California Finance Department's audit highlights how hard it is to reconcile budget numbers
07/28/2012 12:00 AM
08/21/2012 9:24 PM
In 2004, California voters authorized $15 billion in bonds to erase a massive budget deficit at the urging of lawmakers and newly elected Gov. Arnold Schwarzenegger.
The state still maintains a special bank account that collects sales taxes to retire the debt from nearly a decade ago. At the end of the 2010-11 fiscal year, the Fiscal Recovery Fund had $885.2 million, according to the state controller's office.
But the Department of Finance, which answers to Gov. Jerry Brown, showed only $205.6 million.
The nearly $680 million gap is an example of how the two fiscal offices use different accounting methods, a divergence that drew scrutiny after the state Resources Agency revealed that the state Department of Parks and Recreation had hidden nearly $54 million from budget officials.
The accounting split has been taken for granted around budget circles for years. Lawmakers and state officials raised few alarms in the past whenever the controller's data varied from the Finance Department's because the differences weren't known or were presumed to be legitimate in nature.
But the parks revelation has forced the Finance Department to audit 560 special funds that spent $33.4 billion in 2010-11 to determine in how many instances the gaps are reasonable. The department expects to release its findings next week.
"It's very complicated to reconcile these accounting things," said Jason Sisney, who tracks revenue for the Legislative Analyst's Office. "Even now, when looking at the controller's document and comparing it to the governor's budget, when you see a different number it doesn't tell you a whole lot."
Unlike the parks situation, the wide gulf in the Fiscal Recovery Fund appears to be aboveboard. The Department of Finance counted nearly $680 million in payments against the 2010-11 budget. But the state treasurer's office, which repays bonds, did not spend the money until the 2011-12 fiscal year – making a $402 million payment on July 1, 2011, followed by a $278 million payment on Sept. 1, 2011, according to treasurer's office spokesman Tom Dresslar.
In that instance, it is akin to someone buying a television on credit one year, then paying it off a year later. Finance would consider the purchase to have taken place in the first year, while the controller – who tracks cash – would count it as having occurred in the year that credit card payments are made.
The parks money was discovered in part because controller's data showed tens of millions more dollars in two parks accounts than the Department of Finance reported in its own figures. The state Resources Agency, which oversees parks, said the department inappropriately shielded nearly $54 million from the Finance Department's view.
That revelation is potentially damaging to Brown's tax initiative after the governor spent the previous 18 months threatening park closures and asking for private donations.
Finance officials rely on departments to self-report their fiscal information each year, Chief Deputy Director Michael Cohen said last week. The department regularly seeks an explanation for why general fund totals differ from the controller's data, but not so with special fund accounts, such as those funded by park entrance fees and off-road enthusiasts that contained the $54 million in extra funds.
Sisney said his office and the Legislature "assume that the basic (Finance) data is accurate. I think that's the way it has always been."
If a department doesn't report money to the Finance Department, it can't legally spend the funds, which requires legislative approval. Budget officials believed departments had little motivation to hide funds if they couldn't spend it.
"There was no reason to suspect (departments) would hide money away," said Mike Genest, a former Finance Department director under Schwarzenegger. "But now it's an embarrassment to Finance (officials) that they didn't know. They have to fix that, and that's why they're reconciling all the funds."
Finance Department spokesman H.D. Palmer cautioned against a simple comparison between his department's data and the controller's. Besides the Fiscal Recovery Fund explanation provided by the treasurer's office, Finance determined that two transportation accounts have a legitimate accounting difference worth $460 million.
Palmer said finance officials are trying to figure out if there is money in state coffers for which there is no plausible accounting explanation.
However much the Department of Finance turns up, it's not clear how much can be used to shore up the state's general fund budget, which pays for education, health care and prisons. Special fund accounts are dedicated for specific purposes based on who pays the fees that fund them, though governors and lawmakers have tried for years to raid them.
"If they find money, a good portion of it likely won't be available to the general fund," Genest said.
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