Introduction

The State of Nevada at the State-level has approximately $3.56 billion of the taxpayer's money it is not using, i. e. surpluses equal to $1,530 for every man, woman and child in Nevada or $6,119 for a family of 4. This does not include all the additional surpluses that exist in the school districts, cities, or counties in Nevada.

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. Normally, 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.

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.

The State of Nevada does use the balance brought forward in their budgeting process. But there are the other reasons that they have surpluses.

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 $3.56 billion.

Here is what happens when the $3.56 billion is returned to the taxpayers (the private economy).

In FY 2003 unemployment was 59,300. If the $3.56 billion was returned to the people, 71,015 jobs are created. There would be no unemployment in Nevada, but 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 $3.56 billion in surpluses to the people the State economy would grow by $3,055 per capita. That is 7 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

State Highway, a Governmental Fund, had net expenses of $27 million and cash/investment reserves of $191 million. That is 7 years of reserves.

Unemployment Compensation, an Enterprise Funda and not part of the budget, had net expenses of $37 million. It also had cash/investment reserves of $441 million. That is 12 years of reserves.

Reglatory Fund, a Special Revenue Fund and part of the budget, had net expenditures of $1.1 million and reserves of $10 million. That is 9 years of reserves.

Workers Compensation and Safety, another Enterprise Fund and not part of the budget made a part of $1.4 million. It also had reserves of $35 million.

Information Services is an Internal Service Fund and not part of the budget. Internal Services Funds are funds that provide services to other State governemnt departments and organizations. Information Services had net expenses of $1.5 million and reserves of $8.7 million. That represents 6 years of reserves.

These only represent five of the 51 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://controller.nv.gov/CAFR_Download_Page.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 Nevada CAFR- FY 2003

CAFR Page	List of Investments By Fund	Surpluses
	Governmental Funds:
37	General Fund	420,489,820
37	State Highway	191,294,358
37	Municipal Bond Bank	1,086,447,126
38	Cons Bond Interest and Redemption	182,472,729
38	Stabilize the Operations of State Government	1,340,970
	Special Revenue Funds:
101	School Improvement	262,260
101	Employment Security	26,032,035
101	Regulatory	10,330,294
101	Legislative	5,152,657
101	Higher Education Capital Construction	8,701,705
102	Cleaning Up Petroleum Discharges	5,658,695
102	Hospital Care to Indigent Persons	20,323,939
102	Tourism Promotion	2,667,212
102	Offender's Store	1,746,423
102	Tobacco Settlement	165,735,210
102	Contingency	6,160,893
103	Care of Sites for Radioactive Disposal	20,616,301
103	Natural Resources	35,828,026
103	Gift
103	Miscellaneous Funds	25,182,437
	Debt Service:
99	Highway Revenue Bonds	5,483,602
	Capital Projects Funds:
109	Parks Capital Project Construction	185,808
109	CIP-Motor Vehicles	665,937
109	CIP-Human Resources	3,439,422
109	CIP-University System	73,395,270
109	CIP-General State Government	20,490,698
109	CIP-Prison System	17,143,545
110	CIP-Military	1,596,179
110	CIP-Wildlife	1,114,244
110	CIP-Assistance to School Districts	2,329,714
110	CIP Miscellaneous	250
	Permanent Funds:
110	Permanent School Fund	122,823,385
110	Henry Wood Christmas
	Proprietary Funds:
	Enterprise Funds:
45	Housing Division	513,134,917
45	Unemployment Compensation	440,587,927
	Enterprise Funds:
115	Workers' Compensation and Safety	35,473,183
115	Insurance Examination	494,686
115	Gaming Investigative	5,612,346
115	Forestry Nurseries	252,294
116	Prison Industry	2,831,584
116	Nevada Magazine	71,637
116	WICHE Student Loans	193,852
116	Marlette Lake Water System	37,001
116	Water Project Loans	62,704,671
	Internal Service Funds:
123	Self-Insurance	8,905,235
123	Buildings and Grounds	2,411,883
123	Motor Pool	1,474,060
123	Communications	317,969
124	Insurance Premiums	3,590,488
124	Administrative Services	393,015
124	Personnel	1,585,593
124	Purchasing	497,908
124	Information Services	9,730,932
124	Printing	835,424
	Fiduciary Funds:
	Pension Trust Funds:
131	Public Employees' Retirement	Unknown
131	Legislators' Retirement	Unknown
131	Judicial Retirement	Unknown
	Investment Trust Funds:
132	Local Government Investment Pool
132	Nevada Enhanced Savings Term
	Private Purpose Funds:
132	Higher Education Tuition Trust
132	Prisoners' Personal Property
	Agency Funds:
135	Intergovernmental
135	State Agency Fund for Bonds
135	Motor Vehicle
135	Child Support Disbursement
135	Child Welfare Trust
135	Restitution Trust
135	Veterans Custodial
135	State Payroll
	Component Units:
	Nevada River Commission	Unknown
	University System	Unknown
	Total Surpluses…	3,556,258,147
	Per Capita…	1,530
	Family of 4…	6,119
Note
1	In FY 2002 there were two Component Units, the Nevada River Commission and the Univesity System. These Component Units are not part of the FY 2003 CAFR and therefore not part of the above computations.
	The Nevada River Commission had surpluses of $94,976,000 and the University System had surpluses of $436,028,000.

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.

---

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

BACK TO TOP

This report can be copied, reprinted, and/or electronically transmitted to others and/or printed in the news media. This report should not be used for commercial purposes.