The Legislature is taking the first, albeit long overdue, steps to control the state's 560 special funds. Its corrective action may help restore public confidence in government.
The state's increased reliance on special, restrictive funds has contributed to misplaced spending priorities and inappropriate management practices.
Special funds were created to link user fees or taxes to popular programs. The granddaddies of them all, gasoline and diesel fuel taxes restricted for highway construction, set the standard. Ideally these links make government agencies operate more like businesses, i.e., when public agencies are dependent on getting customers to pay for services, management and employees have to please their paying customers.
Proposition 13's passage stimulated growth in similar taxes and fees to fund everything from environmental programs, the CHP and licensing boards to the Public Utilities Commission. These restricted, special funds now total $38 billion, nearly 30 percent of the state budget. As The Bee reported, in the last five years state leaders are actually moving more programs from the general fund to these special fund accounts.
The general fund was created to be just that the single account where most state revenues would be deposited and from which the Legislature and governors would prioritize spending. This transparent process enables the public to hold officials accountable. Special funds, however, are not reviewed or held to the same standards.
For decades interest groups of every imaginable type have successfully lobbied for the creation of special, restricted funds for their favored programs. Democrat and Republican legislators and governors succumbed to this siren song.
Yes, reliance on these fees should, theoretically, make recipient agencies more efficient provided that managers can determine the true costs of those programs, gain the authority to set appropriate fees and then be held accountable for all costs. But this is unrealistic in a democracy where the people and their representatives demand accountability and equitable services.
Requiring users to pay for the cost of essential services through user fees often makes it harder for those unable to pay. In addition, if the program is worthwhile but the user fee or special tax is less than expected, there is pressure to have the general fund make up the difference. This occurred when tobacco taxes were insufficient to fund programs at the level smoking cessation advocates believed was necessary. June's unsuccessful Proposition 29 was designed not only to make up existing shortfalls but additionally to remove the program from legislative oversight and public scrutiny.
Advocates of these special funds argue that because they are restricted, reviewing how departments spend the money is unnecessary. The Department of Parks and Recreation's undisclosed $54 million illustrates this all too well. Managers "hid" park entrance fees and Off-Highway Vehicle Funds because they considered the revenues "their own," to use as they saw fit.
Over time legislators and, apparently the Department of Finance, acquiesced because of an out-of-sight, out-of-mind mentality if no one complains, why bother to review the spending and because each fund had an interest group strongly advocating for its implementation and promoting its continuation away from legislative oversight.
When the shortfall came to light, legislators were angry because they had been pressured to reallocate money from the general fund. And groups interested in protecting state parks claimed that this money was "theirs" and not subject to reallocation. This proprietary attitude, shared by agency officials, is nearly universal regardless of political stripe or conviction.
The solution is not to establish a special oversight board or even a committee but rather to have the Legislature review these programs in greater detail.
This is at the heart of Sen. Darrell Steinberg's call to audit the special funds collected for mental health programs, a special tax and associated program he initiated and voters approved in 2004.
In addition, all special funds, whether established in the state constitution or by statute, should have a sunset provision. The idea that they can continue without review is antithetical to any reasonable business practice.
And, most critically, no fund or program should be categorically exempt from having funds transferred or reallocated to more pressing statewide needs. Fees collected from the beverage container or real estate licensing programs, as examples, could be redirected.
A program's special revenue source does not entitle its advocates and managers to expand the program or hire more staff. The public rightfully expects the Legislature and the governor to produce a budget reflective of the state's highest priorities.