[lbo-talk] State Surpluses?

Steven mailinglist at navari.com
Mon Jan 5 06:48:58 PST 2004


To the economists in the group,

During the holiday period, while spending some time browsing online, I came across the following Web site: http://www.cafrman.com/. If you have a moment, I'd appreciate your thoughts on the arguments of this Web site's author.

In summary, the primary arguments of the author are that:

(i) state and local governments are currently carrying large asset bases on their balance sheets; (ii) while many of these assets are public infrastructure or held for the public trust, much of this asset base is extremely liquid (i.e. cash & investments) and is pooled (see note below). The author refers to these liquid assets as "surpluses". (iii) these surpluses are not included in these [state or local] gov'ts' annual budgets, but are included in a separate report called the Comprehensive Annual Financial Report (CAFR); (iv) while annual budget shortfalls may exist due to a shortage of revenues, these surpluses may be liquidated in order to cover any current year shortfall without affecting government's ability to function in the current year (or future years assuming that the gov't can secure appropriate revenues); (v) politicians do not openly discuss these balance sheet surpluses when annual budgets are debated. The public is therefore unaware of these surpluses as well as the ability to liquidate these surpluses in order to cover annual shortfalls.

Note: The Web site author does not include the following assets in his calculations of available surpluses:

- buildings, roads, bridges, land (not for sale), equipment - deferred compensation plans for employees - any fund that is 100% supported by donations, bequests, gifts, endowments, - college and university endowments - funds in which the revenues/contributions are 100% held for other individuals, organizations or another government - retirement or pension funds;

As I reside in California, this author's comments are of particular interest, especially given our current administration's desire to float a $15B bond - assuming the voters agree to this bond during the next election. So, I checked out California's Comprehensive Annual Financial Report (CAFR) for June 30, 2002, which can be found at the following link:

http://www.sco.ca.gov/ard/cafr/2002/cafr02.pdf

Reviewing California's '02 CAFR and leveraging the work completed by the Web site author, I produced the attached spreadsheet, which calculated that approximately $44B in surpluses are available on California's balance sheet.

So, if these calculations are indeed correct, is there some reason why gov'ts do not utilize these liquid surpluses to meet annual budget shortfalls? Is there a set of assumptions in the public economic equations that I am not including in this cursory analysis? Do these various departments need to pool these liquid assets in order to operate effectively in future years?

Thanks in advance for your comments. I'm definitely a newbie in this area, but I'd certainly like to better understand California's financial options before I'm asked to vote on a $15B bond/debt instrument for the state.

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