Alabama Has At Least $9.0 Billion In Surpluses of the Taxpayers Money it is not using.

  FY 2003 Report Home Page Flags courtesy of Robesus Inc.



The State of Alabama at the State-level has approximately $9.0 billion of the taxpayer's money it is not using, i. e. surpluses equal to $1,999 for every man, woman and child in Alabama or $7,996 for a family of 4. This does not include all the additional surpluses that exist in the school districts, cities, or counties in Alabama.

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.

Categories Amount of Surplus(In thousands) Per Capita Surplus Family of Four
Governmental Funds 4,290,592   953   3,813
Proprietary Funds 865,501 192 769
Fiduciary Funds
Component Units 3,841,585 853 3,414
Total...   8,997,678 1,999 7,996

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.

For example, in FY 2003 the State of Alabama Nonmajor Special Revenue Funds (Governmental Funds), considered part of the budget, had fund balances of $604 million that probably will not be considered in the budget. So during the next budget process ask about these funds that are not being considered or used.

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.

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

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 $9.0 billion.

  (In Thousands) Investment Income   Per   Capita Family of 4    
  The government holds and investments the surpluses at 4.5%. 404,896 90 360  

Here is what happens when the $9.0 billion is returned to the taxpayers (the private economy).

  (In Thousands) Surplus
Per   Capita Family of 4    
  The surplus is returned to the taxpayers. 8,997,678 1,999 7,996  
  Wages are increased. 4,498,839 1,000 4,000  
  State government revenues increase. 1,799,536 400 1,600  
Local government revenues increase. 1,439,628 320 1,279  
  Federal government revenues increase. 3,599,071 800 3,200  
  Total Benefits...   $4,518 $18,071  

In addition, 179,954 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 Alabama Trust Fund

What you will hear as an excuse regarding the Alabama Trust Fund is that it was created by Constitutional Amendment and therefore cannot be changed. It was created by Constitutional Amendment and it can be dissolved by Constitutional Amendment. The State makes more money if it is returned to the people and not held and invested.

The Fund has reached $2.2 billion. If this money was returned to the people here is what would happen.

  (In Thousands) Investment Income   Per   Capita Family of 4    
  The government holds and investments the surpluses at 4.5%. 99,497 22 88  

Here is what happens when the $2.2 billion is returned to the taxpayers (the private economy).

  (In Thousands) Surplus
Per   Capita Family of 4    
  The surplus is returned to the taxpayers. 2,211,054 491 1,965  
  Wages are increased. 1,105,527 246 982  
  State government revenues increase. 442,211 98 393  
Local government revenues increase. 353,769 79 314  
  Federal government revenues increase. 884,422 196 786  
  Total Benefits...   $1,110 $4,441  

About 44,221 jobs would also be created.

What is important about the above is that if the State holds and invests the money it will receive $99 million a year in income. But if it returns the money to the people the State will receive $442 million in revenue every year. That is almost 4.5 times as much money than holding and investing the money. Other words almost 4.5 more funds would be available to use for education or other programs.

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 $9.0 billion in surpluses to the people the State economy would grow by $2,900 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.


The Public Road and Bridge Fund, a Governmental Fund and part of the budget, had net expenses of $962 thousand. It also had reserves (cash and investments) of $508 million. That is 528 years of reserves.

The Water Pollution Control Authority, a Component Unit and not part of the budget, made a profit of $7.3 million as a net change in net assets. But it also had cash and investment reserves of $332 million.

Unemployment Compensation Trust, an Enterprise Fund and not part of the budget, had net expenses of $175 million. It had reserves of $285 million. That represents 2 years of reserves.

The University of Alabama, a Component Unit and not part of the budget, made a profit of $261 million and had cash/investment reserves of $2.0 billion.

These only represent four of the 103 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:

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 Alabama CAFR- FY 2003

CAFR Page List of Investments By Fund (In Thousands) Surpluses
  Governmental Funds:  
32    General Fund 151,635
32    Education Trust Fund 74,944
32    Alabama Trust 2,211,054
32    Medicaid Fund 11,696
32    Public Road and Bridge Fund 507,594
33    Public Welfare Trust Fund 67,082
     Nonmjor Special Revenue Funds:  
134       Public Health Department 45,325
134       Education Department 26,903
134       Economic and Community Affairs 18,938
134       Revenues Allocated to Local Governments 66,969
134       Other Medicaid Funds 984
135       Rehabilitation Services 18,867
135       Public School Fund 9,578
135       Children First Trust 74,363
135       Revenue Administration 10,572
135       Industrial Relations 15,461
135       Conservation and Natural Resources 58,422
138       Corrections 4,283
138       Environmental Management 14,096
138       Senior Services 1,066
138       Professional and Occupational Boards 36,845
138       Emergency Management 1,112
139       Educational Television Foundation Authority 4,058
139       Public Health Care Authority 375
139       Forever Wild Trust 17,227
139       State Parks Improvement Corporation 5,508
139       Miscellaneous Special Revenue Funds 326,517
     Debt Service Funds:  
144       Industrial Access Road and Bridge Authority  
144       Corrections Institution Finance Authority 713
144       Judicial Building Authority 3,721
144       Public Health Care Authority 4,568
144       General Obligations Bonds  
145       Federal Aid Highway Finance Authority  
     Capital Project Funds:  
150       General Obligations Bonds Project 155,248
150       State Parks Improvement Corporation 103,078
150       Federal Aid Highway Finance Authority 206,497
150       Other Capital Project Funds 4,189
     Permanent Funds:  
154       Marine, Game, and Fish Endowment 11,764
154       Alabama Research Institute 12,323
154       Other Permanent Funds 7,017
  Proprietary Funds:  
     Enterprise Funds:  
40       Unemployment Compensation Trust 284,716
40       State Port Authority 54,423
40       Alabama College System 251,072
40       Alcoholic Beverage Control Board 22,241
40       Public Education Employees' Health Insurance 69,930
        Nonmajor Enterprise Funds:  
158          Alabama Health Insurance Plan 9,656
158          Local Government Employees' Health Insurance 15,981
158          Surplus Property 1,180
158          Other Enterprise Funds 10,934
     Internal Service Funds:  
164       Information Services Fund 15,046
164       Telecommunications Fund 4,631
164       Service Division 2,775
164       Printing and Publications 326
164       State Employees' Health Insurance 62,352
165       Correctional Industries 6,093
165       Building Renovation Finance Authority 19,776
165       Risk Management 33,995
165       Other Internal Service Funds 374
  Fiduciary Funds:  
180    Private Purpose Trust  
180    Pension and Other Employee Benefit Trust (1/2 actuarial    surplus)  
184    Agency  
  Component Units  
50    Public School and College Authority 275,749
50    Mental Health 52,323
50    Housing Finance Authority 11,738
50    Water Pollution Control Authority 331,521
50    University of Alabama 1,975,008
51    Auburn University 519,905
51    University of South Alabama 109,593
     Nonmajor Component Units:  
190       Higher Education Loan Corporation 47,129
190       Drinking Water Finance Authority 68,657
190       Alabama Agricultural and Mechanical University 27,457
190       Alabama State University 51,869
190       Jacksonville State University 54,679
191       University of North Alabama 35,357
191       Troy State University 55,535
191       Space Science Exhibit Commission 2,959
191       Historical Commission 9,143
191       Incentives Finance Authority 30,054
191       Twenty-first Century Authority 105,831
194       Supercomputer Authority 755
194       U.S.S. Alabama Battleship Commission 1,754
194       Historical Ironworks Commission 286
194       University of West Alabama 7,311
194       University of Montevallo 30,298
195       Alabama Institute for the Deaf and Blind 18,450
195       Marine Environmental Services Commission 1,458
195       Tennessee Valley Exhibit Commission 562
195       State Industrial Development Authority 5,286
195       Revolving Loan Fund Authority  
195       Music Hall of Fame 73
195       Miscellaneous Component Units 10,845
  Related Organizations:  
     Private Colleges and Universities Facilities Authority  
     Alabama Shakespeare Festival Finance Authority  
  Total Surpluses… 8,997,678
  Per Capita… 1,999
  Family of 4… 7,996

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.

USAF Image

This report was prepared by:
Gerald R. Klatt
Lieutenant Colonel, USAF, Retired



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.