Introduction

The State of Mississippi at the State-level has approximately $4.55 billion of the taxpayer's money it is not using, i. e. surpluses equal to $1,620 for every man, woman and child in Mississippi or $6,481 for a family of 4. This does not include all the additional surpluses that exist in the school districts, cities, or counties in Mississippi.

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 $4.55 billion.

Here is what happens when the $4.55 billion is returned to the taxpayers (the private economy).

In FY 2002 unemployment was 88,200. If the $4.55 billion is returned to the people, 91,051 jobs are created. There would be no unemployment only a labor shortage. 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 $4.55 billion in surpluses to the people the State economy would grow by $3,240 per capita. That is 8 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

Health Care, a Governmental Fund, had net expenditures of $4.9 million. It also had cash/investment (reverses) of $604 million. That is 124 years of reserve.

Unemployment Compensation, an Enterprise Fund and not part of the budget, had net expenditures of $83 million with a reserve of $687 million. That represents 8 years of reserves.

Health and Social Services, Special Revenue Funds and part of the budget, had net expenditures of $4.9 million and reserves of $17 million. That is 3 years of reserves.

Recreation and Resources Development, another Enterprise Fund and not part of the budget, had net expenditures of $1.7 million and reserves of $52 million. That is 30 years of reserve.

These only represent four of the 60 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 created. 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://msonline.state.ms.us/

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 Mississippi CAFR- FY 2003

CAFR Page	List of Investments By Fund (In thousands)	Surpluses
	Governmental Funds:
36	General	1,620,025
36	Health Care	603,787
	Special Revenue Funds:
	Department of Rehabilitation Services:
104	Rehabilitation Services	971
104	Disability Determination	7,832
	Employment Security Commission:
104	Employment Services	5,365
	Department of Mental Health:
105	Alcohol Abuse Program	291
105	Social Services	2,675
100	Law, Justice and Public Safety:
	Attorney General:
108	Medicaid Fraud	48
	Department of Corrections:
108	Community Services	2,272
108	Inmate Welfare and Training	5,444
	Department of Public Safety:
108	Public Safety Planning	5,279
	Military Department:
109	National Guard Facility And Training	1,746
109	Camp Shelby Operations	1,964
109	Emergency Management	6,208
109	Other	1,938
	Recreation and Resources Development:
	Department of Agriculture and Commerce:
112	Rice and Soybean Promotion	1,910
	Mississippi Development Authority:
112	Community Development	3,941
112	Energy Conservation	11,359
112	Other	458
	State Treasurer:
112	Court Assessments and Settlements	689
	Department of Wildlife, Fisheries and Parks:
113	Fisheries and Wildlife	9,655
113	Parks and Recreation	3,331
113	Motor Vehicle	1,766
113	Other	8,701
113	Department of Marine Resources	10,337
	Regulation of Business and Professions:
116	Public Service Commission	4,031
116	Workers' Compensation Commission	6,683
116	Department of Banking and Consumer          Finance	2,067
117	Oil and Gas Board	3,180
117	Other Regulatory Agencies	11,866
101	Debt Service Funds:	104,058
36	Capital Projects Funds:	431,586
101	Permanent Funds	47,235
	Proprietary Funds:
	Employment Security Commission:
40	Unemployment Compensation	686,995
40	Port Authority of Gulfport	53,680
	State Treasurer:
40	Prepaid Affordable College Tuition
	Enterprise Funds:
122	Fair Commission	1,035
122	Veterans' Home Purchase Board	19,524
122	Veterans' Memorial Stadium Commission	122
122	Yellow Creek Inland Port Authority	4,320
	Department of Rehabilitation Services:
122	Allied Enterprises	3,272
	Department of Agriculture and Commerce:
123	Farmers' Central Market Board	46
123	Agriculture and Forestry Museum	363
	Department of Finance and Administration:
123	Office of Surplus Property	24
	Department of Corrections:
123	Restaurants	24
123	Commissary	282
123	Prison Agricultural Enterprise	1,062
	Internal Services:
132	Personnel Board	1,283
132	Information Technology Services	7,120
	Department of Finance and Administration
132	Risk Management	77,891
	Fiduciary Funds
	Private-Purpose Funds
	State Treasurer:
142	Affordable College Savings
142	Memorial Burn Center	1,451
	Pension
	Agency Funds:
144	Local Government Distributive
144	Program	11,307
144	Institutional
	Component Units:
52	Universities	719,655
148	Mississippi Business Finance Corporation	11,877
148	Mississippi Coast Coliseum Commission	2,951
148	Mississippi Development Bank	259
149	Mississippi Prison Industries Corporation	1,658
149	Pat Harrison Waterway District	3,456
149	Pearl River Basin Development District	4,816
149	Pearl River Valley Water Supply District	4,835
149	Tombigbee River Valley Water Management    District	4,558
	Total Surpluses…	4,552,564
	Per Capita…	1,620
	Family of 4…	6,481

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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