Montana Has At Least $3.15 Billion In Surpluses of the Taxpayers Money it is not using.

  FY 2003 Report Home Page Flags courtesy of Robesus Inc.



The State of Montana at the State-level has approximately $3.15 billion of the taxpayer's money it is not using, i. e. surpluses equal to $3,460 for every man, woman and child in Montana or $13,839 for a family of 4. This does not include all the additional surpluses that exist in the school districts, cities, or counties in Montana.

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 1,884,608   2,071   8,284
Proprietary Funds 266,587 293 1,172
Fiduciary Funds 15,612 17 69
Component Units 981,653 1,079 4,315
Total... 3,148,460 3,460 13,839

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.

"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 $3.15 billion.

  (In Thousands) Investment Income   Per   Capita Family of 4    
  The government holds and investments the surpluses at 4.5%. 141,681 156 623  

Here is what happens when the $3.15 billion is returned to the taxpayers (the private economy).

  (In Thousands) Surplus
Per   Capita Family of 4    
  The surplus is returned to the taxpayers. 3,148,460 3,460 13,839  
  Wages are increased. 1,574,230 1,730 6,920  
  State government revenues increase. 632,797 695 2,782  
Local government revenues increase. 506,237 556 2,225  
  Federal government revenues increase. 1,265,593 1,391 5,563  
  Total Benefits...   7,832 31,329  

In FY 2003, unemployment was 21,000. If the $3.15 billion is returned, 63,280 jobs will be 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 $3.15 billion in surpluses to the people the State economy would grow by $6,954 per capita. That is 16 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 State Fund, a Special Revenue Fund, had net expenses of $46 million, and reserves (cash and investments) of $578 million. That is 13 years of reserves.

The Coal Severance Tax, a Permanent Fund (Governmental Fund), made a profit of $83 million. But it also had cash and investment reserves of $704 million.

Unemployment Insurance, an Enterprise Fund (Propriety Fund) and not part of the budget, made a profit of $2.4 million . It had reserves of $190 million.

State Compensation Insurance Fund (New and Old), a Component Unit and not part of the budget, had net expenses of $95 million and had cash/investment reserves of $698 million. That is 7 years of reserves.

These only represent four of the 78 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 Montana CAFR- FY 2003

CAFR Page List of Investments By Fund (In thousands) Surpluses
  Governmental Funds:  
34    General Fund 36,388
     Special Revenue:  
34       State Special Revenue Fund 578,437
34       Federal Special Revenue Fund  
34       Coal Severance Tax Fund 703,622
34       Land Grant Fund 494,532
126       Resources Indemnity 7,409
126       Parks Trust 1,167
126       Cultural Trust 420
126       Real Property Trust 11,390
126       Noxious Weed Management 5,331
127       Jim Bradley Memorial  
127       Thomas Teakle  
127       Merritt-Wheeler Memorial  
127       Historical Society Funds  
127       Endowment for Children  
127       Tobacco Settlement Interest 2,521
     Debt Service Funds:  
116       Coal Tax Bonds 9,015
116       Long-Range Building Program 1,546
116       Water Development 5,923
116       Highway Revenue Bonds 3,799
117       Health Care Debt Service 4,203
117       Information Technology (IT) Bonds 21
117       Renewable Resources 209
117       Water Conservation Bonds  
117       Energy Bonds 219
     Capital Projects Funds:  
122       Long-Range Building Program 13,120
122       Information Technology (IT) Project 4,792
122       Federal/Private Construction Grants 16
122       Capital Land Grant 528
  Proprietary Funds:  
     Enterprise Funds:  
42       Unemployment Insurance 190,480
42       Economic Development Bonds 23,388
132       Liquor Warehouse 1,634
132       Hail Insurance 5,857
132       State Lottery 2,019
132       Prison Ranch 1,980
133       Prison Industries 1,980
133       MUS Group Insurance 11,980
133       Subsequent Injury 458
133       Montana Career Information System 44
133       Secretary of State Business Services 1,807
133       Historical Society Publications 270
133       Surplus Property 107
134       West Yellowstone Airport 498
134       Judiciary Law Library 13
134       Local Government Audits 295
134       Flexible Spending Administration 209
135       Department of Agriculture 9
135       Advanced Drivers Education 61
135       FWP Visitor Services 36
     Internal Service Funds:  
154       FWP Equipment 170
154       FWP Warehouse Inventory 83
154       FWP Office Supply 19
154       Highway Equipment 1,583
154       Employment Group Benefits 12,345
155       FWP Tech Services Division 2,446
155       Admin Insurance 411
155       Admin Supply 493
155       Motor Pool 412
155       Publications & Graphics 349
155       Buildings & Grounds 569
155       Admin Central Services 145
156       Labor Central Services 527
156       Commerce Central Services 372
156       OPI Central Services 175
156       DEQ Indirect Cost Pool 875
156       Mail & Messenger 346
157       Payroll Processing 73
157       Warrant Processing 180
157       Investment Division 958
157       Aircraft Operation 181
157       Justice Legal Services 42
157       Personnel Training 54
158       Debt Collection 99
158       Statewide Fueling Network 23
158       Procurement Card Purchases 18
158       Prison Industries 514
  Fiduciary Funds:  
     Pension Trust Funds(1/2 of actuarial surplus)  
82       Judges Retirement System (JRS)(7/1/02) 7,041
82       Sheriffs Retirement System (SRS)(7/1/02) 8,483
     Private-Purpose Trust Funds:  
184       Escheated Property  
184       Labor & Industry Compensation Fund  
184       Woodville Highway Replacement  
185       Cisco Academies  
185       Moore-Sipple Connector  
185       Environmental Reclamation  
     Agency Funds  
190       Investment Pool  
190       Performance Deposits  
190       Central Payroll  
190       Criminal Offender Restitution  
191       Custodial Accounts  
191       Child Support Collections  
191       Intergovernmental  
191       Debt Collection 89
191       Milk Pass-through  
  Component Units:  
54    Housing Authority 155,506
54    Facility Finance Authority 1,706
54    State Compensation Insurance Fund - New 605,433
54    State Compensation Insurance Fund - Old 92,744
55    Montana State University 84,038
55    University of Montana 42,226
  Total Surplus… 3,148,460
  Per Capita… 3,460
  Family of 4… 13,839

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



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