund	67,364
119	Office Facilities Corporation	65,995
119	Prison Enterprises	1,535
119	Public Safety Services Cafeterias	942
119	Donald J. Thibodeaux Training Complex	2,894
	Internal Services:
124	Administrative Services	1,449
124	Administrative Support	271
124	Central Regional Laundry	347
125	Flight Maintenance Operations	339
125	Jackson Regional Laundry
125	Office of Telecommunications Management	1,491
	Fiduciary Funds
37	Pension Trust Funds
37	Investment Trust Fund:
37	Louisiana Asset Management Pool
37	Private Purpose:
37	Louisiana Education Tuition and Savings Fund
	Agency Funds
134	Debt Service Reserve Fund	4,711
134	Escrow Fund	167,584
134	Free School Fund	18,738
134	Future Medical Care Fund	11,028
134	Insurance Trusts	90,020
	Component Units:
40	Louisiana State University System	428,474
40	University of Louisiana System	262,138
40	Southern University System	35,289
40	Community and Colleges System	133,653
41	Board of Regents	1,521
41	Greater New Orleans Expressway Commission	48,913
41	Louisiana Stadium and Exposition District	32,817
41	Orleans Levee District	37,520
41	Tobacco Settlement Financing Corporation	166,995
	Nonmajor Component Units:
138	Boards and Commissions	31,905
138	Capital Area Human Services District	2,363
138	Greater Baton Rouge Port Commission	20,692
138	Jefferson Parish Human Services Authority	1,146
138	Kenner Naval Museum Commission	2
139	Agricultural Finance Authority	627
139	Cancer Research Center	2,862
139	Louisiana Economic Development Corporation	104,674
139	Louisiana Housing Finance Agency	78,444
139	Louisiana Naval War Memorial Commission	369
139	Louisiana Public Facilities Authority	11,345
139	Millennium Port Authority	146
140	Other Levee Districts	113,955
140	Sabine River Authority	15,141
	Related Organizations-Financial data not included in this report.
	Ascension-St. James Airport and Transportation Authority
	River Parishes Transit Authority
	Castor Creek Reservoir District
	St. Bernard Harbor and Terminal District
	South Tangipahoa Parish Port Commission
	North Terrebonne Parish Tidewater Management and    Conversation District
	South Terrebonne Parish Tidewater Management and    Conversation District
	Grand Isle Independent Levee District
	River Region Cancer Screening and Early Detection District
	Louisiana Airport Authority
	Ernest N. Morial New Orleans Exhibit Hall Authority
	Chaplin Lake District
	Allen Parish Reservoir District
	Grand Bayou Reservoir
	Seventh Ward Neighborhood Development District
	Terrebonne Levee and Conversation District
	Twelfth and Thirteenth Wards Neighborhood Development    District
	Fourteenth and Sixteenth Wards Neighborhood Development    District
	Associated Branch Pilots of the Port of Lake Charles
	Associated Branch Pilots of the Port of New Orleans
	Crescent River Port Pilot's Association
	New Orleans Steamship Pilots Association
	Total Surpluses…	9,645,181
	Per Capita…	2,152
	Family of 4…	8,606

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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