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Introduction
The City of Mesa has approximately $245.4 Million of the taxpayer's money it is not
using, i. e. surpluses equal to $565 for
every man, woman and child in Mesa or $2,258 for a family of 4. This does not include
all the additional surpluses that exist in the school districts in
Mesa.
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 City'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 City. 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 City. 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 City 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 City,
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 City 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 City Officials
The City
officials 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 City
should take into consideration the entire financial condition/status of the
City 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 City
holds the excesses/surplus, it will earn 4% to
5% on that money. If the City 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 City 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 City 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 City and local government revenues,
dramatically increase the economy, and create the greatest economic expansion
in the history of the City. 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 $245.4 Million.
|
(In Thousands) |
Investment Income |
Per Capita |
Family of 4 |
|
|
The
government holds and investments the surpluses at 4.5%. |
11,041 |
25 |
102 |
|
Here
is what happens when the $245.4 Million is returned to the taxpayers (the
private economy).
|
(In Thousands) |
Surplus Effect |
Per Capita |
Family of 4 |
|
|
The
surplus is returned to the taxpayers. |
245,358 |
565 |
2,258 |
|
|
Wages are
increased. |
122,679 |
282 |
1,129 |
|
|
City
government revenues increase. |
42,473 |
98 |
391 |
|
|
State
government revenues increase. |
53,092 |
122 |
489 |
|
|
Federal
government revenues increase. |
106,183 |
244 |
977 |
|
|
Total Benefits... |
|
1,311 |
5,244 |
|
In
addition, 5,309 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 City returned the $245.4 Million in
surpluses to the people the City economy would grow by $1,222 per capita. That
is 3 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
Cemetery, a Special Revenue Fund and part of the budget, made a profit of $14
thousand. It also had reserves (cash and investments) of $5.1
million.
Public Art,
another Special Revenue Fund and part of the budget, had net expenditure of
$228 thousand. But it also had cash and investment reserves of $822 thousand.
This represents 4 years of reserve.
Property and
Public Liability Self Insurance, an Internal Service Fund, had net expenditure
of $2.2 million. It had reserves of $13.5 million . This represents 6 years of
reserves.
Workers'
Compensation, another Internal Service Fund had net expenditures of $2.5
million and had cash/investment reserves of $9.7 million. This is 4 years of
reserves.
These only
represent four of the 28 funds shown below that had cash and investment
reserves not being used.
What to do?
Unless the
budget flaws are corrected and the entire City finances are used in the budget
process, the problems that created the surpluses will continue to exist. The
budget deficits reported by city officials 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 City officials that the surpluses exist and what
should be done about it. I live in Tucson, Arizona. It is not my money that is
at stake.
Exhibit A
The 2003
CAFR is located at:
http://www.ci.mesa.az.us/government/default.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 City of Mesa CAFR- FY
2003
CAFR Page |
List of
Investments By Fund |
Surpluses |
Notes |
|
Governmental Funds: |
|
|
21 |
General |
52,309,906 |
|
21 |
Highway User Revenue Fund |
10,938 |
|
|
Special Revenue Funds: |
|
|
90 |
Local Transportation Assistance
Fund |
5,409 |
|
90 |
Mesa Housing Authority
Fund |
493,660 |
|
90 |
Cemetery Fund |
5,094,321 |
|
91 |
Public Art Fund |
822,165 |
|
91 |
Development Impact Fees
Fund |
3,323,737 |
|
|
Debt Service Fund: |
|
|
94 |
General Obligation Bond
Redemption Fund |
20,883,080 |
|
94 |
Special Assessment Bond
Redemption Fund |
4,005 |
|
94 |
Municipal Development Corporation
Bond Redemption Fund |
1,016,456 |
|
95 |
Capital Lease Redemption
Fund |
1,017,289 |
|
95 |
Highway User Revenue Redemption
Fund |
2,346,542 |
|
|
Capital Project Funds: |
|
|
98 |
Fire |
3,241,576 |
|
98 |
Storm Sewer |
5,978,723 |
|
98 |
Streets |
17,788,160 |
|
98 |
Parks |
3,026,457 |
|
99 |
Law Enforcement |
5,894,526 |
|
99 |
Senior Center |
16,479 |
|
99 |
Library |
1,960,398 |
|
99 |
Service Center |
1,105,067 |
|
99 |
Capital Leases |
2,033,572 |
|
|
Proprietary Funds: |
|
|
25 |
Enterprise Funds: |
63,533,920 |
1 |
|
Internal Service Funds: |
|
|
102 |
Warehouse, Maintenance and Services Fund |
259 |
|
102 |
Property and Public
Liability Self-Insurance Fund |
13,468,558 |
|
103 |
Workers'
Compensation Self-Insurance Fund |
9,702,901 |
|
103 |
Employee
Benefit Self-Insurance Fund |
10,180,147 |
|
|
Fiduciary Funds: |
|
|
|
Pension Funds: (1/2 the actuarial
excesses) |
|
|
59 |
Public Safety Personnel
Retirement System-Police
(6/30/02) |
10,405,446 |
|
60 |
Public Safety Personnel
Retirement System-Fire
(6/30/02) |
9,694,213 |
|
62 |
Payroll Agency |
|
|
|
Jointly Governed Organizations: |
|
|
|
Williams Gateway Airport Authority |
Unknown |
|
|
Regional Public Transportation Authority
(RPTA) |
Unknown |
|
|
Arizona Municipal Water Users Association
(AMWUA) |
Unknown |
|
|
Total Surpluses
|
245,357,910 |
|
|
Per Capita
|
565 |
|
|
Family of 4
|
2,258 |
|
Note: |
|
|
|
1 |
The Enterprise Funds net income are entered as follows: (Page 24).
Are you charged too much for these services? |
Operating Revenues |
Operating Income/ (Loss) |
|
Electric
|
27,839,896 |
8,383,837 |
|
Gas
|
25,113,857 |
4,629,379 |
|
Water
|
74,769,709 |
48,727,080 |
|
Wastewater
|
41,656,214 |
25,366,955 |
|
Solid Waste
|
31,833,958 |
11,720,324 |
|
Airport
|
1,845,693 |
633,574 |
|
Golf Course
|
2,325,121 |
289,092 |
|
Centennial Center
|
1,422,276 |
(1,361,981) |
|
Total
|
206,806,724 |
98,388,260 |
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This is almost 48% gross profit that they are sitting on.
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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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