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Introduction
The Commonwealth of Virginia at the Commonwealth-level has
approximately $10.85 billion of the
taxpayer's money it is not using, i. e. surpluses equal to $1,492 for every man, woman and child in Virginia or
$5,968 for a family of 4. This does not
include all the additional surpluses that exist in the school districts,
cities, or counties in Virginia.
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 Commonwealth'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 Commonwealth. 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 Commonwealth. 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 Commonwealth 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.
For
example, there are two of the Commonwealth of Virginia Special Revenue Funds
(Governmental Funds), part of the budget, that illustrate the problem.
Dedicated and Other are the two.
Dedicated budgeted for a fund balance of $115,123 (in thousands). It
had an actual fund balance at year end of $181,309. The $181,309 will probably
not be considered in the next year's budget.
Other
budgeted for a fund balance of $110,222 but had an actual fund balance of
$308,697.
Both of
these fund balances, $181,309 and $308,697, will probably not be considered in
the next year's budget. If 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
Commonwealth, 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 Commonwealth 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 Commonwealth 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
Commonwealth holds the excesses/surplus, it will earn 4% to 5% on that money. If the Commonwealth 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 Commonwealth 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 Commonwealth and local government
revenues, dramatically increase the economy, and create the greatest economic
expansion in the history of the Commonwealth. 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 $10.85 billion.
|
(In Thousands) |
Investment Income |
Per Capita |
Family of 4 |
|
|
The
government holds and investments the surpluses at 4.5%. |
488,427 |
67 |
269 |
|
Here
is what happens when the $10.85 billion is returned to the taxpayers (the
private economy).
|
(In Thousands) |
Surplus Effect |
Per Capita |
Family of 4 |
|
|
The
surplus is returned to the taxpayers. |
10,853,944 |
1,492 |
5,968 |
|
|
Wages are
increased. |
5,426,972 |
746 |
2,984 |
|
|
Commonwealth government revenues increase. |
2,170,789 |
298 |
1,194 |
|
|
Local
government revenues increase. |
1,736,631 |
239 |
955 |
|
|
Federal
government revenues increase. |
4,341,578 |
597 |
2,387 |
|
|
Total Benefits... |
|
3,372 |
13,487 |
|
In
addition, 217,079 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 Commonwealth returned the $10.85 billion in
surpluses to the people the Commonwealth economy would grow by $2,984 per
capita. That is 7 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
Commonwealth Transportation, a Special Revenue Fund, made a profit of $24
million. It also had reserves (cash and investments) of $1.3
billion.
The
Dedicated Fund, a Special Revenue Fund, had net expenses equal to 71 years of
cash/investment reserves. Other Fund, a Special Revenue Fund, had net expenses
equal to 257 years in reserves.
Commonwealth Health Research Board, a Permanent Fund, made a profit of $295
thousand. But it also had cash and investment reserves of $25 million and
actual expenditures of $1.2 million. The reserves represent almost 21 years of
expenditures.
These only
represent four of the 77 funds shown below that had cash and investment
reserves not being used.
What to do?
Unless the
budget flaws are corrected and the entire Commonwealth 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.doa.state.va.us/docs/Publications/CAFR/cafr.htm#2002%20Annual%20Report
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 Commonwealth of Virginia CAFR- FY
2003
CAFR Page |
List of
Investments By Fund (In thousands) |
Surpluses |
Notes |
|
Governmental Funds: |
|
|
50 |
General |
718,072 |
|
|
Special Revenue |
|
|
50 |
Commonwealth
Transportation |
1,302,232 |
|
50 |
Federal Trust |
207,515 |
|
50 |
Literary |
62,134 |
|
172 |
The Dedicated Special Revenue
Fund |
188,581 |
|
172 |
The Other Special Revenue
Fund |
254,825 |
|
172 |
VA Land Conservation Foundation
Fund |
2,307 |
|
172 |
VA Historic Preservation
Foundation |
|
|
172 |
VA State Parks
Foundation |
350 |
|
|
Debt Service: |
|
|
173 |
Primary Government |
85,780 |
|
173 |
VA Public Building
Authority |
92 |
|
|
Capital Projects |
|
|
173 |
Primary Government |
59,133 |
|
173 |
VA Public Building
Authority |
54,611 |
|
|
Permanent Funds |
|
|
174 |
Commonwealth Health Research Board |
24,505 |
|
174 |
Mental Health Endowment Funds |
|
|
174 |
Virginia Arts Foundation Fund |
|
|
|
Proprietary Funds: |
|
|
|
Enterprise: |
|
|
58 |
State Lottery |
660,896 |
|
58 |
The Virginia College Savings
Plan |
|
|
58 |
Pocahontas Parkway |
60,735 |
|
58 |
Unemployment
Compensation |
396,471 |
|
|
Nonmajor: |
|
|
186 |
The Department
of Alcoholic Beverage Control |
801 |
|
186 |
Risk
Management |
36,965 |
|
186 |
The Local
Choice Health Care Program |
11,954 |
|
186 |
The Virginia
Industries for the Blind |
1,956 |
|
187 |
The
Consolidated Laboratory |
2,038 |
|
187 |
eVA Procurement
System |
266 |
|
187 |
The Department
of Environmental Quality |
11,366 |
|
187 |
Wireless E-911
Service Board |
28,334 |
|
187 |
The Virginia
Museum of Fine Arts |
685 |
|
187 |
The Science
Museum of Virginia |
181 |
|
187 |
Mental Health
Local Funds |
422 |
|
188 |
The Division of
Legislative Service |
6 |
|
188 |
The Virginia
School for Deaf and Blind |
2 |
|
|
Internal Service: |
|
|
202 |
Department of Information
Technology |
14,069 |
|
202 |
Virginia Correctional
Enterprises |
5,827 |
|
202 |
Health Care |
43,290 |
|
202 |
Division of Fleet
Management |
45 |
|
203 |
Maintenance and
Repair |
6,632 |
|
203 |
Virginia Distribution
Center |
762 |
|
203 |
Risk Management |
96,222 |
|
203 |
Consolidated
Laboratory |
280 |
|
203 |
Federal Surplus
Property |
397 |
|
203 |
State Surplus
Property |
263 |
|
203 |
Graphic
Communications |
179 |
|
203 |
Property Disposal |
134 |
|
204 |
Engineering Services |
173 |
|
|
Fiduciary Funds: |
|
|
162 |
Pension (1/2 actuarial surplus - June 30,
2002) |
|
|
216 |
Private Purpose: |
|
|
216 |
Investment Trust: |
|
|
217 |
Agency Funds |
|
|
|
Component Units: |
|
|
72 |
The Virginia Housing Development
Authority |
1,320,594 |
|
72 |
The Virginia Public School Authority |
2,246,354 |
|
72 |
University of Virginia |
892,094 |
|
72 |
Virginia Polytechnic Institute and State
University |
161,755 |
|
72 |
Virginia Commonwealth University |
393,622 |
|
|
Nonmajor: |
|
|
240 |
Virginia Economic Development
Partnership |
2,136 |
|
240 |
Virginia Outdoors
Foundation |
1,278 |
|
240 |
Virginia Port
Authority |
252,357 |
|
240 |
Virginia Resources
Authority |
341,441 |
|
241 |
Virginia Tourism
Authority |
1,150 |
|
241 |
Virginia Tobacco Settlement
Authority |
13,475 |
|
241 |
Tobacco Indemnification and
Community Revitalization
Commission |
82,881 |
|
241 |
Hampton Roads Sanitation District
Commission |
96,306 |
|
241 |
Virginia Biotechnology Research
Park Authority |
6,989 |
|
241 |
Virginia Small Business Financing
Authority |
26,159 |
|
241 |
Virginia School for the Deaf and
Blind |
2,151 |
|
242 |
A.L. Phipott Manufacturing
Extension Partnership |
689 |
|
242 |
Virginia Equine Center
Foundation |
2,208 |
|
242 |
Certified Nursing Facility
Education Initiative |
337 |
|
|
Higher Education
Institutions: |
|
|
242 |
College of William and
Mary |
79,388 |
1 |
243 |
Virginia Military
Institute |
26,853 |
1 |
243 |
Virginia State
University |
29,263 |
1 |
243 |
Norfolk State
University |
7,878 |
1 |
243 |
Mary Washington
College |
20,806 |
1 |
243 |
James Madison
University |
57,409 |
1 |
243 |
Radford University |
40,871 |
1 |
243 |
Old Dominion
University |
45,555 |
1 |
244 |
George Mason
University |
65,846 |
1 |
244 |
Virginia Commonwealth
University |
85,425 |
1 |
244 |
Christopher Newport
University |
62,721 |
1 |
244 |
Longwood University |
16,635 |
1 |
245 |
Southwest VA Higher Education
Training Center |
413 |
|
245 |
Roanoke Higher Education
Authority |
310 |
|
245 |
Innovative
Technology Authority |
7,448 |
|
245 |
VA College Building
Authority |
121,659 |
|
|
Total Surpluses
|
10,853,944 |
|
|
Per Capita
. |
1,492 |
|
|
Family of 4
|
5,968 |
|
Notes |
|
|
|
1 |
The amounts contained in the universities may contain Endowment and
similar funds. These should be deducted from the potential
surpluses. |
|
|
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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