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A
Secret $11 Billion Surplus?
Stories
are circulating of a massive stash of surplus state
funds in Virginia. Trust me on this one: If it sounds
too good to be true, it's too good to be true.
There
are plenty of good reasons to oppose an increase in
state taxes, as I have endeavored to document in this
column. But there are some bad reasons, too. One of
those is the proposition that the Commonwealth is
sitting on $10.9 billion in "surplus" funds
tucked away in various obscure accounts.
For
some reason, according to a theory advanced by The CAFR
Network at www.CAFRman.com,
this huge pot of money has escaped the notice of
Virginia's governor, its state senators, its delegates
-- both Democrats and Republicans alike -- who would
like nothing better than to tap a source of idle funds
to bail them out of their budgetary dilemma.
Thanks
to the Internet – websites and e-mail have a way of
spreading misinformation as rapidly as information –
this odd notion has circulated among anti-tax partisans in Virginia. Indeed, I have spoken to one individual who maintains
that a similar phenomenon is occurring at the local
level, too: Municipal governments are, for inscrutable reasons, piling up stockpiles of cash rather than
spending it or rebating it to the taxpayer.
I
have looked into this. As you can imagine, if there’s
any way of legitimately staving off tax increases in Virginia, I
would like to find it. I believe that Virginians
could cut government expenditures by billions of
dollars if the state and localities undertook the reform
of business processes and the restructuring of the system of
taxes and governance along the lines that fellow columnist Ed Risse
and I have laid out in innumerable columns. But that would require hard,
grueling work stretching over a decade or more.
The
idea that there's easy money laying around, horded
secretly by greedy politicians, is just a fantasy --
here in Virginia, at least.
The
website author is Gerald R. Klatt, a retired lieutenant
colonel with years of experience as a federal accountant
and as "Auditor/Commander, Air Force Audit
Agency." He claims to have worked with Comprehensive Annual
Financial Reports (CAFR), the source of his data, for 15
years.
Based
on his analysis of the CAFRs for all 50 states, Klatt
says, U.S. state governments collectively are holding
$612 billion "of your tax money that they are not
using." The numbers in Virginia amount to $10.9
billion, or nearly $1,500 for every man, woman and child
in the state.
According
to Klatt's methodology, not all government funds count
as "surplus." He excludes a number of
categories, and his explanations sound very reasonable.
Until you start looking closely at the numbers.
Among
the larger sums that Klatt designates as
"surpluses" are:
Those
numbers just don't smell right. With all the hue and cry
over transportation funding being short-changed, how
could the Commonwealth Transportation Fund be sitting on
$1.3 billion "surplus" dollars. With all the
fretting that Virginia is starving higher ed, how could
UVa be letting $892 just lay idle?
I
ran Klatt's data past Pamela Currey, deputy secretary of
finance, and asked if Virginia's $10.9 billion could be
construed as "surplus." Her response will
surprise very few. I quote it in full (with minor
edits):
Bottom
line is that much
of the reported 'surplus' is either not available to
state government, held in investments that cannot be
readily converted to cash, contractually obligated for
payment in future years, or legally restricted from use:
-
Certain
investments held by public entities cannot be converted
to spendable cash. For example, $2.2
billion of the “surplus” reported for the Virginia
Public School Authority (VPSA) represents loans to local
school divisions for school building construction. The bonds are issued through
a state bond bank at far lower interest costs
than the schools could obtain on their own from private
sources and the
localities make their payments to the bond holders
through the VPSA. The funds are never the
Commonwealth's.
Another $1.3 billion is held by the Virginia Housing
Development Authority -- I can't imagine anyone thinks
the Commonwealth has a right to the housing authority's
funds. Over $300 million is in the Virginia
Resources Authority's portfolio, which again is
comprised of local assets. Almost $400 million is
from the Unemployment Trust fund. Does CAFRman
suggest we take unemployment benefits and provide those
as tax breaks?
-
...
Liabilities
and other contractual claims on cash are ignored
in CAFRman's analysis. For example, the General Fund reported $1.7
billion in liabilities against the reported $791 million
“surplus.” In
another example, the Lottery reported $654 million in
liabilities against a
reported $591 million “surplus.”
Sound financial management practices dictate that
liabilities be minimized relative to available cash in
order to ensure
that the Commonwealth is able to meet its financial
obligations -- like paying bills when due. We operate on the basis that when funds are encumbered
we "reserve" those funds to make the payment.
Obviously we would never come to a bottom line that even
approached zero. To do so would result very
quickly in a financial catastrophe.
-
Constitutional
and other statutory restrictions on cash established by
the citizens and legislature are ignored.
For example, $472 million of the reported General
Fund “surplus” is required by the Constitution to be
reserved for future revenue shortfalls (i.e., rainy day
fund). Additionally,
most of the $2.4 billion reported fiduciary fund
“surplus” is Constitutionally segregated from the
rest of state government to be held by the Virginia
Retirement System in trust for the benefit of members
and beneficiaries -- I
have no idea how CAFRman determines that these funds
belong to anyone other than the members of the system.
I doubt any one would -- dipping into pension funds has
a way of turning nasty.
Conclusion:
There isn’t any easy money laying around. Believe me,
if there were, the politicians would have spent it
already!
--
March 29, 2004
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