From the June 2002 Idaho Observer:

Where's the money?

Review of Idaho's FY 2001 CAFR reveals $10 billion investment pool

According to the U.S. Census Bureau's Department of Commerce, in 1998 the state of Idaho had revenue of $4.705 billion, expenditures of $3.786 billion and had $1.883 billion in debts. The 2002 legislative session for Idaho was defined by two major issues: The extremely unpopular term limits reversal fiasco and an unusually high percentage of appropriations bills. The former was due to term limits' negative effect on career politicians; the latter was prompted by revenue shortfalls that forced the legislature to move large sums of money from one place to another in an attempt to keep the functions of government funded through fiscal year 2002. One must wonder why the legislature was so concerned about the lack of money when State Controller J.D. Williams reported that the state has over $10 billion in investments.

By The Idaho Observer

Many of The Idaho Observer's readers are familiar with the Comprehensive Annual Financial Reports (CAFRs) -- the report which details the second set of books kept by governments.

First discovered by commodities broker Walter Burien in the mid-90s, federal law requires the city, county and state governments of the several states to compile and publish CAFRs each year.

CAFRs, though published, are not made readily available to the public. The public would be really interested in CAFRs if it knew they existed as they bring forward some impressive, off-budget numbers that describe government investment activity.

The 2002 Idaho state legislature frantically moved money from one government agency or program to another in an attempt to keep them all adequately funded. For some reason, the legislature failed to locate $10,087,964 it has in total investments.

On page 37 of the Idaho's FY 2001 CAFR are “Primary Government investments” divided into risk categories 1, 2, and 3. The “fair value” of the deposits, repurchase agreements, U.S. Government obligations, U.S. agency obligations, marketable securities, corporate bonds and $520,239 listed as , “other,” is $9,264,273,000.

Under the heading, “Investments Not Subject to Classification Due to Their Nature, we find the following “fair value” of state investment assets:

(Total Risk Classified investments)   $9,264,273,000

Pooled Short Term Investment Fund        187,412,000

Idaho Commercial Mortgages               278,597,000

Real Estate                               38,487,000

Private Equity                           116,178,000

Mutual Fund Holdings                      79,235,000

Index Fund and Fixed Income Fund
Holdings in Agency Fund                  123,782,000

Total Non-Classified Investments         823,691,000

Total Investments                     10,087,964,000

Local Government Investment Pool?

Barry White of the Idaho State Treasurer's Office responded to Sandpoint businessman Cornel Rasor with some rather alarming figures.

Apparently, county governments regularly deposit public funds into the Local Government Investment Pool (LGIP). Rasor asked for an accounting of the amounts that the four northern counties have contributed. As of March 16, 2001, for FY 2000, the following figures were reported:

Boundary -- $2,709,334.88

Bonner   -- $5,899,126.59

Kootenai -- $5,238,779.78

Shoshone -- $5,844,830.60

The amount of public funds deposited in the pool has apparently increased. As of April 30, 2002, Bonner County had “contributed” $9,088,520.74 for the FY 2001 pool.

Is this legal?

Idaho Code 67-1210 authorizes the state treasurer to invest excess, non-endowment funds. A statute passed in 1997 (IC 57-722) provided the state with the authority to create the Endowment Board which, “engages in securities lending activities” with state endowment lands and their revenues as collateral.

State endowment lands were to be used solely to fund public education, but the legislature decided to allow the state to use them as leverage in the stock market.

However, the Constitution is the law of the land and statutes passed in conflict with the Constitution are legally considered void.

According to Article VII, Section 10 of the Idaho State Constitution, “The making of profit, directly or indirectly, out of state, county, city, town, township or school district money, or using the same for any purpose not authorized by law, by any public officer, shall be deemed a felony, and shall be punished as provided by law.”

The unconstitutional nature of the LGIP is further identified through Article XII, Section 4 of the Idaho Constitution. It states, “No county, town, or other municipal corporation, by vote of its citizens or otherwise, shall ever become a stockholder in any joint stock company, corporation or association whatever, or raise money for, or make donation or loan its credit to, or in aid of, any such company or association...”

It would seem that the state has violated the Constitution to make over $10 billion -- nearly three times Idaho's annual expenses. Most if not all states have similar prohibitions; most if not all states are participating in similar investment schemes.

Whose money is it?

Logic would have us understand that the money belongs to the citizens since the pool of revenue began as taxes and fees extracted from the public. However, the state of Idaho never publicly acknowledges the existence of funds evidenced by the CAFR. In times of fiscal crisis, government agencies tend to raise taxes rather than dip into the $10 billion+ it currently has at its disposal.

What does this mean?

If the stock market crashes before the investments are liquidated the money will disappear. The Enron debacle ought to be a wakeup call to those who have invested public funds.

According to Burien, at least 65 percent of all monies found in stocks and other securities are monies being invested by the nation's city, county and state governments. If true, the solvency of the states is dangerously dependent upon the marketplace. If the stock market fails, states will also fail -- a vulnerability that would not exist if the several states followed the law.

Public v. private

The terms used to be mutually exclusive. By law they are supposed to be mutually exclusive because government was intended to be a service designed to protect the interests of citizens engaged in peaceable commerce. However, government has become big business -- profit, not service, is the intent of big business.

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