	INTRODUCTION

How does one tell the American people that governments are stealing from them? They will not believe it. They believe the government and the elected officials. Only a nut would attempt to demonstrate that politicians are not completely honest. Well, I am that nut and I have the qualifications to prove that governments are stealing from them.

"Collecting more taxes than is absolutely necessary is legalized robbery." - Calvin Coolidge

Rene' Descartes, a French philosopher, wanted to prove that he existed. He said, "I think therefore I am." In this way he proved that he existed. Most Americans cannot prove that they exist because they do not think. They only parrot what the politicians and news media state are the facts. Thinking is work and Americans do not like it. Politicians and the news media consistently tell half truths and lies, and the American public refuse to think about what they are being told.

The people protest, riot, and viciously complain about religion, race, abortion, gay marriages, etc. They continually talk around the water cooler about SUVs, realty TV, Laci Peterson, Kobe Bryant, American Idol, etc.

Do the results of any of these issues really affect your way of life? Do they affect your standard of living; wages; whether you have a job; outsourcing issues; how much money you make; whether your children go to college, how much you pay in taxes , etc.? When governments take too much money, that money is taken from you. It is pulled out of the private economy and your way of life is forever changed regardless of what happens to Scott Peterson or Kobe Bryant.

If your neighbor steals $2,000 from you, you get all excited, want immediate justice. Yes, "Throw the b_____d in jail." However, whenever State governments steal $2,000 from you, you say nothing. I guess it is no fun to talk about the stealing by governments at the water cooler. It takes too much "thinking".

If you rush to your representative to ask them about the surpluses, do you really believe that he/she are going to tell you that there are surpluses? If you do, you live in a dream world. It would be political suicide to say, "Yes, we have excess funds that we are not using." But there is a way to get at the politicians. You can read the suggestion at CAFR Network.

The State governments have stolen and have in their possession on average $2,149 for every man, woman and child in the U.S.A. That is $8,596 for a family of 4. These are funds that they are not using; and often they ask for more. They surely are not going to openly tell you about these funds. Remember, these are only State governments. It does not include school districts, cities, or counties which also have huge surpluses.

The Budget and Only the Budget

Individuals believe that “the budget” and “governments” are one. This is false. In this writing we will not be discussing “the budget”, or the budget process but we will be discussing “governments” and a different government document and process completely unrelated to the budget, the Comprehensive Annual Financial Report (CAFR).

First Problem

You have heard of the budget. You think this is the financial condition of the government. The budget is only a part of the total financial activities of the government.

Budgets are planning and monitoring documents. Companies prepare a budget. Governments prepare a budget. Companies prepare an annual financial statement of the total financial condition of the company based on what actually happened. Governments also prepare an annual financial statement of all of their financial activities of what actually happened. It is called the Comprehensive Annual Financial Report (CAFR). It is prepared annually.

The CAFR is prepared under the accounting and reporting standards outlined by the Government Accounting Standards Board (GASB). It is an audited report. The CAFR has four parts:

1. Governmental Funds
2. Propriety Funds
3. Fiduciary Funds
4. Component Units

The budget you hear about involves primarily the Governmental Funds. The other three major categories are not included in the budget and this is in most cases where most of the surpluses are located.

Simultaneous Budget Deficits/Shortfalls AND Financial Surpluses

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.

A budget is an estimate of the amount of money to be received and the amounts to be spent for various purposes in a given time. It is a planning and monitoring document. It matches revenues (income) and expenditures (expenses) for a given period of time which is usually one year for most governments. It does NOT demonstrate the financial condition of a government.

You continually hear the phrase "budget shortfall" or "budget deficit." What this means is that projected (planned) expenditures will probably exceed projected (planned) revenues. When this happens, governments immediately want to raise taxes and/or reduce services regardless of the financial condition of the government. It works every time.

Second Problem

Even in the items that are part of the budget (Governmental Funds) there are surpluses they are not telling you about. Here is how it works. A proper budget is made up of three parts: 1) Balance brought forward from previous year's revenues not spent; 2) Current projected revenues; and 3) Current projected expenditures. The budget is Items 1 and 2 minus Item 3. It is just that simple.

However, in the governments' budget process, they forget about Item 1. Money available and not spent in previous years is not included in the budget. There is a reason they purposely and conveniently left Item 1 out of the budget process. In accounting, during the fiscal year, revenues are called revenue in the income and expense statements. However, at the end of the year, everything goes to a balance sheet. When this happens any unspent revenue is converted to cash and investments, no longer called revenue. The budgets of almost all governments now state that current projected revenues will be matched against current projected expenses. They conveniently left out prior years revenues not spent (Item 1) in the process.

Here is how it works in reality. I will give you two sets of date. The data are the same but they are arranged in different order. The first set is what the CAFR shows as being the budgeted figures prepared by governments.

XYZ Fund Budget Computations  (In Thousands)
Revenues 125,000

Expenditures 175,000

Excess (Deficit) of Revenues over Expenditures (50,000)

Fund balances(Deficit), July 1, 2002 75,000

Fund balances(Deficit), Jun 30, 2003 25,000

The above shows that there is a $50,000 (In thousands) budget deficit/shortfall (50,000). This usually means tax increases are recommended.

Now, lets rearrange the above data and see what happens. This is the proper method.

XYZ Fund Budget Computations  (In Thousands)
Fund balance (Deficit), July 1, 2002 75,000

Revenues 125,000

Total Funds available... 200,000

Expenditures 175,000

Excess (Deficit) of Revenues over Expenditures 25,000

Fund balances(Deficit), Jun 30, 2003 25,000

You see we went from a $50,000 deficit to a $25,000 surplus. All because we set the data properly as the budget should be accomplished. In almost all governments the former method is issued, not the latter. This is why there are budget deficits because the budget is not prepared properly. Funds not spent in previous years are not considered part of the budget.

They will tell you that they consider the unspent revenue. It takes 30 second to consider something. I want it stipulated to be a computational requirement in the budget and the CAFR.

Third Problem

The next budget flaw is that the budget process does not take the process to zero. The proper method is called Zero-based budgeting. Here is how it works: If you have projected expenses of $100 you find projected revenue of $100 to cover the projected expenses. However, governments may have $150 in revenues for $100 in expenses. This causes a projected balance of $50 of money that is probably not going to be spent. They do not reduce the projected revenues by $50 to match the budgeted expenses to have a zero balance.

Here is a chart showing the Zero-based budgeting concept.

XYZ Fund Budget Computations  (In Thousands)
Current Budget
Method Zero- Based Budgeting

Fund balance (Deficit), July 1, 2002 75,000 75,000

Revenues (Required) 125,000 100,000

Total Funds available... 200,000 175,000

Expenditures 175,000 175,000

Excess (Deficit) of Revenues over Expenditures 25,000 0

Fund balances(Deficit), Jun 30, 2003 25,000 0

What this chart shows is that the Revenue requirements (taxes/charges/assessments/fees/etc.) are not $125,000 but only $100,000 to arrive at zero.

The State of Oklahoma in its FY 2003 CAFR stated that it is going to start using Zero-based budgeting in the budget process. This is the only State I know that is starting to use part of proper budgeting. I may have had a hand in their decision because I have been advocating this for two years. All governors and State legislatures have read my reports. Their voters are continually asking them questions about the reports. Hats off to Oklahoma.

Another Example.

If you decide to invest in a company's stock and you go to a stock broker and ask about the company's financial condition, does the broker give you a copy of the company's budget? NO! He/she will give you a copy of the company's annual financial report which shows the financial condition of the company. The CAFR is the government's annual financial report.

School districts, cities, counties, and States all prepare a CAFR.

If you want to know the financial condition of your government(s), do not look in the budget. Get the CAFR.

Fourth Problem

Many governments like to inflate the budget expenditures/expenses. This is done so when the year is over with and they did not spend all the money available in the budget, they like to pound their chests and say they were heroes.

There is way to solve this problem. The starting point for the next year's budgeted expenditures will be the previous year's actual expenditures as shown in the Comprehensive Annual Financial Report (CAFR). Then if there are specific and documented increased requirements, the budgeted amount can be increased. Conversely, if there are reductions in requirements the budgeted amount would be reduced.

This really locks the legislatures in because they will not have a somewhat blank check to determine requirements. You got the job done with so many dollars last year (CAFR). Now start with that amount for this year and make adjustments for specific and documented requirements.

These four problems are addressed in the CAFR Budget System (CBS) in this writing.

What is the Comprehensive Annual Financial Report (CAFR)?

Each year all State and local governments prepare a financial report on assets, liabilities, revenues and expenditures in more or less in a standardized format that must conform to the Government Accounting Standards Board (GASB) accounting and financial reporting standards. This financial report is called the Comprehensive Annual Financial Report (CAFR, pronounced “cay-fer”). Most people have heard of the budget, which is the document that plans and authorizes the spending of money. The CAFR describes what actually was spent and the status of assets and liabilities at the end of the fiscal year.

The CAFR:

Presents a comprehensive picture of a government's financial condition by combining the annual financial reports of all government agencies and universities.

Provides information on all government funds including those held outside the government treasury.

Presents information on the accrual basis recognizing amounts owed by the government but not paid at the end of the fiscal year, as well as amounts due to the government but not received by the end of the fiscal year.

Contains information on real property and other fixed assets, long-term obligations or investments held outside the government treasury; and

Includes statistical and some economic data.

Comprehensive Annual Financial Reports provide information which is used by investment companies such as Moody's Investors Services and Standard and Poors Corporation to determine the state's fiscal integrity and set bond rates. It includes a comprehensive presentation of the state's financial and operating activities. [NOTE: The Table of Contents of typical CAFR is provided in The CAFR eBook with all of the schedules shown, explanation, and surpluses.]

What are Surpluses?

Government operations, except for retirement/pension funds should be on a pay-as-you-go system. Governments should be non-profit organizations. Government surpluses, as used in this site, 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 to two years.

What Should be Done With the Surpluses?

Alan Greenspan, Chairman of the Federal Reserve, Told Us:

In his testimony to the Senate Humphrey- Hawkins Committee, Alan Greenspan, Chairman of the Federal Reserve, in late July 1999 gave us a clue on what he thought should be done when he stated: “I'm of the old fiscal school that you raise revenues for basic government purposes and if you don't have those purposes you give the money back or you don't tax it... My experience is that private rates of return are significantly higher than the governments rates of return.”

What did he say?

If a government collects too much from the people, the government should give it back.

It is better to let the private sector have the money than governments. This we will prove in this site beyond a reasonable doubt.

Lawrence B. Lindsey, the White House Economic Advisor and a Former Governor of the Federal Reserve, Told Us:

An August 1999 article in the Wall Street Journal is entitled “Whose Surplus Is it, Anyway?” The article is written by Lawrence B. Lindsey. This article deals with the “BUDGET” surpluses, not the “CAFR SURPLUSES” in this site.

However, this article has some interesting points to ponder.

“...Some Washington politicians play word games instead of speaking forthrightly...At the same time, this arithmetic allows Washington to return (in the above scenario) 53 cents on the dollar of the higher revenue to the taxpayer and call it a “tax cut.” The convention behind these semantic acrobatics is the belief that the money belongs to Washington and that anything they let us taxpayers keep is a token of their beneficence.”

“Gone, then, are the notions that earnings belong to those who earned them and that government should take only what it needs to fund necessary services. This is a fiscal path that will gradually sap the vitality that has made our economic success possible...But when it comes to the on-budget surplus, the best way for Congress to 'spend' this reserve is not to spend it at all. It is to give it back - in its entirety - to the people who earned it in the first place.”

Although the above article deals with budget surpluses and not actual surpluses as will be shown in this site, the recommendation for both are the same “...give it back - in its entirety...”

Government Surpluses are the taking of the peoples property without the right to take:
In a recent Wall Street Journal article, Mr. William P. Kucewicz, made in-depth observations and insights regarding the role of governments holding surpluses of the peoples money. We could never have said it as eloquently as he has:

"...Almost no one seems to note that a surplus at any level of government represents money that would otherwise be used for consumption or investment by those who earned the income in the first place. And to the extent that it's squirreled away by government and isn't used, say, to retire debt, it's a drain on the economy.

Also missing from the discussion is a basic question: Whose money is it, anyway? Government's moral legitimacy is derived from the people. This cornerstone of the classical liberal tradition presupposes that government's precursor is the individual, endowed with a natural liberty as a free moral agent...

...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. Federal taxes nevertheless now absorb more than a fifth of gross domestic product - the highest level since World War II - and the percentage is bound to rise, given the new revenue estimates.

...When a government boasts of fiscal surpluses that stretch as far as the eye can see, it assumes a prerogative that supersedes the natural rights of the individual. 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." (Emphasis added.) (Mr. Kucewicz is editor of the global investment site www.GeoInvestor.com)

The Local Economy Loses Out

When governments’ retain surpluses and invests these funds in the type of investments governments are allowed to invest in, very little if any of the investments are in the local economy. As shown above and elsewhere on this site, many governments have investments in foreign companies and currencies. The greatest benefit for all Americans is when the money is invested in their local economy. This is the most important aspect of returning surpluses to the people.

Determining the surpluses in State and Local Governments

An individual does not have to be an accountant or know anything about accounting to determine the amount of surpluses that exist in a State or local government. All it takes is a little reading and time using the instructions in this writing.

It is important to note that a complete review and the preparation of an economic impact analysis only takes 2 pieces of paper (forms in the computer program). In fact, if you do not like computers, then you can print out the blank forms. With the CAFR, the blank forms, the instructions contained herein, a pencil and calculator, the complete review and economic analysis can be accomplished. (See Review Process)

In addition, the Exhibit A in each of the State reports contained in this writing contain the complete review of these governments. That is a lot of examples to learn from. (See Results of Reviews Section)

Conclusion

In FY 2001, the Cincinnati School District, the City of Cincinnati, and the State of Ohio, had surpluses totalled over $6,000 per person or over $24,000 for a family of 4. Do Americans really make so much money that they just don't care about this $6,000 petty cash?

President Bush prior to 9/11 wanted to jump start the economy by providing about $60 billion in cash refunds. What do you think would happen to the economy if the State governments returned $612 billion to the people? Twelve million jobs would be created, business would flourish, wages would increase dramatically, massive wealth would be created and the total standard of living of everyone would increase substantially.

If the State surpluses were returned to the people in the form of refunds or tax/charges for service fees/assessments/etc. reductions, it would create the greatest economic expansion in the history of the U.S.A. and probably the entire world.

This is why I consider this to be the most important issue in the U.S.A. today. Returning surpluses would dramatically help everyone. Yet, no one seems to care. It is not cool and one has to think about it!

Look for your State in the Individual Reports in the left column of this page. Now go and find out about your school district, city and/or county surpluses. You will be surprised.

If you have any questions, please contact me at this link . I have not bitten anyone in a long time.

Silent Majority Remains Silent

Remember what Alan Greenspan said (quoted earlier) about governments taking too much money. We also believe any surpluses should be returned to the people and let the people have the money in their investment portfolios. Remember (1) He who owns the gold rules and (2) He who writes the rules wins. Today, unfortunately it appears that governments, and a few super wealthy individuals that control the governments, own the gold, write the rules and probably will win - while the silent majority (middle class), remains silent.