Introduction

Pima County at the County-level has approximately $239 Million of the taxpayer's money it is not using, i. e. surpluses equal to $723 for every man, woman and child in Pima County or $2,892 for a family of 4. This does not include all the additional surpluses that exist in the school districts, or cities in Pima County.

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 County'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 County Commissioners

The County Commissioners 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 County Commissioners should take into consideration the entire financial condition/status of the County 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 County 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 16% 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 County 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 County and local government revenues, dramatically increase the economy, and create the greatest economic expansion in the history of the County. 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 $239 Million.

Here is what happens when the $239 Million is returned to the taxpayers (the private economy).

In addition, 4,774 jobs are 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 County returned the $239 Million in surpluses to the people the County economy would grow by $1,446 per capita. That is 3 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

Development Services, an Enterprise Fund and not part of the budget, made a profit of $121 thousand. It also had reserves (cash and investments) of $6.2 million.

Parking Garages, another Enterprise Fund, had a net reduction in assets of $51 thousand. It also had cash and investment reserves of $3.2 million. That represents 63 years of reserves.

Metropolitan Domestic Water Improvement District, a Component Unit, made a profit of $895 thousand. It had reserves of $22.4 million.

Internal Service Funds are funds that charge other government agencies/departments for goods and services. Other Internal Services (Not further listed) had a net expense of $72 thousand. It also had $4.4 million in cash/investment reserves. That is 61 years of reserves.

These only represent four of the 20 funds shown below that had cash and investment reserves not being used.

What to do?

Unless the budget flaws are corrected and the entire County finances are used in the budget process, the problems that created the surpluses will continue to exist. The budget deficits reported by the County Commissioners 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 County Commissioners that the surpluses exist and what should be done about it. I do not live in Pima County. It is not my money.

Exhibit A

The 2003 CAFR is located at:

http://www.co.pima.az.us/info.html-available

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 Pima County CAFR- FY 2003

CAFR Page	List of Investments By Fund (In thousands)	Surpluses	Notes
	Governmental Funds:
31	General	19,416
88	Transportation	20,058
31	Capital Projects	86,292
	Special Revenue Funds:
88	Health and Animal Control	724
88	Flood Control District	2,817
88	Employment and Training
88	Other	24,961
88	Stadium District
88	Other Grants	180
88	School Reserve	1,432
88	Environmental Quality	701
88	Municipal Property Corporation	3
88	Debt Service Funds:	2,855
	Proprietary Funds:
	Enterprise:
35	Pima Health Care System	23,478
35	Wastewater Management	3,868
	Other Enterprise Funds
107	Development Services	6,157
107	Parking Garages	3,206
	Internal Service Funds:
111	Self Insurance Trust Fund	38,129
111	Other Internal Service	4,420
	Fiduciary Funds:
	Pension Funds: (1/2 the actuarial excesses)
84	Public Safety Personnel Retirement System (6/30/02)
84	Correctional Officers Retirement Plan (6/30/02)
	Investment Trust Funds
115	Treasury Investment Pool
115	Individual Investment Accounts
	Agency Funds:
117	Payroll
117	Treasurer's Clearing
117	Other
	Component Units
41	Metropolitan Domestic Water Improvement District	22,422	1
41	Marana Domestic Water Improvement District	175
41	Southwestern Fair Commission	812
	Related Organizations: Financial data not provided.
	North First Avenue Sewer	Unknown
	North La Cholla Sewer	Unknown
	North La Cholla Boulevard	Unknown
	Country Club Estates and Cimarron	Unknown
	Various Irrigation Districts	Unknown
	Various Fire Districts	Unknown
	Various Lighting Districts	Unknown
	Pima Association of Governments	Unknown
	Pima Council on Aging	Unknown
	Private Industry Council	Unknown
	Total Surpluses…	238,697
	Per Capita…	723
	Family of 4…	2,892
Notes
1	This Component Unit may provide services to other jurisdictions in the county. If so then these cash-investments should be prorated to each jurisdiction.
	Some of the funds may involve activities that benefit one or more cities. These surpluses should be prorated between the county and the city. Some of the cities funds may involve activities that benefit the county. These surpluses should also be prorated between the county and the city. The CAFR does not explain these relationships.

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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