California state government over the past few years has borrowed $4.3 billion from special funds that were designated for specific purposes to cover general fund expenses, according to an analysis by the Sacramento Bee newspaper.
The news did not surprise Ed Howard, senior counsel of the Center for Public Interest Law.
“I can’t speak to other state governments, but it’s been a longstanding practice in California,” said Howard. “It has a dual impact. The first is that it tends to prevent the search for enduring budget solutions, and the second is that it impairs the ability of specially funded government entities from doing their important jobs.”
Papering Over Problems
Howard said the shifting of money from one fund to another makes it difficult to understand and deal with the budget.
“If, every year, the general fund is borrowing from special funds, then we’re never squarely confronting the deficit of the general fund,” he said. “We’re making up for it by taking a little here, taking a little there from special funds. It prevents a general fund solution to a general fund problem.”
But Rhys Williams, spokesperson for California Senate President Pro Tem Darrell Steinberg (D), said in an email to this publication the loans are necessary to keep the general fund balanced.
“Special fund loans are a small part of the budgetary solutions to prevent gutting California’s core services completely,” he said, noting the current $91.3 billion budget included $1.1 billion of loans from special funds.
Sitting on Cash
Another issue is the failure to use special fund revenues, said Kris Vosburgh, executive director of the Howard Jarvis Taxpayers Association. He noted $54 million the state’s parks department had raised through various charges and fees for off-roading facilities. The department never spent the money – and until recently had successfully hidden it from state auditors.
“That may not be important to the average Californian, but if you’re an off-roader, it is,” Vosburgh said. “The important thing is if you’re collecting money for this purpose, they should have a reasonable expectation that’s what the money’s going to be used for. If it’s not, they shouldn’t be charged.
“It’s just part of the bureaucratic nightmare that is California,” Vosburgh said. “If they spent it, it would solve some of the problems that they normally go to the general fund for.”
State departments are reluctant to spend special fund money because they might receive less from the general fund, he said.
“All of their department heads, they don’t want to tell the legislature they have money to do the job, because it might reflect what their future budget might be. They don’t ever want to concede they need less money,” Vosburgh said.
Looking for Limits
“There are two sides,” Howard said. “The first side is to cut it out. … If you can’t cut it out entirely, there must be some kind of system where these funds are borrowed and repaid with limits on the ability to borrow every single year in unlimited amounts. There needs to be a balance if you’re going to do it at all.”
Williams said the loans are being repaid.
“We have actually been repaying special fund loans … and the credit rating agencies have recognized that we are relying less on the one-time budget solutions, such as special fund borrowing,” he wrote in the e-mail.
Much of the borrowed money has gone toward funding social programs, Howard said.
“There are powerful reasons to try to [borrow]. It’s to prevent more dramatic cuts to social programs that help children and the elderly and single mothers.”
Vosburgh said he is glad newspaper reports are helping citizens learn how the state has been handling this money.
“Now that the people have an idea of what’s going on, the politicians, we hope, will be forced to make use of this money,” Vosburgh said. “And if it’s not going to be used, the charge used for these funds should be eliminated. State government has so many ways of hiding money, transferring money. And then they still want to raise taxes.”
This November, Californians will vote on Proposition 30, a measure to raise the state’s sales tax and income tax on high earners. Despite his disapproval of the state’s handling of finances, Howard supports Proposition 30.
“If the initiative fails, and we are not able to address our deficit problems by bringing in more money, the borrowing will only get worse,” he said. “If you’re a family, and one of the breadwinners gets laid off, you can reduce your expenditures, but you also want to have that guy go out and look for more work. So every family knows that when there’s a fiscal crisis at home, you need to look not just at your expenditures but at your flow of money.”
Williams blamed Republicans for the state’s budget problems.
“Until Republicans relent on their outright refusal to address revenue, the Special Fund loans avoid even deeper and deeper cuts into education, higher education, health care and public safety,” he wrote in the email.
Vosburgh said he’s not sure the tax increases will pass.
“When folks are doing well, they’re more open to taxes,” he said. “But we have the third-highest unemployment in the nation. Foreclosures are going up again. Businesses are not feeling welcome here. They’re not coming here, and they’re leaving.”