Cross Posted at CalWatchDog

The recent blockbuster news that the California Department of Parks and Recreation has squirreled away $54 million in special funds over the last 12 years has caused the California Legislature to jump on board the bandwagon and take a bigger roll in oversight.

The state has more than 500 “special” funds, which are funded through fees that we all pay for services, schools, environmental issues, on products, in our utility bills, and at the checkout counter at many stores.

These special funds were ostensibly created to help pay for specific programs. However, with the spotlight now on the Parks and Recreation agency’s two secret special fund accounts, which the Department of Finance and State Controller insist they had no idea existed, many are demanding investigations and audits into these funds, as well as the other 570 special funds.

Legislators want to know who at the state knew about these funds, and when they knew it.

What happened?

The discovery of the $54 million Parks Department stash has many asking about other state agencies which have similar secret fund accounts, and whether the latest round of budget cuts and tax increase threats by the governor was just more partisan political drama.

Assembly Republicans submitted a request to the Joint Legislative Audit Committee last week, asking the nonpartisan State Auditor to delve into how state agency departments are spending special fund dollars.  The request was approved, and the state Auditor estimated that it will likely take six months before the department has an answer.

The discovery that at the same time the Parks department was hiding money, and was insisting that the Legislature approve the closure of 70 state parks because of a severe budget shortfall, has legislators up in arms. It was business as usual even when there were numerous state employees within the parks agency who knew about the $54 million in secret special fund accounts, and say that this was reported to state officials.

A ‘grave breach of trust’

Santa Rose Democrat, Sen. Noreen Evans, expressed her dismay at the Senate Budget and Fiscal Review Committee hearing Wednesday. “To have gone through the whole budget process with people in the (Brown) administration knowing, is a grave breach of trust,” Evans said. “I wrote many letters to the parks director about park closures. Hundreds, thousands of people donated. As a sitting Senator, I feel betrayed.”

Evans told about the ‘Sustainable Parks Proposal’ that she and Sen. Joe Simitian, D-Palo Alto, initiatied in order to try and save parks from closure to provide assistance to non-profit partners, and find  “new ways of working” in the parks, including allowing parks to become more entrepreneurial and allowing more personnel flexibility.

Evans said that she and Simitian requested some money from a special fund to help with this, “but the Governor vetoed our special funds request, even when he knew about the extent – people in the administration knew.”

Who knew, and when did they know it?

“I need to know when did they know and why weren’t we told,” Evans told State Finance Director, Ana Matosantos. “Within 48 hours of hearing about this, the administration took action,” Matosantos replied. She repeated this statement at least five times during the course of the four hour hearing.

“Are you telling me that the administration did not know about it until July?” Evans asked. “I am telling you that we took action within 48 hours,” Matosantos replied.

“The Department of Finance did not know about this?” Evans asked. “Correct,” Matosantos said.

Matosantos repeatedly said that as soon as the governor knew about the parks department scandal, he launched investigations and audits, and made changes within the Parks agency.

With all of the effectiveness of an internal audit, sometime during 2003, the state’s top finance officials decided to allow state agencies to reconcile their own special funds.

It became apparent during the hearing that the State Controller’s office and the Department of Finance had shirked responsibility for the reconciliation of the numerous special fund accounts by giving the responsibility back to the agencies responsible for the funds.

There was no explanation provided for this change.

Simitian reminded everyone at the hearing that the Legislature had built the most recent parks budget “on assurances from the parks department staff and the Brown administration. “We’ve never had to question the substance of the information from the Department of Finance,” Simitian said. “The public has little confidence that their money is well spent at any level of government.”

The Parks Department scandal

While California has been preparing to close 70 state parks this year, senior Parks department employees were taking unauthorized, large vacation buyouts.

Statewide, park volunteers, donors and non-profit organizations entered into public-private partnerships to save the parks.  They raised funds, donated their time, and performed maintenance on state parks.

During this time of crisis, the now former Parks Department Director Ruth Coleman, testified to the Legislature about the need to close the 70 parks and lay off agency staff. She has since resigned, and placed the blame on senior administrative employees, while insisting that she did not know about the secret special funds accounts or the vacation buyout scandal.

But as I wrote in State Parks Director: Negligent or Incompetent?, there are numerous current and former Parks department employees who claim that Coleman knew about the special fund accounts, and knew about the vacation buyout scheme. The Parks and Recreation Department scandals were common knowledge in some state government circles.

Money stashes

The allegations of stashed money have greatly upset the many groups that worked tirelessly with state and local officials to try and save these parks. The discovery that the budget situation wasn’t as they were told merely added insult to injury. A quarter-cent sales tax measure in Sonoma County was even recently shelved in light of the secret special fund discovery.

“The alleged multiyear misreporting by DPR officials of tens of millions of dollars of fund balances in Governor’s Budget documents is unacceptable,” the Legislative Analyst Office stated in a recent report about the ongoing special funds issue. “The Legislature must be able to rely on the accuracy of such budget documents, which are an important part of the annual decision making process.”

That’s ‘billion,’ with a “B”

“The Department of Finance presently has no system in place to track how approximately $3.7 billion in special funds are spent by various state departments and agencies,” the California Budget Fact Check reports. “Right now, there are 570 ‘special fund’ accounts in state government. There are few, if any, controls in place to match how departments are spending money with how much money is in the account.”

It quickly became clear at the hearing that no one really wants to accept accountability for the money tied up in special fund accounts.

The Department of Finance said affirmatively that the special funds total $3.7 billion. Yet, the San Jose Mercury News found that bookkeeping for all state departments was off by more than $2 billion.

After accounting for encumbered funds and accounting changes, the Finance department acknowledged a net $415 million in “found” money.

Overall, it is evident that with the money in these special fund accounts, the budget cuts and tax increases that Gov. Brown has been touting in his “honest but painful’ budget” may not have been quite as necessary as he has often repeated.

Sloppy accounting, bad reporting

LAO analyst Jason Sisney told the committee that the Parks department situation is “unacceptable” but isolated. Sisney also said that discrepancies in other special fund accounts discovered in an audit last week, were a result of “sloppiness” and “confusion.”

The Los Angeles Times reported that administration officials found $232.6 million “that went unreported to lawmakers and administration officials while they were hashing out the state budget. Officials blamed errors, including typos, miscalculations and omissions.”

Sen. Bill Emmerson, R-Hemet, said that he had asked the former Parks Department employees to appear at the Wednesday hearing because he felt they should be present to answer to the Legislature, but the justice department intervened because of the ongoing investigation, and said that their appearance would not be possible.

“Not only did the (Brown) administration know,” Emmerson said, “the Attorney General’s office knew about the money in the funds.”  Emmerson also questioned the Attorney General’s involvement in performing the investigation, “since they withheld the information from the legislature.”

“Either we have to fire all of the auditors, or we have some employees who took advantage of a set of untimely audits,” Sen. Jean Fuller, R-Bakersfield said.

Fuller asked when the full investigation documents would be released, instead of the 70 pages of redacted documents she received. The Attorney General’s representative said that it would be a couple of months before the investigation would be completed.

There were no answers provided at the hearing by Matosantos, the Attorney General’s office, or the Controller’s office.  “Do we have to assume that this is not happening in other departments?” Emmerson asked.

“Hiding information is a recurring theme,” Sen. Ted Gaines, R-Roseville, said.

“In the last 10 years, special funds more than doubled from $18 billion, to $49 billion. And over this period, the state has transferred over $1 billion to the general fund,” Emmerson said. ”Why didn’t we reduce the fees and return the funds to the fee payers?”

Emmerson asked Matosantos one more time, when the Brown administration and Attorney General knew about the special funds at the Parks Department. “Within 48 hours we acted on it…” Matosantos said once again. “Once the audit is done we will know specifically, and it will be available.”

There is no doubt that this investigation will conclude long after the November election has passed, and much of the historical knowledge of this latest scandal is termed out along with legislators.