One of the excuses that governments use to justify holding huge surpluses of the taxpayers' money is that funds are needed for emergencies, that is the "sky may fall". When one looks at the economics of governments holding reserves and governments giving back the huge reserves to the people, the returning of the reserves to the people wins every time.

But governments are able to pacify the taxpayers because the taxpayers do not know the economics of the situation. So the excuse that reserves are needed for emergencies works every time.

The normal government cry is "We need these reserves for emergencies." Based on the economics that excuse is not justified.

However, what they may really be saying is that if there is an emergency we are unable to get the funds approved by the voters/taxpayers in sufficient time to immediately respond to the emergency. If this is the case, then there could be justification for such an excuse. Governments should be expected to react immediately to an emergency. Most criticisms of governments is that they did not act fast enough to an emergency.

There is a way to meet the concerns of the government and also make the government holding of reserves unnecessary. I call it the Instant Funding System (IFS). NOTE: These are not bonds. I dislike bonds for many reasons.

The IFS is an agreement between the people and the government. To provide immediate funds for governments to react promptly to emergencies, the people agree that the government can borrow the money on a line of credit basis established with financial institutions (hopefully local financial institutions) in advance. Also, the government would be authorized to impose a tax or other revenue collection from the people to immediately begin receiving revenues in order to cover the line of credit borrowing.

The borrowing should have no strings attached to it regarding prepayment, revenue requirements, or other restrictions.

For this arrangement the government agrees not to accumulate or hold any reserves/surpluses for any reason. If there are laws that state certain funds can only be used for certain purposes, then these laws need to be changed to include that returning excesses/surpluses to the people is one of the allowed purposes. In addition, The CAFR Budget System should be considered to complement the IFS for a complete and proper money management system.

There are naturally many definitions and safeguards that would needed to be in the agreement so abuses and advantages by either group are kept to a minimum.

1. The definition of emergencies should be specific with only a small area of discretion. For example, an economic downturn or slowdown where the government believes it will not receive enough revenue to cover expenditures is not an emergency. There is a known and proven solution to this problem, lower taxes which increases government revenues. (See Economic Impact Anaysis)

2. The line of credit should not be in bonds or bond-type instruments, because bonds are so written with prepayment penalties, revenue collection requirements, etc. all to benefit the bond holder and not the government or people. The line of credit should not carry a prepayment penalty of any kind. It is better to pay a higher rate of interest than to require governments to collect excess revenues or hold certain reserves.

3. The type, amount and method for the repayment of the line of credit by taxation/revenue collection should be based on a formula agreed to in advance. There probably should be some, small amount of, discretionary factors that the government should have in setting up the additional taxes/revenues collected. For example, the state of the economy may dictate that the funds be collected at a faster or slower rate and the government should have some discretion in that decision.

4. The tax/revenue source should be as broad based as possible in order to distribute the burden among the largest segment of the population on a fair and equitable basis. The types of taxes/revenues that would be collected to payoff the loans can probably be covered in the agreement in advance.

5. The agreement should be very specific that all funds collected on the special revenue collection arrangement, for the paying off the line of credit, are applied immediately when collected to lower interest payments in the future.

The Instant Funding System should be carefully drafted. In fact such a system should be in place in all governments so the government can react swiftly to emergencies affecting the people. The trick is to not let abuses be part of the system or creep into the system. Voter approval should be required for all alterations, modifications, etc. no matter how small the changes seem to be.