Introduction

Maricopa County at the County-level has approximately $845 Million of the taxpayer's money it is not using, i. e. surpluses equal to $3,521 for every man, woman and child in Maricopa County or $14,084 for a family of 4. This does not include all the additional surpluses that exist in the school districts, or cities in Maricopa County.

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 County'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.

For example, in Maricopa County Special Revenue Funds (Governmental Funds), considered part of the budget, have fund balances of $125 million that probably will not be considered in the next year's budget. The total cash and investments, funds that were not used during the current year, was $145 million (surplus) and should be part of the next year's budget. So if next year there is a "budget deficit" ask about these funds 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.

The County Commissioners

The County Commissioners 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 County Commissioners should take into consideration the entire financial condition/status of the County 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 County 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 16% 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 County 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 County and local government revenues, dramatically increase the economy, and create the greatest economic expansion in the history of the County. 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 $845 Million.

Here is what happens when the $845 Million is returned to the taxpayers (the private economy).

In addition, 17,290 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 County returned the $845 Million in surpluses to the people the County economy would grow by $7,208 per capita. That is 17 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

The Maricopa Health Care, an Enterprise fund and not part of the budget, made a profit of $6.7 million. It also had reserves (cash and investments) of $18.8 million.

Solid Waste, another Enterprise Fund and not part of the budget, made a profit of $1.5 million. But it also had cash and investment reserves of $448 million and actual expenditures of $15.6 million.

Planning and Development, a Special Revenue Fund and part of the budget, made a profit of $4.6 million. It had reserves of $13.6 million.

County Attorney Drug Diversion, another Special Revenue Fund and part of the budget, had net expenditures of $286 thousand and had cash/investment reserves of $1.3 million. That is 5 years of reserves.

Library Fund, another Special Revenue Fund and part of the budget, had net expenditures of $1.4 million and cash/investment reserves of $7.1 million. That is 5 years of reserves.

These only represent five of the 106 funds shown below that had cash and investment reserves not being used.

What to do?

Unless the budget flaws are corrected and the entire County finances are used in the budget process, the problems that created the surpluses will continue to exist. The budget deficits reported by the County Commissioners 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 County Commissioners that the surpluses exist and what should be done about it. I do not live in Maricopa County. It is not my money.

Exhibit A

The 2003 CAFR is located at:

http://www.maricopa.gov/finance/cafer1.asp

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 Maricopa County CAFR- FY 2003

CAFR Page	List of Investments By Fund	Surpluses
	Governmental Fund Types:
26	General	185,622,744
26	Jail Operations	17,279,590
26	General Obligation	20,899,179
27	Lease Revenue	110,289,390
27	Jail Construction	23,905,991
27	County Improvement	49,866,036
	Special Revenue:
104	Accommodation Schools	653,094
104	Adult Probation Grants	973,291
104	Adult Probation Services	3,443,614
104	Animal Control	2,720
104	Animal Control Donations
105	Animal Control Field Services	56,199
105	Animal Control Grants	17,815
105	Bank One Ballpark Operations	4,638,487
105	CDBG Housing Trust
105	Child Support Automation	24,066
105	Child Support Enhancement	191,996
105	Children Issues Education	97,904
106	Clerk of Court EDMS	387,609
106	Clerk of Court Fill The GAP	72,571
106	Clerk of Court Grants
106	Clerk of Court Spousal Maintenance Enforcement	44,235
106	Conciliation Court Special	248,634
107	Correctional Health Grants
107	County Attorney Check Enforcement Program	166,601
107	County Attorney Criminal Justice Enforcement	216,949
107	County Attorney Drug Diversion	1,328,390
107	County Attorney Fill The GAP	1,293,655
107	County Attorney Grants
107	County Attorney Victim Compensation and Assistance	113,515
108	County Attorney Victim Compensation and Restitution	462,926
108	Court Automation	282,405
108	Document Retrieval	243,949
108	Domestic Relations Education	157,472
108	Economic Development	411,631
109	Emergency Management	375,740
109	Environmental Services	2,707,140
109	Environmental Services Environmental Health	1,656,538
109	Environmental Services Grant
109	Expedited Child Support	270,210
109	Flood Control	31,568,467
109	General Government Grants	352,507
110	Housing Department	952,959
110	Human Services Grants	4,047
110	Juror Improvement	67,009
110	Justice Court Enhancement	585,961
110	Justice Court Grants	28,593
111	Justice Court Judicial Enhancement	1,733,055
111	Juvenile Court Grants	972,754
111	Juvenile Probation	944,318
111	Juvenile Probation Diversion Fees	377,006
111	Juvenile Restitution	50,203
111	Law Library	209,593
111	Legal Defender Fill the GAP	7,157
112	Library	7,091,893
112	Library Grants	48,032
112	Old Courthouse	8,680
112	Palo Verde	198,601
112	Parks and Recreation Grants	145,258
113	Parks Donations
113	Parks Enhancement	1,788,987
113	Parks Lake Pleasant	1,533,734
113	Parks Souvenir	25,091
113	Parks Spur Cross Ranch	200,095
113	Planning and Development	13,581,603
113	Planning Project Fees	434,382
114	Probate Programs	127,038
114	Public Defender Fill the GAP	230,232
114	Public Defender Grants
114	Public Defender Training
114	Public Health	3,057,619
115	Public Health Pharmacy	1,249,604
115	Recorder's Surcharge	6,494,249
115	Research and Reporting	128,021
115	RICO	10,449,967
115	Sheriff Donations	22,548
115	Sheriff Grants	840,952
115	Sheriff Inmate Health Services	45,482
116	Sheriff Special Funding	7,361,957
116	Small Schools Service Program	239,705
116	Sports Authority	130,731
116	Stadium District	2,193,918
117	Street Lighting	2,218,694
117	Superior Court Fill the GAP	105,555
117	Superior Court Grants	18,810
117	Superior Court Judicial Enhancement	1,279,876
117	Superior Court Special	1,392,440
117	Taxpayers Information	563,027
118	Transportation	18,009,484
118	Transportation Grants
118	Unorganized Territory Transportation	203,586
118	Victim Location	84,661
119	Waste Tire Program	4,608,394
	Debt Service:
119	Special Assessment	293,960
119	Stadium District	7,771,737
	Capital Projects:
120	Bank One Ballpark Project Reserve	8,098,207
120	Bond Funds	238,913
120	Flood Control Capital Projects	6,251,674
120	General Fund County Improvement	35,139,067
121	Inter-Governmental Capital Projects	19,219,268
121	Major League Stadium	1,439
121	Transportation Capital Projects	3,003,407
	Propriety Fund Types:
	Enterprise:
32	Maricopa Health Plan	18,800,194
32	Medical Center	8,323,009
32	ALTCS	50,804,780
230	Non-AHCCCS Health Plans	824,206
230	Solid Waste	15,606,030
	Internal Service:
236	Equipment Services	53,348
236	Telecommunications	3,418,140
236	Reprographics	659,039
237	Risk Management	27,562,754
237	Employee Benefits Trust	6,943,916
237	Sheriff Warehouse
	Fiduciary Fund Type:
	Trust and Agency:
246	Investment Trust Funds:
246	Expendable Trust Fund:
	Agency Funds:
247	Property Tax Collection
247	Special Purpose	68,681,522
	Pension Funds: (1/2 of excess funding requirements)       (As of 6/30/02)
	Public Safety Personnel Retirement System:
83	Sheriff	10,299,040
83	Investigators	185,821
83	CORP:	9,446,286
	Total Surpluses…	844,548,292
	Per Capita…	3,521
	Family of 4…	14,084
Note:	City and county Comprehensive Annual Financial Reports (CAFR) do not always contain information pertaining to services that are provided to other governments. It could be the case here. It is possible that some of the funds provide services to or have agreements with the various cities within Maricopa County. An on-site audit would identify these situations and a cost allocation methodology should be used to distribute a portion of the surpluses shown above to the proper government.

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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This report was prepared by: Gerald R. Klatt Lieutenant Colonel, USAF, Retired www.cafrman.com Qualifications

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