State Budget:
Millions More in Untapped Funds Found

Triggered by revelations of large piles of cash in two state park funds, an audit of special funds by the Department of Finance found millions more stashed away. The largest errors are $113.3 million discovered in the state's recycling program, and the previously revealed $53.9 million in park funds.

The audit report, released August 3, also reported that $422.7 million in discrepancies were found at the California Public Utilities Commission, but officials there speculated that this was the result of accounting errors. (CalTax: That's a pretty big error!) The officials said they are reviewing the matter further.

The size of the special fund balances found by the Department of Finance audit differs substantially from the $3.8 billion difference reported by the state controller. The Department of Finance attributes the difference to encumbrances on goods ordered but not received, the budget maneuver that moves state worker pay from June 30 to July 1, other timing and methodological differences, and human error.

The errors are:

Fund	Error (in millions)
State Audit Fund	$2.09
Off Highway License Fee Fund	$1.67
Driver Training Penalty Assessment Fund	$4.50
Educational Telecommunication Fund	$3.17
AIDS Drug Assistance Program Rebate Fund	$5.05
Children's Health and Human Services Fund	$30.17
Breast Cancer Control Account	$5.80
Childhood Lead Poisoning Prevention Fund	$9.26
Counties' Children and Families Account, California Children and Families Trust Fund	$3.38
Air Pollution Control Fund	$5.45
Waste Discharge Permit Fund	$2.03
Underground Storage Tank Cleanup Fund	$12.47
Water Rights Fund	$1.67
Fish and Game Preservation Fund	$3.17
Habitat Conservation Fund	$3.40
Beverage Container Recycling Fund	$113.25
PET Processing Fee Account	$3.53
Collins-Dugan California Conservation Corps Account	$4.67
Mass Transit Revolving Account, State Transportation Fund	$1.00
Victims Restitution Fund	$28.76
State Corporations Fund	$3.08
Property Acquisition Law Account	$1.20
Indian Gaming Special Distribution	$7.86
Motor Vehicle Transportation Tax Account, Transportation Tax Fund	$1.74
Cigarette and Tobacco Products Compliance Fund	$2.80
TOTAL	$261.17

There also is a difference of more than $650 million in five state transportation funds, and the governor's Department of Finance attributes the discrepancy to methodology differences – the budget numbers are based on a cash basis of accounting, while the controller's numbers reflect a modified accrual basis.

Senate Republican Leader Bob Huff said the administration's audit effort was "slapdash," and asked for a more thorough study prior to anyone asking for higher taxes. Assembly Budget Committee Chair Bob Blumenfield commended the administration for digging into the matter, but said, "We need a better system to track the money going in and out of special funds."

On August 8, the Joint Legislative Audit Committee voted unanimously to approve an independent audit of the Department of State Parks. (Sources: Department of Finance report, "Special Fund Balance Reconciliation," August 3; Los Angeles Times, August 4; and San Diego Union-Tribune, August 9.)

In related developments:

Ventura County and Oxnard Won't Get Parks Bailout Back. With McGrath State Beach Park facing closure due to state budget cuts, Ventura County and the city of Oxnard chipped in $50,000 each to repair a sewer line to help keep the park open.

When the news hit that $53.9 million was found in state park funds, the two agencies thought they should get their money back.

The county and Oxnard said they fell prey to a "false crisis created by false information." Ventura County Supervisor John Zaragosa said he was blindsided by the news of the park system's previously undisclosed cash balance.

The local governments' request was rejected politely by Governor Jerry Brown. Instead of reimbursing the city and county, he proposed (in an August 3 press release) to use part of the recently discovered funds to make critical maintenance fixes to keep parks from closing, and to establish a matching fund for future contributions.

Of previous donors, the governor said, "I can't thank them enough."

In Monterey County, the co-founder of a group that volunteers to pick up trash and perform other good deeds in state parks was not happy about the revelation that almost $54 million in state park funds had been hidden from lawmakers and taxpayers. Austin Keegan of the Friends of Garrapata group said: "It destroys people's trust. Either State Parks is inept or they're crooked. That's the feedback I'm getting from our members."

Jack Ellwanger, of Big Sur's Pelican Network, which has raised money to keep parks open, said: "We were betrayed. So many times we were told, 'There's no money.' And all the time there was plenty of money on hand." (Sources: Ventura County Star, July 30; Press release from Governor Jerry Brown, August 3; The Carmel Pine Cone, August 3.)

Legislative Analyst Says General Fund Accounting Also Needs More Clarity. In an August 9 report on special funds and accounting, the Legislative Analyst's Office said general fund budgeting also should come under more scrutiny.

The analyst stated: "The recent discussions concerning state accounting have not focused on how the state accrues and reports its General Fund revenues. Revenue accounting and reporting practices, however, are becoming increasingly confusing and may make budgeting more difficult in the future by delaying final reports on a fiscal year's revenues for many months. … We reiterate our recommendation … for a regularly updated public guide – prepared by (the Department of Finance) – describing the state's current revenue accrual methods and how they affect reported state revenues. Moreover, to prevent the monthly discrepancies between the General Fund revenue reports of (the State Controller's Office) and DOF, we recommend that the Legislature express its intent in statute that the two departments coordinate their releases in order to reduce confusion and focus on the most timely, authoritative revenue data."

August 10, 2012
© 2012 California Taxpayers Association. All Rights Reserved.