Mesa Has At Least $245.4 Million In Surpluses of the Taxpayers Money it is not using.

  FY 2003 Report Home Page



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
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.


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:

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  

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
  This is almost 48% gross profit that they are sitting on.    

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.