Introduction

The State of New Jersey at the State-level has approximately $21.04 billion of the taxpayer's money it is not using, i. e. surpluses equal to $2,420 for every man, woman and child in New Jersey or $9,680 for a family of 4. This does not include all the additional surpluses that exist in the school districts, cities, or counties in New Jersey.

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.

For example, the Special Revenue Funds, most of them part of the budget, had fund balances of $3.72 billion in FY 2002 and $3.88 billion in FY 2003. Under the way the budget is prepared these fund balances will not be considered in the budget. These funds alone account for $447 per capita or $1,786 for a family of 4.

[Note: There is a joke that there are so many Special Revenue Funds in New Jersey that everyone in New Jersey has their own Special Revenue Fund.]

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 $21.04 billion.

Here is what happens when the $21.04 billion is returned to the taxpayers (the private economy).

In FY 2002 there were 255,000 unemployed. If the $21.04 billion was returned to the people, 255,000 jobs would be 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 $21.04 billion in surpluses to the people the State economy would grow by $5,071 per capita. That is 12 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

New Jersey Transit Corporation, a Component Unit and not part of the budget, made a profit of $482 million. It also had reserves (cash and investments) of $2.4 billion.

New Jersey Turnpike Authority, another Component Unit made a profit of $7.7 million. But it also had cash and investment reserves of $2.2 billion.

The University of Medicine and Dentistry of NJ, another Component Unit made a profit of $54 million . It had reserves of $714 million .

These only represent three of the 174 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.nj.us/treasury/omb/publications/03cafr/index.shtml

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 New Jersey CAFR- FY 2003

CAFR Page	List of Investments By Fund	Surpluses
	Governmental Funds:
40	General	1,446,156,791
40	Property Tax Relief
40	Tobacco Settlement Fund	23,007,946
	Special Revenue:
116	Alcohol Education, Rehabilitation and Enforcement       Fund	4,985,450
116	Atlantic City Parking Fees Fund	3,006,294
116	Atlantic City Tourism Promotion Fund	256,509
117	Beaches and Harbor Fund	1,391,989
117	Board of Bar Examiners	3,250,625
117	Boarding House Rental Assistance Fund	564,743
117	Body Armor Replacement Fund	6,056,257
118	Capital City Redevelopment Loan and Grant Fund	1,185,482
118	Casino Control Fund	51,000
118	Casino Revenue Fund
119	Casino Simulcasting Fund	2,141,548
119	Casino Simulcasting Special Fund	2,906,052
119	Catastrophic Illness in Children Relief Fund	9,875,283
119	Clean Communities Account Fund	14,099,930
120	Clean Waters Fund	2,060,173
120	Cultural Centers and Historic Preservation Fund	4,049,959
120	1992 Dam Restoration and Clean Waters Trust Fund	6,444,195
121	1989 Development Potential Bank Transfer Fund	3,363,142
121	Developmental Disabilities Waiting List Reduction Fund	20,597,549
121	Disciplinary Oversight Committee	2,966,875
121	Division of Motor Vehicles Surcharge Fund	6,634,645
122	Dredging and Containment Facility Fund	10,524,479
122	Drinking Water State Revolving Fund	45,973,233
122	1996 Economic Development Site Fund	1,360,497
123	Emergency Flood Control Fund	359,403
123	Emergency Medical Technician Training Fund	9,716,484
123	Emergency Services Fund	11,323,774
123	Enterprise Zone Assistance Fund	166,409,333
124	1996 Environmental Cleanup Fund	518,708
124	1989 Farmland Preservation Fund	196,536
124	1992 Farmland Preservation Fund	378,045
125	1995 Farmland Preservation Fund	9,881,568
125	Fund For Support of Free Public Schools	98,461,821
125	Garden State Farm Preservation Trust Fund	241,552,291
125	Garden State Green Acres Preservation Trust Fund	299,421,428
126	Garden State Historic Preservation Trust Fund	17,404,539
126	Green Trust Fund	10,126,933
126	Gubernatorial Elections Fund
127	Hazardous Discharge Fund of 1981	187,026
127	Hazardous Discharge Fund of 1986	11,175,033
127	Hazardous Discharge Site Cleanup Fund	71,937,466
127	Health Care Subsidy Fund	30,638,281
128	Higher Education Facility Renovation and Rehabilitation       Fund	278,247
128	1992 Historic Preservation Fund	414,621
128	1995 Historic Preservation Fund	834,033
129	Historic Preservation Revolving Loan Fund	3,535,285
129	Horse Racing Injury Compensation Fund	4,319,383
129	Housing Assistance Fund	4,134,284
129	Jobs, Education and Competitiveness Fund	9,142,073
130	Jobs, Science and Technology Fund	29,568
130	Korean Veterans' Memorial Fund	31,906
130	1996 Lake Restoration Fund	1,344,248
131	Luxury Tax Fund	84,311
131	Medical Education Facilities Fund	524,216
131	Mortgage Assistance Fund	1,795,053
131	Municipal Landfill Closure and Remediation Fund	13,497
131	Mutual Workers' Compensation Security Fund	10,365,064
132	Natural Resources Fund	2,236,542
132	New Home Warranty Security Fund	35,122,547
132	New Jersey Automobile Insurance Guaranty Fund	175,619,401
133	New Jersey Building Authority	127,870,659
133	1995 New Jersey Coastal Blue Acres Trust Fund	174,644
133	New Jersey Cultural Trust Fund	20,288,155
133	1983 New Jersey Green Acres Fund	20,108,673
133	1989 New Jersey Green Acres Fund	5,531,206
134	1992 New Jersey Green Acres Fund	1,789,735
134	1995 New Jersey Green Acres Fund	979,315
134	1989 New Jersey Green Trust Fund	27,934,657
135	1992 New Jersey Green Trust Fund	1,615,094
135	1995 New Jersey Green Trust Fund	2,846,901
135	1995 New Jersey Inland Blue Acres Fund	1,797,218
135	New Jersey Insolvent Health Maintenance Fund	25,890,124
135	New Jersey Lawyers' Assistance Program	488,209
136	New Jersey Lawyers' Fund for Client Protection	14,491,129
136	New Jersey Local Development Financing Fund	19,626,747
136	New Jersey Racing Industry Special Fund	103,369
136	New Jersey Schools Construction Corporation	682,839,024
137	New Jersey Spill Compensation Fund	32,111,335
137	New Jersey Spinal Cord Research Fund	10,510,096
137	New Jersey Transportation Trust Fund Authority	36,024,983
137	New Jersey Workforce Development Partnership Fund	61,580,169
138	Petroleum Overcharge Reimbursement Fund	11,667,990
138	Pinelands Infrastructure Trust Fund	4,282,925
138	Pollution Prevention Fund	3,745,472
139	Real Estate Guaranty Fund	2,082,949
139	Resource Recovery and Solid Waste Disposal Facility       Fund	675,807
139	Safe Drinking Water Fund	6,677,216
139	Sanitary Landfill Facility Contingency Fund	10,840,918
139	Shore Protection Fund	10,464,584
140	State Disability Benefit Fund	102,026,410
140	State Land Acquisition and Development Fund	1,035,321
140	State Recreation and Conservation Land Acquisition       and Development Fund	1,576,523
141	State Recycling Fund	2,743,154
141	Stock Workers' Compensation Security Fund	42,097,773
141	Stormwater Management and Combined Sewer       Overflow Abatement Fund	6,630,573
141	Superior Court of New Jersey Trust Fund	207,823,528
141	Supplemental Workforce Fund for Basic Skills	15,994,466
142	Trial Attorney Certification Program	160,914
142	Unclaimed Child Support Trust Fund	2,138,948
142	Unclaimed Utility Deposits Trust Fund	3,021,689
143	Unemployment Compensation Auxiliary Fund	11,898,510
143	University of Medicine and Dentistry of New Jersey -       Self Insurance Reserve Fund	6,102,742
143	Unsatisfied Claim and Judgement Fund	157,820,876
143	Urban and Rural Centers Unsafe Buildings Demolition       Revolving Loan Fund	12,274,176
143	Vietnam Veterans' Memorial Fund	118,105
144	Volunteer Emergency Service Organizations Loan Fund	1,275,993
144	Wastewater Treatment Fund	360,440,686
144	1992 Wastewater Treatment Fund	4,354,279
145	Water Conservation Fund	957,678
145	Water Supply Fund	53,213,931
145	Water Supply Replacement Trust Fund	70,547
145	Worker and Community Right To Know Fund	1,031,387
114	Debt Service Fund	5,153,058
	Capital Projects Funds:
176	Correctional Facilities Construction Fund	607,890
176	Correctional Facilities Construction Fund of 1987	3,544,178
176	Energy Conservation Fund	36,324
177	Human Services Facilities Construction Fund	201,930
177	Institutional Construction Fund	6,856
177	Institutions Construction Fund	10,181
177	NJ Bridge Rehabilitation & Improvement Railroad       Right-of-way Preservation Fund	7,113,315
177	New Jersey Bridge Rehabilitation and Improvement       Fund	6,049
178	Public Buildings Construction Fund	4,943
178	Public Purpose Buildings & Community-Based Facilities       Construction Fund	8,467,903
178	Public Purpose Buildings Construction Fund	280,052
179	Special Transportation Fund	99,258,364
179	State Facilities for Handicapped Fund	238,218
179	1999 Statewide Transportation & Local Bridge Fund	68,172,500
179	Transportation Rehabilitation & Improvement Fund	573,359
	Proprietary Funds:
47	State Lottery	1,193,212,557
47	Unemployment Compensation	9,840,247
184	Health Benefits Local Government Employers Program    Fund	186,212,817
184	Prescription Drug Local Government Employers Program    Fund	6,844,342
	Fiduciary Funds:
	Pension (1/2 of the actuarially determined excesses as of    June 30, 2002)
111	Consolidated Police and Firemen's' Pension Fund       (CPFPF)
111	Judicial Retirement System (JRS)
111	Police and Firemen'sFiremen's Retirement System (PFRS)
111	Prison Officers' Pension (POPF)	3,063,359
111	Public Employees' Retirement System (PERS)-State	156,299,742
111	Public Employees' Retirement System (PERS)-Local	786,873,476
111	State Police Retirement System (SPRS)	57,128,219
111	Teachers' Pension and Annuity Fund (TPAF)	827,296
	Private Purpose:
204	Insurance Annuity Trust Fund
204	Motor Vehicle Security Responsibility Fund
205	Unclaimed County Deposits Trust Fund
205	Unclaimed Insurance Payments on Deposit Accounts       Fund
	Agency:
188	Alternate Benefit Program Fund
188	Judiciary Bail Fund
188	Judiciary Child Support and Paternity Fund
189	Judiciary Probation Fund	9,228,518
189	Judiciary Special Civil Fund	2,928,933
189	Luxury Tax Development Fund	1,622,440
190	Pension Adjustment Fund
190	Resource Recovery Investment Tax Fund	490,059
190	Solid Waste Service Tax Fund	9,401,693
191	Tourism Improvement and Development Act	59,329
191	Wage and Hour Trust Fund
	Component Units:
56	NJ Transit Corporation	2,385,348,957
56	NJ Turnpike Authority	2,204,807,216
56	Rutgers, The State University of New Jersey	936,164,000
57	University of Medicine and Dentistry of New Jersey	713,587,000
	Nonmajor- Authorities and Commissions
208	Casino Reinvestment Development Authority	113,558,919
208	Higher Education Student Assistance Authority	605,372,849
209	NJ Commerce and Economic Growth Commission	6,622,211
209	NJ Development Authority for Small Businesses,       Minorities' and Women Enterprise	3,095,744
209	NJ Economic Development Authority	548,094,762
209	NJ Education Facilities Authority	5,410,195
210	NJ Environmental Infrastructure Trust	556,936,799
210	NJ Health Care Facilities Financing Authority	1,974,000
211	NJ Highway Authority	367,005,896
211	NJ Housing and Mortgage Finance Agency	1,415,793,000
211	NJ Meadowlands Commission	123,572,535
211	NJ Redevelopment Authority	45,801,607
212	NJ Sports and Exposition Authority	215,955,000
212	NJ Water Supply Authority	60,001,288
213	South Jersey Port Corporation	57,011,263
213	South Jersey Transportation Authority	92,933,835
213	Tobacco Settlement Financing Corporation	2,009,974,000
	Nonmajor - Colleges and Universities
220	The College of New Jersey	233,554,000
220	Thomas Edison State College	26,285,133
221	Kean University	46,973,000
221	Montclair State University	125,066,614
221	New Jersey City University	93,464,231
222	New Jersey Institute of Technology	90,398,000
222	The William Paterson University of New Jersey	86,516,756
222	Ramapo College of New Jersey	86,396,000
223	Rowan University	88,966,919
223	The Richard Stockton College of New Jersey	86,782,863
	Total Surpluses...	21,043,403,844
	Per Capita…	2,420
	Family of 4…	9,680
Note
1	The States of New Jersey and New York have a joint venture called The Port Authority of New York and New Jersey. This authority had net assets in FY 2002 of $5.2 billion and in FY 2003 of $6.0 billion. The amount of cash/investment reserve is not available in the CAFR.

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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