Governments who were building up massive cash stashes in the 70’s, 80’s, and 90’s, they needed parking zones for that cash. What governments created to allow for these “Parking zones” was to turn cash stashes into liability zones for self investment. (well set in place come the 2000’s)
TWO PRIMARY EXAMPLES ARE:
1. SELF INSURANCE. Create a fund where cash is transferred into a fund designated to pay insurance claims. The traditional coverage was the annual cost for a liability coverage policy from an insurance company. The self-funding fund account now gave the ability for the local government to stash much cash where the “return” from the fund was designated to meet “projected” liability claims to be paid. So if the local government projects liability claims to be paid at say $250,000, then at a projected return of say 5% is used, that means they justify a balance in the fund of $5,000,000.00 (5-million). Now if they use a “projected” return of 2.5%, then a fund balance of $10,000,000.00 (10-million). If they projected claim payments to be $500,000 and return at 2.5%, then a fund balance of $20,000,000.00 or a $20,000,000.00 “Parking Zone” for the cash is created now designated as a liability.
2. BOND ISSUES. The impression given to the public: Is our local government stupid taking on more debt? Well, that can be as far from the truth as it gets. If cash is building in that local government, that local government may create a liability for a: Road Project; Recycling Plant; Pension liability, Sports Facility, Parking Building, Water Plant, etc., etc., etc. Well, you have to ask yourself: Who is “Funding” that Bond issue?
If the local government moves the cash from here to there (could be a bank; brokerage; Federal Investment; mutual fund; other enterprise operation owned by that local government or a combination of several) and then uses (directs) that cash to “Fund” their own bond issue, then the “cash” is transformed into a “liability” (repayment of the Bond issue) or a “Parking Zone” for the cash “with interest” building on it.
The public not knowing this technique just looks at their local government as being irresponsible spending fanatics sticking them as taxpayers with more debt when in reality that local government is sticking the taxpayer with paying interest on the “cash” that local government already collected.
Keep in mind the cash disappears from that local government’s operating budget balance sheets and reappears as a debt liability. If the local government moved $80,000,000 (80-million) to fund $80,000,000 (80-million) of their own debt, and in doing so it left their operating budget $25,000,000 (25-million) short, they now come back on the taxpayer saying: “We are $25,000,000 short on our operating budget and need to raise taxes to make up the difference”. In doing so, they are now “sticking” the taxpayer TWICE!
Local governments that do this make the following quote all so true:
TREASON: “Treason doth never prosper; what’s the reason? For if it prosper, none dare call it treason.” Sir John Harrington, 1561-1612
Sent FYI and for sharing with your contacts from,
Walter Burien – CAFR1.com and TRFA.us