California borrowing from special fund accounts surges; audit under way

Published: Tuesday, Jul. 31, 2012 - 12:00 am | Page 3A
Last Modified: Tuesday, Jul. 31, 2012 - 8:18 am

California's borrowing from special fund accounts has reached nearly $4.3 billion, more than five times the amount from June 2008, according to a semiannual report issued Monday by the state Department of Finance.

Since the depths of the recession, state leaders have relied heavily on borrowing from special fund accounts that generate money from user fees and regulated industries, among the many patchwork solutions to avoid deeper program cuts in the general fund budget.

Special fund accounts have drawn greater scrutiny in recent weeks after the Resources Agency revealed the Department of Parks and Recreation had nearly $54 million in surplus funds while scrambling to keep state parks open.

The Department of Finance is auditing 560 special fund accounts to determine whether other money has been stockpiled and expects to issue a report later this week.

The $4.3 billion in special borrowing includes $713 million in new loans contained in the budget Gov. Jerry Brown signed in June. Among them: $313 million in disability insurance funds to pay interest to the federal government as the state faces a roughly $10 billion deficit in its unemployment fund, as well as $100 million from a new account containing money from the multistate settlement with mortgage lenders.

Just four years ago, the state had borrowed $749 million from its special fund accounts.

"That reflects the fact there were additional solutions needed as the recession caused revenues to drop dramatically," Department of Finance spokesman H.D. Palmer said.

Some of the loans will be retired by a certain date, while the state can delay repayment to other funds until the intended programs need the money. Critics have argued for years that special funds with excess dollars should return money to fee payers and regulated companies instead of using it to help balance the general fund budget.

"The state has been accruing vast amounts over decades in special funds that are then coveted by the Legislature and administrations to balance the budget," said Assemblyman Jim Nielsen, R-Gerber, vice chairman of the Assembly Budget Committee. "This is a gross overtaxation of the people of California."

Both legislative houses are expected to hold hearings next month to examine the status of special fund accounts, particularly whether state departments have kept more money there than reported to lawmakers.

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