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Introduction
The State of New York at the State-level has approximately
$52.56 billion of the taxpayer's money it
is not using, i. e. surpluses equal to $2,723
for every man, woman and child in New York or $10,890 for a family of 4. This does not include
all the additional surpluses that exist in the school districts, cities, or
counties in New York.
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.
Note:
Although there are other reasons the State of Washington has surpluses, they
still use the balance brought forward in their budget process.
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 $52.56 billion.
|
(In Millions) |
Investment Income |
Per Capita |
Family of 4 |
|
|
The
government holds and investments the surpluses at 4.5%. |
2,365 |
123 |
490 |
|
Here
is what happens when the $52.56 billion is returned to the taxpayers (the
private economy).
|
(In Millions) |
Surplus Effect |
Per Capita |
Family of 4 |
|
|
The
surplus is returned to the taxpayers. |
52,560 |
2,723 |
10,890 |
|
|
Wages are
increased. |
26,280 |
1,361 |
5,445 |
|
|
State
government revenues increase. |
10,512 |
545 |
2,178 |
|
|
Local
government revenues increase. |
8,410 |
436 |
1,742 |
|
|
Federal
government revenues increase. |
21,024 |
1,089 |
4,356 |
|
|
Total Benefits... |
|
6,153 |
24,612 |
|
In
addition, 1,051,200 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 $52.56 billion in
surpluses to the people the State economy would grow by $5,445 per capita. That
is 13 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
We shall use
the Component Units for great examples of the charges for services. These are
not part of the budget process.
Power
Authority had net expenditures of $11 million. But it also had cash and
investment reserves of $2.3 billion. The reserves represent almost 206 years of
net expenditures.
Dormitory
Authority made a profit of $33 million . It had reserves of $7.2 billion.
Long Island
Power Authority made a profit of $5 million and had cash/investment reserves of
$5 billion.
The State
Insurance Fund had net expenditures of $50 million. It had reserves of $8
billion. That represents 160 years of net expenditures.
These only
represent four of the 53 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.osc.state.ny.us/finance/
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 New York CAFR- FY
2003
CAFR Page |
List of
Investments By Fund (In Millions) |
Potential Surpluses |
|
Governmental Funds: |
|
|
General Fund: |
|
92 |
Local Assistance |
352 |
92 |
State Purposes |
145 |
92 |
Tax Stabilization
Reserve |
303 |
92 |
Contingency Reserve |
21 |
92 |
Community Projects |
85 |
93 |
Fringe Benefit Escrow |
|
93 |
Earmarked Reserve |
707 |
93 |
Miscellaneous |
15 |
|
Special Revenue: |
|
108 |
School Tax Relief |
|
108 |
Indigent Care |
97 |
108 |
Dedicated Mass Transportation
Trust |
51 |
108 |
Conservation |
22 |
108 |
Environmental Protection and Oil
Spill Compensation |
8 |
109 |
Mass Transportation Operating
Assistance |
72 |
109 |
Tobacco Control and Insurance
Initiatives |
456 |
109 |
Hospital Bad Debt and Charity
Care |
809 |
109 |
Miscellaneous |
1,175 |
|
Debt Service: |
|
116 |
Mental Health
Services |
258 |
116 |
General Obligation Debt
Service |
1,725 |
116 |
State Housing Debt |
|
116 |
Department of Health
Income |
59 |
116 |
Emergency Highway Reconditioning
and Preservation |
|
117 |
Emergency Highway Construction
and Reconstruction |
1 |
117 |
Clean Water/Clear Air |
|
117 |
Local Government Assistance
Tax |
339 |
117 |
Sole Custody |
16 |
|
Capital Projects: |
|
124 |
State Capital
Projects |
1,004 |
124 |
Dedicated Highway & Bridge
Trust |
9 |
124 |
Environmental
Protection |
125 |
124 |
Transportation Capital Facilities
Bond |
5 |
124 |
Environmental Quality Protection
Bond |
5 |
124 |
Transportation Infrastructure
Bond |
14 |
124 |
Environmental Quality
Bond |
15 |
125 |
Accelerated Capacity &
Transportation Improvement Bond |
7 |
125 |
Federal Capital
Projects |
|
125 |
Clean Water/Clear Air
Implementation |
|
125 |
Housing Program |
|
125 |
DOT Engineering
Services |
|
125 |
Mental Hygiene Facilities Capital
Improvement |
72 |
125 |
Correctional Facilities Capital
Improvement |
177 |
125 |
Miscellaneous |
50 |
|
Fiduciary Funds: |
|
|
Enterprise Funds: |
|
38 |
Lottery |
363 |
38 |
Unemployment Benefit |
10 |
38 |
SUNY - 2002 |
1,941 |
38 |
CUNY-2002 |
1,151 |
|
Private Purpose Trust
Funds: |
|
134 |
Agricultural and Milk Producer's
Security Funds |
4 |
134 |
Abandoned Property
Fund |
|
134 |
Tuition Savings Program
Fund |
|
|
Agency Funds: |
|
|
Employee Benefit
and Payroll Related Funds: |
|
136 |
School Capital
Facilities Financing Reserve |
40 |
136 |
Employee Health
Insurance |
332 |
136 |
Social Security
Contribution |
|
136 |
NYS Employee
Payroll Withholding |
|
136 |
Employee Dental
Insurance |
6 |
137 |
Management
Confidential Group Insurance |
|
137 |
CUNY Senior
College Operating |
32 |
137 |
MMIS Statewide Escrow Fund |
259 |
137 |
Other Agency
Funds |
|
|
Discretely Presented Component Units: |
|
44 |
Power Authority |
2,267 |
44 |
Thruway Authority |
321 |
44 |
Metropolitan Transportation Authority |
8,234 |
44 |
Dormitory Authority |
7,159 |
44 |
Long Island Power Authority |
4,966 |
45 |
Urban Development Corporation |
1,540 |
45 |
State Insurance Fund |
8,015 |
45 |
SONY Mortgage Agency |
1,875 |
45 |
NYS Housing Finance Agency |
1,087 |
45 |
Non-Major Component Units |
4,759 |
|
State
of New York Retirement Systems (Surpluses Only) |
Unknown |
|
Total Potential
Surpluses
|
52,560
|
|
Per Capita
|
2,723 |
|
Family of 4
|
10,890 |
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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