CAFR reveals gross receipts, assets, secrets of government entities

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Activists in Tennessee might be well advised to study the state’s comprehensive annual financial report, or CAFR, which are its real books.

Every year Chattanooga and Hamilton County publish budgets which discuss the balancing of revenue (from taxation) and expenditures, ostensibly for the good of the client public. Last week Jim Coppinger, the elected mayor of Hamilton County, offered the county commission a budget that envisioned spending of F$197.4 million with no tax increases “and a step down from the current ‘Cadillac’ insurance plan,” according to a news report.

Government spending is no longer an object of interest to members of official media alone. Old media has lost its stranglehold on information, and commoners and bloggers are able to uncover the deceit and self-enrichment of commercial government. Independent journalists and writers are able to file state information requests, federal freedom of information requests and other means.

April Eidson, who runs LittleChicagoWatch.com, or Drew Johnson, the libertarian editorialist of the Chattanooga Times Free Press’ editorial page, have used information requests to mine official records for government folly. I used an information request to expose EPB’s marketing of pornography to its public.

Boresighting sufficient?

Critics of government intervention in the marketplace have a secret weapon in bringing light to expansionist and interventionist civil authority. This secret weapon is ignored in the Chattanooga Times Free Press and other establishment outlets.

Let me introduce this powerful resource, one you can download right now from this computer. But let me first humor you with a story from Americans’ ill-fated war in Afghanistan.

U.S. soldiers are busy training and arming the Afghan army to “defend” the country, giving its recruits an arsenal that includes the D-30 howitzer, a Soviet-designed system. A group of American soldiers properly trained can lob a shell 9 miles and hit a target. They use a spotter, communications gear, map reading and mathematics.

The Afghanis “use the D-30 like a giant shotgun, aiming straight down the barrel to blast away at targets within visual range.” Such gunnery limits the range of a cannon to about 3,500 yards. All told, the Afghan army will have 204 such weapons brought or fixed by the U.S. for about F$40 million.

If you want to study county government’s gross receipts and assets, don’t look merely at Mr. Coppinger’s budget. That’s no different than the Aghanis squinting down the barrel of their guns for “direct fire.” Lay the budget aside. Take up your secret weapon, the comprehensive financial annual report. Budgets give an accurate view of government’s spending; only a CAFR will give an accurate view of government’s gross receipts (the figure the IRS in an audit seeks to determine before any other).

The last CAFR for Hamilton County was published for the year ended June 30, 2012. It says in 2012 county revenues were F$244.55 million. Expenditures were F$260.23 million for a deficit of F$15.68 million. These are humdrum numbers that don’t mean anything. But they are in a detailed financial report required by federal law and universally ignored by established media. I tout CAFRs not because I have studied them and know what to look for. I mention them because they are a secure baseline of financial data.

The last thing I want to do is undermine faith in local government. But CAFRs contain the seeds of bad press and public contempt if malfeasance is uncovered by enterprising members of the press or community activists. People such as April Eidson or Helen Burns Sharp, the latter of whom is suing to block taxpayer-backed favors for a commercial developer, are the sort of private investigative talent that use CAFRs to the public’s advantage. ‡

Hit target 9 miles away — use CAFR

The following narrative about CAFRs is from Walter J. Burien Jr., who worked as a Wall Street commodity trader and became in the 1990s an activist in the field of government financial data and tax resistance. He runs a website, Cafr1.com. The following is from early in his career as a CAFR activist:

Mr. Burien reports first discovering the CAFR report in New Jersey in 1989, when he helped start a New Jersey tax protest group called “Hands Across New Jersey”. While involved with that group, Mr. Burien read in the state’s Annual Budget that the total cost of all public services was $17 billion and the “net available” (the money on hand to pay bills) was $24.6 billion. But then he asked first question the IRS asks in any audit: “What are the gross receipts?” He added figures from various sources and came up with about $44 billion and began to wonder how the state could have a $17 billion in costs, $24.6 billion in cash on hand, and $44 billion annual income. The numbers didn’t add up, so he began to dig deeper.

Because his father had been Personnel Manager for the State Treasury for eight years, Mr. Burien understood how to get around in the various government departments. The state Director of the Budget was on vacation, so Mr. Burien called one of his lowest-level assistants and said, “I’m working on a report for Richard [the vacationing Budget Director] and I need all the figures on the autonomous agency accounts, interest accounts, investments accounts.” The assistant said, “Ohh, you want the Comprehensive Annual Financial Report.” This was the first time Burien had heard of CAFR but he said, “Yes” and the assistant mailed it.

The Comprehensive Annual Financial Report (CAFR) showed New Jersey had liquid investment funds (cash) of $188 billion; common stocks worth $70 billion; $10 billion due from loans to public and private corporations; and $14 billion in insurance company equity participation. The little state of New Jersey, which admitted to less than $25 billion in annual income on its Budget, reported almost $300 billion in cash, stocks, loans, and insurance equity on its CAFR. According to Mr. Burien, “On that day, I learned the definition of syndicated organized crime.”

The scam worked something like this: Anything that was a cost or expense for public services (the traditional side of the Annual Service Budget, such as the Department of Transportation, health and welfare, etc.) was reported on the Budget where public taxes paid 100% of the bill for those services. That was $17 billion.

However, any governmental agency that was a profit center (the Port Authority for New Jersey, the New Jersey Turnpike, an investment account, etc.) that generated non-tax revenue was “restricted by statute” from being reported in the Annual Budget. Why? Because the state legislature passed laws to prevent reporting the income from profit centers on the Budget. In- stead, income from these profit centers was disclosed only on the CAFR.

But that disclosure was not immediately apparent. For example, when Mr. Burien looked for New Jersey’s 1989 “gross cash receipts” in the CAFR, he found the figure buried on page 174, under the “Waste Water Treatment Trust Fund.” It showed the amount of the total cash receipts for 1989 from all 69 autonomous state agencies and departments was almost $87 billion. In other words, New Jersey was charging $87 billion to provide $17 billion in public services. New Jersey citizens were paying $5 for every $1 in services they received, and the state was pocketing the other $4 as “profit”.

The CAFR also reported the state owned $32 billion in common stocks – but this figure was footnoted. The footnote revealed that the stocks were valued according to their original purchase price, not current market value. In other words, if the state bought a stock in 1968 at $1.25 a share and it’s worth $3,000 a share now, they still report it on the CAFR as worth $1.25 a share. Burien determined that the true market value for the “$32 billion” in stocks reported on the New Jersey CAFR was actually about $70 billion.

I cannot vouch for the reporting in this analysis, a compilation of material in a speculative law reform magazine in the 1990s. But it suggests what taxpayers and students of government might be able to mine from corpulent corporate government and its paper trail.

If you are a friend of Nooganomics.com and have skills in law, accounting or finance, would you like to help me read through the CAFR for a local government? You would be able to apply your skills in a public service project that would bring you name recognition once we publish your report, and an increase in public goodwill toward you. I would be your sponsor, you would be my star. You could bill it as advertising, for certainly our joint report would bring name recognition for your practice.

A local commoner with knowledge of CAFRs could prove indispensable in years ahead as the national government’s rolling disasters put increasing pressure on cities and counties to raise taxes, especially if inflation starts more sharply eroding the buying power of the dollar and leaving local government in the lurch. Mr. Burien’s thesis is that commercial government in the U.S. is so rich it can operate without taxation.

If he’s even remotely close to being right, you should think with me in the direction of CAFRs. Ah, a cup of CAFR — cream and sugar with that? Let’s do a project together.

Email me through my website. Join me, perhaps, Friday for Panera Posse.

‡ Local activist Helen Burns Sharp is suing to stop commercial developers from gaming the system. April Eidson summarizes her claims in a Facebook post today. “The County Commission members voted for tax increment financing for a developer, even after we did a concerted attempt to educate them. Half of them did not even understand what they were voting for, and did not care. *** What is the lawsuit about? This lawsuit seeks to invalidate our city and county governments’ decisions to provide a $9,000,000 property taxpayer subsidy to well-financed developers for a residential subdivision. TIF funds would be used to build a road and sewer improvements to the top of Aetna Mountain in the Black Creek (Cummings Cove) development in Lookout Valley. Typically, local governments approve tax increment financing (TIF) for projects that either revitalize a blighted area or result in a significant number of permanent family wage jobs. This project does neither. The lawsuit is also about transparency in government. It is a reminder to elected officials and their staff that what is required by state law and city code should be followed. It requests the Courts to address issues about access to public records and possible violations of the sunshine law. It challenges whether or not this project is even eligible for TIF funding under Tennessee Code Annotated § 7-53-101 (13).”

Sources: Nathan Hodge, “Ready or Not, Afghans to Take Over Security,” Wall Street Journal, June 15, 2013

Walter J. Burien Jr., “Comprehensive Annual Financial Reports,” AntiShyster, Vol. 8, No. 2. The AntiShyster, no longer in publication, was a lively libertarian law reform journal  published by Alfred Adask in the 1990s.

Comprehensive Annual Financial Report for Hamilton County for the year ended June 30, 2012, prepared by the finance division Louis S.Wright, administrator, published in 3 parts, 100 pp, 52 pp, 44 pp

State of Tennessee Comprehensive Annual Financial Report for the year ended June 30, 2012, 221 pp.

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