July 1, 2002 from MSNBC by Crystal Sherrer:

"After months of debate, the fiscal budget for next year was made final Friday. Gov. Tony Knowles approved the state's spending plan for the next fiscal year, which begins on Monday.

Knowles approved a $2.4 billion operating budget, but used his line item veto powers to cut several projects offered by the legislature.

A total of $10.5 million in general fund spending was cut as well as $22 million that was blocked from other funding sources.

The state of Alaska is facing a $1 billion deficit and Knowles scolded Republican lawmakers for cutting essential state services, while keeping money for pet projects in their own districts."

The above data regarding a $1 billion deficit is completely false. The State of Alaska at the State-level has approximately $7.70 billion of the taxpayer's money it is not using, i. e. potential surpluses equal to $12,191 for every man, women and child in Alaska or $48,762 for a family of 4. This does not include all the additional potential surpluses that exist in the school districts, cities, or counties in Alaska.

In fact if you look at the Exhibit A below you will see that the Constitutional Budget Reserve fund has $2.99 billion that is not being touched or considered in the budget process. This one fund being held by the State is placing a huge burden on the taxpayers because these funds should be in the hands of the people, the economy, and not held by the State and earning 4.5% to 5.0% in interest. If these funds were in the hands of the people, it would earn 20% for the State. (See explanation below.)

NOTE: This analysis does not, repeat does not, include the $26+ billion in the Permanent Fund, which is approximately $41,000 per capita.

The Alaska review is shown in Exhibit A below in this report.

Simultaneous Budget Deficits/Shortfalls and Financial Surpluses

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.

A budget is an estimate of the amount of money to be received and the amounts to be spent for various purposes in a given time. It is a planning and monitoring document. It matches revenues (income) and expenditures (expenses) for a given period of time which is usually one year for most governments. It does NOT demonstrate the financial condition of a government.

You continually hear the phrase "budget shortfall" or "budget deficit." What this means is that projected (planned) expenditures will probably exceed projected (planned) revenues. When this happens, governments immediately want to raise taxes and/or reduce services regardless of the financial condition of the government. It works every time.

A Simple Example to Understand the Surplus Problem.

Let's take a moment to understand the half-truth that the public is told.

Let's assume a government has $1 million in cash and investments at the end of the fiscal year. When the government prepares its budget it is not required to include that $1 million in the the budget process because that $1 million is considered an asset and not revenue. The income (interest and/or dividends) received from the $1 million cash and investments are included as revenues in the budget process.

Next, if the budget process discloses that expenditures are probably going to exceed revenues (including the income generated from the $1 million in cash and investments) by $100,000, then the government, politicians, and news media say that the government has a "budget shortfall" or 'budget deficit". Next step is to raise taxes or cut services by $100,000.

But I say hold on a minute. If governments are non-profit organizations that operate mostly on a pay-as-you-go system, then why is there $1 million in cash and investments being held. Also, why not use $100,000 of the $1 million in cash and investments to makeup for the budget shortfall.

The fact that the government has not used the $1 million at the end of the year means it is excess to the operation of the government.

The excess of $1 million will not be included in the next budget, only the income from that $1 million.

The $1 million is surplus and should either be considered in the next budget process, which would result in huge tax reductions, and/or returned to the people as rebates.

The State should implement the CAFR Budget System to prevent surpluses from accumulating in the future.

The $1 million in cash and investments are not shown in the budget. These assets are included in a publicly available document called the Comprehensive Annual Financial Report (CAFR) . This report concerns itself solely with the CAFR.

Another Example.

If you decide to invest in a company's stock and you go to a stock broker and ask about the company's financial condition, does the broker give you a copy of the company's budget? NO! He/she will give you a copy of the company's annual financial report which shows the financial condition of the company. The CAFR is a governments annual financial report.

The CAFR provides information which is used by investment companies such as Moody's Investors Services and Standard and Poors Corporation to determine the government's fiscal integrity and set bond rates. It includes a comprehensive presentation of the government's financial and operating activities

If you want to know the financial condition of your government(s), do not look in the budget. Get the CAFR.

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 Alaska's potential surpluses at the State-level for FY 2001 had reached $7.70 billion. But the $12,191 per capita is just the tip of the iceberg. It is what happens if that $7.70 billion is returned to each Alaska taxpayer 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 $24,977 per capita or $99,909 for a family of 4 and much more.

Economic Impact

The economic impact if the $7.70 billion was returned to the people is tremendous. Everyone wins. The economic impact is based on elementary economic principles that can be found in any Economics 101 textbook and are explained in summary form in the report on the State of Alaska and further explained on the web site: [Ref: ].

For Alaska residents:

Each resident would receive an average of $12,191 or $48,762 for a family of 4.

Salaries and wages would increase by an average of $6,095 or 24,381 for a family of 4.

Approximately 156,341 jobs would be created. No more unemployment. This means that unemployment compensation fund could also be refunded in the most part to the people.

Total taxpayer benefits of $24,977 per capita or $99,909 for a family of 4.

For Alaska businesses:

Each business owner would receive the same benefits outlined above for all residents.

The State economy would grow by an additional $15.63 billion or 58.97%. This amount equals $24,743 per capita.

The amount of rebates ($60 billion) that we all received from President Bush equalled about $427 per capita. These rebates were to boost a slowing economy and start the economy growing again. With a $24,743 per capita increase in the State economy Alaska could have an economic explosion. Result is that businesses' net incomes could double, triple or more.

For the State government:

When governments lower taxes, government revenues increase. It is true. If you want to learn more about this principle and how it works, go to: [Ref:]. The returning of surpluses is the same as lowering taxes because in both cases the money flows from the government back to the people (the private economy).

State governments earn approximately 10 cents on every dollar of economic activity. Since the $7.70 billion will generate $15.63 billion in increased economic activity, the State would earn $1.10 billion more than it is currently earning on the $7.70 billion of an estimated 6%.

This means that a year after the rebates are returned to the people, the State will again have surpluses due to the increase revenues which could (should) generate tax/revenue cuts.

For the Federal government:

The Federal government earns 20 cents on every dollar of economic activity. The Federal government would earn an additional $1.54 billion in revenues.

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.

Excuses

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

What you can do

There are tax watchdog organizations in almost every community and State that purport to represent the people on government tax matters.

A person should ask these organizations and others that represent taxpayers whether they consider the Comprehensive Annual Financial Report (CAFR) in their analysis of the government's financial condition and whether tax increases are justified. If they do not consider the CAFR, then the organization is not qualified to represent the people. Actually, in Alaska they should be working to get tax refunds.

Send them an email, send them a copy of this report, and ask them to provide you with their results of analyzing the CAFR. If you only want to provide a link to this report, the link is http://www.cafrman.com/Articles/Art-AK-S1.htm.

Ask Your Representative About this report

Locate Your State Elected Officials Here:

Special Report

A special form has been prepared that a person can send to their elected officials requesting a response to the potential surpluses identified in the report. Check it out.

Exhibit A

The 2001 CAFR is located at:

http://fin.admin.state.ak.us/dof/financial_reports/cafr_toc.jsp

This report was prepared by:

Gerald R. Klatt
www.cafrman.com

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