Dan Walters

Dan Walters: California's accounting is boring, but important

Published: Sunday, Aug. 11, 2013 - 12:00 am | Page 3A
Last Modified: Monday, Aug. 12, 2013 - 9:44 am

Few political topics are as terminally boring – or as fundamentally important – as governmental accounting.

That was demonstrated last week when state Controller John Chiang issued a withering critique of Stockton's shoddy accounting, saying it played a major role in the city's bankruptcy.

Another example: The California Public Employees' Retirement System and the California State Teachers' Retirement System reported double-digit percentage annual earnings recently, leading some advocates to claim that they are healthy again. But one year's rosy earnings have little impact on their large unfunded liabilities.

Meanwhile, the Governmental Accounting Standards Board is urging state and local governments to be more forthright in reporting those liabilities and Moody's, a big credit rating firm, says it will count unfunded public pension liabilities as debt.

The trickiest area of government accounting is estimating costs and benefits from big public works projects.

State and local officials blew it on the Bay Bridge project, as costs more than quadrupled. And the projected costs and supposed benefits of two much larger projects, tunneling beneath the Sacramento-San Joaquin Delta to convey water and a north-south bullet train, face sharp criticism.

The state budget is always loaded with accounting maneuvers, usually to make the fiscal situation look better than it is.

The 2013-14 budget, for instance, counts a $500 million loan as revenue and also reflects Gov. Jerry Brown's decision to place revenue from a 2012 tax increase into a new "accrual" system, thus shifting more money into previous fiscal years.

School aid is calculated in part on changes of revenue from one year to the next, so shifting money from one year to another can have multibillion-dollar impacts.

Legislative Analyst Mac Taylor says the state "has a history of adjusting its accrual practices for short-term budgetary gain," citing its effect on school finances, and urged the Legislature to reject Brown's accrual system and insist on "a simpler, logical revenue accrual method for future years." But his advice was ignored.

The shift also creates a large gap between what the administration says was the state's financial situation on June 30, when the 2012-13 fiscal year ended, and how Controller Chiang, counting just cash, pegs it.

Daniel Mitchell, a professor emeritus at UCLA's Anderson School of Management, took a look at the competing data and concluded that "for cosmetic reasons, the governor wanted a positive general fund reserve … so we could 'sleep well,' as he put in signing the 2013-14 budget."

But Mitchell warns that "over time, the notion that the state budget is conveniently adjustable undermines public confidence."

One could say that about all creative bookkeeping.

Call The Bee's Dan Walters, (916) 321-1195. Back columns, www.sacbee.com/walters. Follow him on Twitter @WaltersBee.

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