The Woes of Special Funds

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The San Jose Mercury News has published an intriguing story that points to more than $2 billion in "special funds" that somehow have not been accounted for until now. The $2 billion stems from the difference between the figures provided by the state Department of Finance and the Controller's Office.


The Merc's account reflects an examination of only a few of the more than 500 special fund accounts. It invites the question of just how much more might be buried in other accounts -- maybe enough to make a serious dent in our $8 billion deficit which Governor Jerry Brown hopes erase with Proposition 30 this coming November.

On the surface, this discovery is a public relations nightmare. At a minimum, it suggests sloppy booking, if not incompetence. But it's not that simple. There may be more -- or less -- to the story than meets the eye.

Two questions deserve treatment. First, why do special funds exist, anyway? Second, why is it so difficult to determine how much money exists in these various pots?

Special funds are dollars set aside for particular programs or services. Most have been organized as part of larger pieces of legislation, although a few have been authorized by the voters through ballot propositions.

For example, consider the California Beverage Container Recycling Fund, which is one of the entities with its own budget. The fund gains its money from the unclaimed deposits we spend on beverages, and the money is used to pay recyclers and promote conservation. As with the other programs, the agency's fund is separate from the state budget. Rather than hide anything--a fear expressed by some cynics, the idea is to promote transparency by correlating specific dollars with the programs they are supposed to fund.

But why is it so difficult to keep track of special funds? That's a harder question to answer. In some cases, like the $54 million found in the Parks and Recreation Agency, it's because of sloppy bookkeeping. But in most cases, discrepancies may well exist because of money flowing through the process.

Think of your checkbook. Let's say you write a check that totals $300 from an account that has $1,000. After you write the check, you deduct the $300 because sooner or later, the person receiving the check will cash it. But in the meantime, until the check is cashed, you have $1,000 in your account even though you've written that check. That's how it is with special funds. As they are transferred from one place to another, different agencies will have their own accounting of how much is there.

There's no doubt that someone, perhaps the State Auditor, needs to reconcile the different figures and explain how they occur. But more than that, before critics rush to judgment, we should understand all the facts. 

Larry Gerston teaches political science at San Jose State University and is the political analyst at NBC Bay Area.

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