$2.3B accounting gap in California special funds

The state controller and the Department of Finance are $2.3 billion apart in their calculations of how much money is in hundreds of special funds kept by various state agencies, officials acknowledged Friday.

By the state controller's accounting, the special funds held $11.1 billion during a financial tally a year ago. The state Department of Finance says the funds held $8.8 billion.

The accounting gap came to light after finance officials last week discovered nearly $54 million in two Department of Parks and Recreation special funds that had been deliberately hidden from the governor's budget office but showed up on the controller's books. The finding forced the resignation of the parks department's director and prompted an investigation by the state attorney general.

Finance Department spokesman H.D. Palmer said auditors won't know if there is additional surplus money in any more of the 560 accounts until next week, when they finish matching the controller's figures with their own.

Much of the difference is because the controller's and finance offices often use different accounting methods, said Palmer and Hallye Jordan, a spokeswoman for Controller John Chiang. For instance, a $460 million discrepancy in two transportation special funds is because the controller's office accounted for the money in one fiscal year, while the Finance Department counted it toward the next fiscal year.

The situation is triggering new debate over the state's budget crisis at a time when Gov. Jerry Brown is trying to convince voters the situation is so dire they need to approve a sales tax hike and increase the income tax on people making more than $250,000.

Brown and the Legislature used the Finance Department's lower $8.8 billion figure when they approved the California budget last month.

"I'm concerned about the lack of communication between the controller's office and the Department of Finance. It became obvious when the controller said, 'Well, if Finance had talked to me about the parks figures, this would have come to the forefront,'" said Sen. Bill Emmerson, R-Redlands, vice chairman of the Senate Budget Committee. "Something needs to be done right away because this is just not acceptable to have this type of discrepancy in California's budget process."

For instance, Emmerson said lawmakers thought they borrowed all the money they could from the state's beverage container recycling fund as they worked to avoid deeper cuts to schools and other vital programs. Now they find that there may be another $113 million in that account, according to the state controller.

At least 17 of the 560 special accounts have significantly more reserve cash based on the controller's figures than what was reported to the Finance Department, according to the San Jose Mercury News, which first reported the discrepancies. The violent crime victim restitution fund, for instance, was off by $29 million, and a low-cost child health insurance fund was off by $30 million.

No matter how much unexpected money might be in the special funds, state law bars most of it from being used for other purposes such as closing the state's budget deficit, said Sen. Mark Leno, D-San Francisco, the Senate budget chairman.

Special funds generally include fees or other revenue dedicated to specific purposes. For instance, the parks department's off-highway vehicle fund is generated from registering ATVs and similar types of vehicles. That money is intended to support development and operation of off-road recreation parks. The fund held $33.5 million more than reported.

All told, $33.4 billion was spent from the special funds in the fiscal year that ended June 30, 2011.

"This is just another example of how much out of control the bureaucracy is," said Assemblyman Jim Nielsen, R-Gerber, vice chairman of the Assembly Budget Committee. "It is the hiding of funds, it's the redirecting of funds to things the bureaucracy thinks is important rather than the Legislature or the governor's office."

He and Assemblywoman Beth Gaines, R-Roseville, released a letter to Assemblyman Bob Blumenfield, D-Sherman Oaks, saying that the parks department budget scandals "have undermined the public's faith in government."

Rhys Williams, spokesman for Senate President Pro Tem Darrell Steinberg, D-Sacramento, said the administration took swift action in replacing the parks department's director and investigating the accounting discrepancies statewide.

"You see the branches of power looking at what happened and taking action, I think that will ultimately be the bar by which this is measured," Williams said.


Information from: San Jose (Calif.) Mercury News, http://www.mercurynews.com