Prosperity believers find out about CAFRs, hilarity ensues

[LightinDarkness]

This is sort of a long-time pet peeve of mine, and I posted about it YEARS ago on the JREF. I am just going to sort of post here what I posted there, because it now seems as though this flavor of insanity has leaked over from the general conspiracy community to prosperity believers.

All state and local governments (cities, counties, etc.) release reports called a Comprehensive Annual Finance Report (CAFR). The CAFR is meant to give a complete picture (thus the comprehensive) of the government's finances - whereas a budget is only a plan for that fiscal year, a CAFR shows the balances of all accounts maintained by the government.

I thought of this again when Ron Van Dyke, which we have covered elsewhere in this forum, brought up that CAFR was a massive conspiracy to make you pay taxes because budgets only report revenues and taxes. He is amazed that this might be only a part of a government's income, and believes that the CAFR is "on the books, but not reported" and is somehow a "secret budget":

https://www.youtube.com/watch?v=XtcksWI ... c-GWXsdpEA

RVD thinks that because there is enough money in CAFR funds to operate government without taxes, this must mean its a hidden conspiracy. Of course RVD hasn't figured out that you can't just use all your fund balances, then you won't have anything to continue operations. You need new revenue (TAXES, GASP).

This sort of hysterics is also just a fundamental, elementary misunderstanding about what a CAFR is. For example, a state government might report $25 billion in their retiree healthcare fund in a CAFR. But many states now require retirement healthcare funds are prefunded (as opposed to paying into the fund as expenses arise), so that $25 billion as an asset is set off by $25 billion in bonds they issued to prefund the obligation. As we all know from balancing our checkbooks, assets - liabilities = networth, and so in such a case there really isn't any big chunk of money sitting those accounts at all. In other cases CAFR accounts do have real value (positive networth) - but those are often "rainy day" accounts that are used only when the tax base decreases (recession) or in an emergency (hurricane or other natural disaster).

I don't expect most people to understand all that, public sector finance can be complex. But is it so hard to do 5 minutes of research and thinking and understand that a CAFR and a budget are two different things, and governments could NEVER run off a yearly budget alone on a consistent basis?

[Jeffrey]

states now require retirement healthcare funds are prefunded (as opposed to paying into the fund as expenses arise), so that $25 billion as an asset is set off by $25 billion in bonds they issued to prefund the obligation.

It's a lot worse than that.

Over the past several years, estimates of the total size of the public pension problem in the U.S. have ranged from $730 billion in unfunded liabilities to $4.4 trillion. Many financial economists believe that the true size of the total unfunded liability lies closer to the larger estimates than it does to the smaller.

http://www.hks.harvard.edu/centers/mrcb ... wp/2012-08

[LightinDarkness]

Oh I know, I was just giving the example of say 1 state They see $25B sitting in a fund and immediately assume that money is just free to use and has no liabilities. Even if it was free of any bond issuance, you still have to keep most of it since that is the purpose of prefunding to begin with.