Ok now y'all pay attention !

Maricopa County Has At Least $845 Million In Surpluses of the Taxpayers Money it is not using.

FY 2003 Report Home Page

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.

(In Thousands) Investment Income Per Capita Family of 4
The government holds and investments the surpluses at 4.5%. 38,005 158 634
Here is what happens when the $845 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. 844,548 3,521 14,084
Wages are increased. 422,274 1,761 7,042
State government revenues increase. 172,896 721 2,883
County government revenues increase. 138,317 577 2,307
Federal government revenues increase. 345,792 1,442 5,767
Total Benefits... 8,021 32,083
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.

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

BACK TO TOP

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.