Kentucky Has At Least $9.40 Billion In Potential Surpluses of the Taxpayers Money.

The Commonwealth of Kentucky at the Commonwealth-level has approximately $9.40 billion of Kentuckian's tax dollars it is not using, i. e. potential surpluses equal to $2,340 for every man, women and child in Kentucky or $7,496 for a family of 4. This does not include all the additional potential surpluses that exist in the school districts, cities, or counties in Kentucky. If these potential surpluses at the Commonwealth-level were returned to the people, the total economic benefits increase to $4,901 per capita and $19,605 for a family of 4. Could you use an additional $4,901 per capita in benefits this year? The Kentucky review is shown in Exhibit A below in this report.

It's Not in the Budget

You say "This is not possible because we have been watching the politicians and the budget like hawks. Nothing gets by us." You are looking in the wrong place. We want to introduce you to another public document that you probably have not heard of, the Comprehensive Annual Financial Report (CAFR, pronounced "cay-fer"). The budget is only a planning document. The CAFR shows what actually happened.

Non-profit and Pay-as-you-go System

Do not think that government actions should be the same as yours or a company's actions. You and companies are the private sector of our economy. Governments are the public sector of our economy. Governments should be non-profit organizations, and except for retirement/pension funds, should be on a pay-as-you-go system. The budget is a planning document that matches revenues and expenditures for the next fiscal year of its operation based on the two principles above. Because governments normally are not allowed by law to exceed the budgeted amounts, the budget is a very important document for government officials and politicians.

Then what is this CAFR thing?

Think of the CAFR as the government's version of a company's annual financial statement. The CAFR does not include what the government is planing to do (the budget), but describes what it did; what actually was spent and the status of assets and liabilities at the end of the fiscal year.

Each year all States and local governments prepare a report that provides the status on all assets and liabilities and what the revenues and expenditures were for the fiscal year. The report is prepared in more or less in a standardized format using the Government Accounting Standards Board (GASB) accounting and reporting standards. This is where the potential surpluses are disclosed. They are not in a category called "surpluses". The potential surpluses have to be found and identified.

Comprehensive Annual Financial Reports provide information which is used by investment companies such as Moody's Investors Services and Standard and Poors Corporation to determine the state's fiscal integrity and set bond rates. It includes a comprehensive presentation of the state's financial and operating activities

What are these surpluses you have been talking about?

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 and the income and amounts keep increasing.

Potential surpluses are just the beginning

As stated above Kentucky's potential surpluses at the Commonwealth-level for FY2001 had reached $9.40 billion. But the $2,340 per capita is just the tip of the iceberg. It is what happens if that $9.40 billion is returned to each Arizonian on an equal basis that makes history. Using elementary economic principles found in every Econ 101 text book, after one year the refunds turn into total benefits of $4,901 per capita or $19,605 for a family of 4 and much more. Here is a chart that tells the whole story, but only for the major portion of Commonwealth-level government, not the potential surpluses at the school districts, cities, or counties in Kentucky. Their potential surpluses would be added to the amounts indicated below.

ECONOMIC IMPACT ANALYSIS SUMMARY - KENTUCKY CAFR REVIEW - FY 2001

When governments lower taxes, governmnet revenues increase

Yes, this is true. Why does President Bush want to lower taxes - to stimulate the economy so the Federal government can earn more revenue. There are those in Congress who say lowering taxes will result in deficit spending. This is absolutely false. If anyone is interested in the proof for this principle, here is where it can be found - http:/www.cafrman.com/III-EconomicImpactTextHM.htm#III-1

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 and an additional 1 million jobs were lost and the economy, already in a recession, continues to deteriorate.

As the above economic impact chart shows, if the Commonwealth of Kentucky returned the $9.40 billion in surpluses to the people the Kentucky economy would grow by $2,340 per capita. That is 5 times the amount the Federal government used to stimulate the U.S. economy. Kentucky businesses net incomes could double or triple. This is elementary economics.

There is no need for an economic recession or unemployment in Kentucky.

What should be done with these surpluses?

Well, in his testimony to the Senate Humphrey- Hawkins Committee, Alan Greenspan, Chairman of the Federal Reserve, in late July 1999 gave us a clue on what he thought should be done when he stated:

“I'm of the old fiscal school that you raise revenues for basic government purposes and if you don't have those purposes you give the money back or you don't tax it... My experience is that private rates of return are significant higher than the governments rates of return.”

What did he say?

• If a government collects too much from the people, the government should give it back.

• It is better to let the private sector have the money than governments. This we prove in our site beyond a reasonable doubt and is shown above.

The potential surpluses should be returned to the people NOW before governments spend it.

Potential vs Actual Surpluses

What are identified are potential surpluses, not actual surpluses. This is because only an on-site audit will determine the actual surpluses. The public does not have the liberty to conduct an audit. But a citizens committee could establish an initiative to force governments to accept a citizens' on-site audit for the sole purpose of turning potential surpluses into actual surpluses and determine how the surpluses will be handled.

A rose by another name is still a rose

For these potential surpluses, the government's and politician's response will be "These are required by law to be used only for the purposes designated." or "These are Federal funds and can only be used for a specific purpose." or "These are restricted funds controlled by law." Our response is Federal funds are taxpayers' money; State funds are taxpayers' money; restricted funds are taxpayers' money. We don't care what governments/politicians call it, the potential surpluses are "taxpayers' money" and the people should get it back. No tax cuts or paying off debt. These never work for the average citizen. The only way to get the most economic benefit is for the potential surpluses to be returned in total to the people.

For a list and response to the various excuses provided by governments for holding excesses of the taxpayers money, please go to this link. [Excuses]

Exhibit A

The 2001 CAFR is located at:

http://www.state.ky.us/agencies/finance/manuals/tax/cafr.htm

More Proof the Surpluses Exist

Another way to look at the accumulation of surpluses is to look at the 10 year data on Revenues by Source and Expenditures by Function contained in the Statistical Section of most CAFRs. Here is a table of a summary of those results and a surplus accumulations if the annual surpluses were compounded at an interest rate of 6%. In most governments the results are not as dramatic as in Kentucky.

If you look at Column F for the end of year 2001, you see that the total surpluses and interest accumulations for the ten year period came to $9.14 billion. The potential surpluses outlined in Exhibit A above amount to $9.40 billion. Now that is close and proof how the surpluses were accumulated over the last ten years. Two different sets of data analysis arriving at approximately the same result.

This report was prepared by:
Gerald R. Klatt
Lieutenant Colonel, USAF, Retired
Former:
   Auditor/Commander, Air Force Audit Agency
   Certified Cost Analyst (CCA) with the Institute of Cost Analysis
   Federal government accountant
   Member of the Association of Government Accountants (AGA)
   Member of the American Society of Military Comptrollers
http://www.cafrman.com/

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