Introduction

The State of Utah at the State-level has approximately $4.8 billion of the taxpayer's money it is not using, i. e. surpluses equal to $2,018 for every man, woman and child in Utah or $8,072 for a family of 4. This does not include all the additional surpluses that exist in the school districts, cities, or counties in Utah.

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.

Note: Although there are other reasons the State of Washington has surpluses, they still use the balance brought forward in their budget process.

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 $4.8 billion.

Here is what happens when the $4.8 billion is returned to the taxpayers (the private economy).

In addition, 96,239 jobs are created. In 2002 there was only 72,061 unemployed in Utah. There would be no unemployment. 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 $4.8 billion in surpluses to the people the State economy would grow by $4,047 per capita. That is almost 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

Water Loan Programs, an Enterprise Fund, made a profit of $2.1 million. It also had reserves (cash and investments) of $74 million. It's total expenses were only $6.9 million. This means it could go without receiving any revenues for 11 years.

The Petroleum Storage Tank Loan Fund, another Enterprise Fund, had expenses of $1 thousand. It also had cash and investment reserves of $5 million. That is over 5,000 years of reserves. Sounds silly doesn't it. But it is true.

Environmental Reclamation, a Special Revenue Fund, had net expenditures of $1.2 million . It had reserves of $24 million. Let's see that represents about 21 years of reserves.

Crime Victim Reparation, a Special Revenue Fund, made a profit of $696 thousand and had cash/investment reserves of $13 million.

These only represent four of the 54 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://finance.utah.gov/reports/cafr.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 Utah CAFR- FY 2003

CAFR Page	List of Investments By Fund (In thousands)	Surpluses
	Governmental Funds:
32	General	161,928
32	Uniform School Fund	65,822
32	Transportation Fund	208,183
32	Centennial Highway Fund	314,805
32	Trust Lands	392,327
	Special Revenue Funds:
112	Tobacco Endowment Fund	12,177
112	Environmental Reclamation	23,582
112	Crime Victim Reparation	13,550
112	Universal Telephone Services	4,796
113	Consumer Education Fund	3,208
113	Rural Development Fund	12,239
113	State Capitol Fund	321
113	Utah Sports Authority Fund	33
113	Miscellaneous Special Revenue	17,454
	Capital Projects Funds:
113	General Government	209,280
113	State Building Ownership Authority	60,749
	Debt Service Funds:
114	General Government	39,766
114	State Building Ownership Authority	6,049
	Proprietary Funds:
	Enterprise:
40	Student Assistance Programs	413,098
40	Unemployment Compensation Fund	415,508
40	Water Loan Programs	74,861
136	Community Impact Loan Fund	46,467
136	Housing Loan Programs	7,669
136	Agricultural Loan Fund	5,948
136	Clean Fuels Vehicle Loan Fund	2,455
137	Petroleum Storage Tank Loan Fund	5,068
137	Alcoholic Beverage Control	107
137	Utah Correctional Industries	1,530
137	State Trust Lands Administration	3,170
137	Utah Dairy Commission	682
	Internal Services:
146	Information Technology Fund	2,168
146	General Services Fund	837
146	Fleet Operations Fund	440
146	Risk Management Fund	56,757
147	Property Management Fund	1,108
147	State Debt Collection Fund	704
147	Transportation Infrastructure Loan Fund
	Fiduciary Funds:
	Pension: (1/2 the actuarial over funded amount - Dec 31, 2002)
95	Contributory System
95	Noncontributory System
95	Public Safety System
95	Firefighters System	11,717
95	Judges System
95	Governors and Legislative Pension Plan	1,306
	Private Purpose:
160	Utah Navajo Nation Trust	14,718
160	Unclaimed Property Trust
160	Employees' Reinsurance Trust	43,331
160	Petroleum Storage Tank Trust	16,558
161	Utah Education Savings Plan Trust
161	Miscellaneous Restrict Trust	16,414
	Agency Funds:
164	Taxes and Social Security
164	County and Local Collection
164	State Courts
164	Deposits, Suspense, and Miscellaneous
	Component Units:
52	Utah Housing Corporation	683,822
52	Public Employees Health Program	158,737
52	University of Utah	803,245
52	Utah State University	188,439
168	Comprehensive Health Insurance Pool	8,875
168	Heber Valley Historic Railroad Authority
168	Utah State Fair Corporation	855
168	Utah Science Center Authority	7
168	Technology Finance Corporation
169	Weber State University	86,917
169	Southern Utah University	34,349
169	Salt Lake Community College	24,730
169	Utah Valley State College	53,664
169	Dixie State College	29,623
169	College of Eastern Utah	12,270
169	Snow College	13,850
169	College of Applied Technology	10,674
	Total Surpluses…	4,798,947
	Per Capita…	2,018
	Family of 4…	8,072

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.