Just how “special” are California’s “special funds”?

It turns out they are very special indeed. News reports during late July ripped the mask off these stealth reserves, revealing the fact that  millions of dollars in cash are lying around in accounts reserved for recycling, parks and other state-operated activities.

Even state organizations that have gone out of business live on with money parked in bank accounts that nobody has bothered to keep track of — at least until now.
According to most reports, the reserves stay below the radar in large part because state budgeters don’t actually count the money sitting in various bank accounts owned by the agencies. Instead the budget bureaucrats work off of spreadsheets that do not always match the numbers collected separately by the Controller’s Office. Bloomberg Business Week puts the accounting discrepancy at something in the neighborhood of $2.3 billion.

It goes without saying that grabbing an extra $2.3 billion would go a long way toward fixing this year’s budget gap. And the existence of the special funds socked away here and there raises questions about the integrity of California’s bookkeeping methodology.

Even worse, the revelations about the special funds make a mockery of the administration’s grab of economic development agency funds from cities earlier this year.
While the money grab helped fill a perceived budget pothole, economic development authorities were forced to go out of business. That meant plenty of municipal layoffs, delayed local construction projects and other austerity moves at the local level that further slowed the state’s recovery.

It is extremely fortunate that in this case, the accounting errors were in the taxpayers’ favor — had it gone the other way, another $2.3 billion budget hole would have been very hard to fill. But the state of California really needs to come clean on its accounting practices. The bottom line on the special funds fiasco is that it’s going to be very difficult for the administration of Gov. Jerry Brown to round up support for its ambitious tax proposals or its hyper-ambitious bullet train if the numbers don’t add up.