Comprehensive Annual Financial Reports
Government's Best Kept Financial Secret
The Comprehensive Annual Financial Report (CAFR) is a very little known, yet detailed presentation of a governmental entity's financial condition. The CAFR is also one of government's best kept financial secrets. These reports show that almost all governments have far more money than people know.
Literally hundreds of billions of dollars are available to governments in investment accounts that are never mentioned to the public. This can be easily verified by searching publicly available CAFR reports. Read the powerful essay below to find out how we may be in much less fiscal difficulty than you ever imagined and what you can do about it.
Note: The below article's author, Harvard-trained Carl Herman, is a personal friend and educator whose work I admire. And though most research for this article was done in 2010, the facts and principles uncovered are still very much in effect today.
CAFR: US agencies have billions, trillions in investments while crying budget deficits
By Carl Herman (edited for brevity and clarity)
Gerald Klatt and Walter Burien are are pioneering researchers who have revealed how government agencies quietly conceal American taxpayers' money in surplus accounts that collectively total literally trillions of taxpayers' dollars. The data is found and can be verified in publicly available documents for each governmental entity called Comprehensive Annual Financial Reports (CAFRs).
What CAFRs reveal is a little-known, yet deceptive policy whereby taxpayers collectively surrender enormous assets to the government, which then invests the trillions that swell in these accounts. As this money is secreted away, taxpayers are warned of debilitating budget deficits to either squeeze more taxes from them and/or cut public services. To add insult to injury, the state commits a gross lie of omission by never informing citizens of their withheld trillions as they eliminate jobs, reduce education, and attack the quality of our lives.
The American Constitution is a contract of limited government whereby the public informs and is informed by our representatives. CAFRs are damning public documents that expose political leadership from both left and right as exactly what leading economic voices have said: a corrupt and self-serving oligarchy.
Let's look at the economic data revealed in CAFRs for 2009. (More recent reports available here)
Take California, for example, which had a 2009 budget deficit of about $20 billion. The combined investments reported in 2009 CAFRs for the state of California, Los Angeles County, and the City of Los Angeles was over $450 billion! That's over 22 times the amount of the budget shortfall!!! Click on the links for verification.
These governments claim they need this money mainly for public employee retirement benefits. Let's check that story. The CAFR data shows current member contributions pay for all retiree benefits except for $1.8 billion (net cost). If just these three state agencies paid off their budget deficits and paid the $1.8 billion in retirement benefits, the amount still remaining would be enough for each taxpayer in California (population 36 million, taxpayers less than 2/3 of this number) to receive well over $15,000.
Why has political leadership and corporate media not informed American taxpayers of this intriguing option? And why isn't this data publicly submitted for professional and independent economist cost-benefit analysis to consider other options which benefit both government and the people? As we all know, money talks and power corrupts.
So far, we've only considered three CAFRs in the state of California. The comprehensive reality is far more dramatic. Looking at all of California's roughly 10,000 cities, counties, towns, and other government agencies, the combined total assets reported in CAFR's for California alone is likely in the trillions of dollars. Add in the other 49 states and we are talking astronomical figures.
Obviously, we need independent auditing and economic cost-benefit analyses of all state and local CAFRs around the US in order to make clear choices on how the public benefit might best be served. In California, oppressed under a $20 billion dollar budget deficit that cuts education, child welfare, and other essential public services, the failure to redirect some of these vast sums of money to pay off the deficit and support social programs is a travesty.
To put this into an analogy:
This is like a teenager claiming to everyone that he needs money badly because the front pockets of his pants are empty, which he dutifully shows (budget debt). What he's not telling you is that his back pockets are stuffed with over 100 times the money he says he "needs" (shown in various places of the CAFRs). Whenever someone by chance sees the wads of money stuffed in his back pockets and asks him about it, he says, "Oh, that money is being saved for when I need it much later. I can't touch that."
So far, the silence of major media and political leadership from left and right on these vast CAFR funds is deafening. Of course, the politicians' claim of "I can't touch that" is a lie of omission, because it can be touched the moment policy changes. So the real issue is the heart of economics: what are the costs and benefits of different choices?
Here's the specific data and documentation:
- Using the example of the 2009 California CAFR, state pension and "other" trusts investments total $367 billion. Net pension benefits payable from that $367 billion in 2009 was $1.8 billion (retiree payouts minus current member contributions). Subtracting other liabilities ($48 billion in securities lending obligations - page 212), the state of California is holding onto over $300 billion of the public's money that could be used for other purposes (pages 48, 49).
- The misleading information on pages 154-155 of the California report suggests retirement funds are not fully funded. However, the fact is that over $300 billion is being held in investments for $1.8 billion paid out in net benefits. 1% interest on that $300 billion would fully cover those benefits with $1.2 billion to spare without even drawing down on the principal.
- $143 billion of the California CAFR surplus is invested in "equity securities" (stocks) and $92 billion in debt securities (page 83-84). $72 billion is dependent upon foreign markets (page 88). This means that the government quietly "invests" public moneys in Wall Street, big banks, government debts (which may not even be necessary given the existence of CAFR funds), and foreign corporations, likely gaining a return rate far in excess of 1% over the long run.
- The UC system, California's top network of universities, had a 2009-10 budget deficit of $0.65 billion. The policy response was to deny 2,300 students enrollment, lay off 2,000 faculty and staff, cut salaries 10%, and raise tuition 32%. For less than 1/3 of one percent of the investment total of California CAFR funds, UC could have been fully funded and those reductions eliminated.
- California's 20,000 laid-off teachers could be rehired at $70,000/year for $3.4 billion; less than 1% of these three CAFR "investments" total.
- Los Angeles County has $52 billion in investments (pages 61-63), the City of Los Angeles has $36 billion (page 80). Both have drastically cut programs. Both have pension plans fully funded by payments from current members and less than 2% of the CAFR investment totals.
Note: For more valuable information on CAFR reports, see respected researcher Ellen Brown's essay on this topic with excellent suggestions on how best to use these funds. Explore a comprehensive listing of links to the 2013 CAFRs of U.S. states, counties, municipalites, and more.
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