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Introduction
The State of Michigan at the State-level has approximately
$10.13 billion of the taxpayer's money it
is not using, i. e. surpluses equal to $1,009
for every man, woman and child in Michigan or $4,034 for a family of 4. This does not include
all the additional surpluses that exist in the school districts, cities, or
counties in Michigan.
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.
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 $10.13 billion.
|
(In Thousands) |
Investment Income |
Per Capita |
Family of 4 |
|
|
The
government holds and investments the surpluses at 4.5%. |
455,834 |
45 |
182 |
|
Here
is what happens when the $10.13 billion is returned to the taxpayers (the
private economy).
|
(In Thousands) |
Surplus Effect |
Per Capita |
Family of 4 |
|
|
The
surplus is returned to the taxpayers. |
10,129,638 |
1,009 |
4,034 |
|
|
Wages are
increased. |
5,064,819 |
504 |
2,017 |
|
|
State
government revenues increase. |
2,033,948 |
203 |
810 |
|
|
Local
government revenues increase. |
1,627,158 |
162 |
648 |
|
|
Federal
government revenues increase. |
4,067,895 |
405 |
1,620 |
|
|
Total Benefits... |
|
2,282 |
9,129 |
|
In FY
2002 there were 310,000 unemployed in Michigan, If the $10.13 billion is
returned to the people 203,395 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 State returned the $10.13 billion in
surpluses to the people the State economy would grow by $2,025 per capita. That
is 5 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
Game and
Fish Protection Fund, a Special Revenue Fund and part of the budget, had net
expenditures of $8.5 million. It also had reserves (cash and investments) of
$37 million. That represents 4 years of reserves.
Bottle
Deposits Fund, another Special Revenue Fund had net expenditures of $3.3
million. But it also had cash and investment reserves of $125 million. The
reserves represent almost 37 years of expenditures.
Michigan
Natural Resources Trust Fund, a Permanent Fund and not part of the budget, made
a profit of $37 million . It had reserves of $321 million.
Michigan
Unemployment Compensation Fund, an Enterprise Fund, had net expenses of $665
million. It also had reserves of $1.7 billion. That represents 3 years of
reserves.
These only
represent four of the 81 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://www.michigan.gov/budget/0,1607,7-157-13406_13419-56728--,00.html
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 Michigan CAFR- FY
2003
CAFR Page |
List of
Investments By Fund (In thousands) |
Surpluses |
|
Governmental Funds: |
|
20 |
General |
431,032 |
20 |
Counter-Cyclical Budget and Economic Stabilization
Fund |
|
20 |
School Aid Fund |
405 |
|
Special Revenue Funds: |
|
|
Transportation
Related: |
|
100 |
State
Aeronautics Fund |
14,279 |
100 |
State Truckline
Fund |
111,558 |
100 |
Michigan
Transportation Fund |
193,577 |
100 |
Comprehensive
Transportation Fund |
57,354 |
101 |
Combined State
Truckline Bond Proceeds Fund |
203,393 |
101 |
Combined
Comprehensive Transportation Bond Proceeds
Fund |
106,488 |
101 |
Transportation
Related Trust Funds |
3,787 |
|
Conservational,
Environment, and Recreation Related: |
|
102 |
Game and Fish
Protection Fund |
37,216 |
102 |
Michigan State
Waterways Fund |
46,471 |
102 |
Marine Safety
Fund |
2,854 |
102 |
Game and Fish
Protection Trust Fund |
41,792 |
102 |
State Park
Improvement Fund |
11,806 |
103 |
Combined
Recreation Bond Fund - Local Projects |
14,678 |
103 |
Combined
Environmental Protection Bond Fund |
75,522 |
103 |
Michigan
Nongame Fish and Wildlife Fund |
6,611 |
103 |
Forest
Development Fund |
8,901 |
103 |
Michigan
Underground Storage Tank Finance Assurance
Fund |
583 |
103 |
Bottle Deposits
Fund |
124,665 |
|
Regulated and
Administrative Related: |
|
120 |
Michigan
Employment Security Act - Administration Fund |
70 |
120 |
Safety
Education and Training Fund |
5,074 |
120 |
State
Construction Code Fund |
9,871 |
120 |
Homeowner
Constructions Lien Recovery Fund |
1,082 |
121 |
State Casino
Gaming Fund |
9,225 |
121 |
Second Injury
Fund |
15,720 |
121 |
Silicosis, Dust
Disease, and Logging Industry Compensation
Fund |
5,468 |
121 |
Self-Insurers'
Security Fund |
15,111 |
121 |
Utility
Consumer Representation Fund |
3,081 |
|
Other States
Funds: |
|
122 |
School Bond
Loan Fund |
4,170 |
122 |
Tobacco
Settlement Trust Fund |
16,541 |
122 |
Michigan Merit
Award Trust Fund |
88,751 |
123 |
Assigned Claims
Facility and Plan Fund |
17,370 |
123 |
Miscellaneous
Special Revenue Funds |
1,333 |
|
Debt Service Funds: |
|
138 |
Combined State Truckline Bond and
Interest Redemption Fund |
347 |
138 |
Combined Comprehensive
Transportation Bond and Interest Redemption
Fund |
|
138 |
Recreation and Environmental
Protection Bond Redemption Fund |
1,092 |
139 |
School Loan Bond Redemption
Fund |
|
139 |
State Building
Authority |
204,801 |
139 |
Michigan Underground Storage Tank
Financial Assurance Finance
Authority |
166,037 |
|
Capital Projects Funds: |
|
144 |
Combined Recreation Bond Fund -
State Projects |
13,723 |
144 |
Advance Financing
Funds |
15 |
144 |
State Building
Authority |
56,296 |
|
Permanent Funds: |
|
148 |
Michigan Natural Resources Trust
Fund |
321,263 |
148 |
Michigan State Parks Endowment
Fund |
141,594 |
148 |
Michigan Civilian Conservation
Corps Endowment Fund |
20,578 |
148 |
Michigan Veterans' Trust
Fund |
5,265 |
148 |
Children's Trust Fund |
|
|
Proprietary Funds: |
|
|
Enterprise Funds: |
|
26 |
State Lottery Fund |
489,399 |
26 |
Michigan Unemployment
Compensation Funds |
1,711,822 |
26 |
Liquor Purchase Revolving
Fund |
59,143 |
|
Internal Services: |
|
155 |
Correctional Industries Revolving
Fund |
1,772 |
155 |
Motor Transportation
Fund |
13,725 |
155 |
Office Services Revolving
Fund |
5,329 |
156 |
Information Technology
Fund |
34,402 |
156 |
Risk Management Fund |
2,343 |
156 |
State Sponsored Group Insurance
Fund |
250,974 |
|
Fiduciary Funds |
|
|
Private-Purpose Funds: |
|
170 |
Escheats Fund |
|
170 |
Gifts, Bequests, and Deposits
Investment Fund |
|
170 |
Hospital Patients Trust
Fund |
|
171 |
Michigan Educations Savings
Program |
|
|
Pension: (1/2 the actuarial
excesses) |
|
164 |
Legislative Retirement System
(LRS) (9/30/03) |
8,750 |
164 |
State Police Retirement System
(SPRS) (9/30/02) |
2,850 |
164 |
State Employees' Retirement
System (SERS) (9/30/02) |
|
164 |
Public School Employees'
Retirement System (PSERS)
(9/30/02) |
|
164 |
Judges' Retirement System (JRS)
(9/30/03) |
28,500 |
164 |
Military Retirement Plan (MRP)
(9/30/03) |
|
164 |
State Employees' Deferred
Compensation Funds |
|
|
Agency Funds: |
|
175 |
Environmental Quality Deposits
Fund |
|
175 |
Insurance Carrier Deposits
Fund |
|
175 |
State Treasurer's Escrow and
Paying Agent Fund |
|
175 |
Child Support Collection
Fund |
|
|
Component Units: |
|
|
Authorities: |
|
180 |
Michigan Education
Trust |
960,817 |
180 |
Michigan State Housing
Development Authority |
1,012,984 |
180 |
Michigan Municipal Bond
Authority |
395,444 |
181 |
Mackinac Bridge
Authority |
21,541 |
181 |
Mackinac Island State Park
Commission |
5,492 |
181 |
Michigan Broadband Development
Authority |
45,764 |
181 |
Michigan Economic Development
Corporation |
203,540 |
181 |
Michigan Higher Education
Assistance Authority |
16,959 |
182 |
Michigan Higher Education
Facilities Authority |
29 |
182 |
Michigan Higher Education Student
Loan Authority |
1,485,802 |
182 |
Michigan Public Education
Facilities Authority |
10,212 |
182 |
Michigan State Hospital Finance
Authority |
5,807 |
182 |
Michigan Strategic
Fund |
6,852 |
182 |
State Bar of Michigan |
5,609 |
|
State Universities: |
|
183 |
Central Michigan
University |
149,974 |
183 |
Western Michigan
University |
87,424 |
184 |
Eastern Michigan
University |
114,732 |
184 |
Ferris State
University |
71,464 |
184 |
Grand Valley State
University |
116,523 |
184 |
Lake Superior State
University |
6,100 |
185 |
Michigan Technological
University |
26,374 |
185 |
Northern Michigan
University |
52,606 |
185 |
Oakland University |
81,344 |
185 |
Saginaw Valley State
University |
20,386 |
|
Not Included in this CAFR: |
|
|
University of Michigan |
Unknown |
|
Michigan State University |
Unknown |
|
Wayne State University |
Unknown |
|
Related Organizations: Financial Data Not
Provided |
|
|
Michigan Catastrophic Claims
Association |
|
|
Michigan Property and Casualty Guaranty
Association |
|
|
Total Surpluses
|
10,129,638 |
|
Per Capita
|
1,009 |
|
Family of 4
|
4,034 |
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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