Scandals Show California Is Broken, Not Broke

The gaming of the system is an art form

By Steven Greenhut

Voters are accustomed to the scare tactics of tax-hungry politicians who warn of looming cuts in schools and public safety.

But nothing gets people’s attention like closing parks. And in California, where the state beaches and mountain refuges are as beloved as the politicians are cynical, the strategy has exposed practices that border on the corrupt.

It started in May 2011 when Governor Jerry Brown announced that “turbulent times” required the “unthinkable” -- the shuttering of 70 parks to deal with the state’s enduring fiscal problems. Brown’s critics sensed that he found the proposed cuts to be quite “thinkable” -- at least as a ploy to encourage Californians to loosen the grip on their wallets.

Brown has staked his governorship on the idea that Californians need to pay higher taxes to help plug a budget gap estimated at almost $16 billion -- specifically a proposition on the state ballot in November that would boost the sales tax by a quarter cent for four years and impose supposedly temporary income-tax increases on residents who earn more than $250,000 a year.

Brown and his fellow Democrats didn’t count on two things. First, nonprofit groups and local governments came up with the money to keep most of the targeted parks up and running, thus illustrating the effectiveness of nongovernment or local solutions in the face of state-government failure.

Employee Payouts

Second, it turned out that the state parks department, rather than being strapped, was soawash in cash that it handed out huge payouts to employees and hid millions of dollars in special accounts. (Some private groups backed away from their promises to finance individual parks when they learned about the hidden funds.)
The scandal, combined with bad publicity over a multibillion-dollar high-speed-rail project referred to as “the train to nowhere,” has eroded the earlier strong public support for tax increases and left state leaders scrounging for proof that they are serious about reform. The latest polls show support for the measure running slightly ahead, but vulnerable.

The Sacramento Bee, which uncovered the park story, pointed to California’s generous policy of allowing employees to bank many weeks a year of unused vacation time so that they have a small fortune by the time they retire. The budgeting system encourages agencies to spend down their reserves at the end of the year, a common procedure in government. The result was “excess cash left over and not enough ways to spend it,” reported the Bee’s Kevin Yamamura.

The gaming of the system was methodical. The Bee detailed how a deputy parks director came up with a surreptitious plan to burn through extra cash and reduce the backlog of vacation hours that employees had accumulated. He evaded state rules and issued payments to department employees, including himself, recording the transactions on Post-it notes to avoid scrutiny. He was eventually demoted and then resigned from the department.

This shell game unveiled the existence of hidden accounts. Two “special” parks funds contained $54 million in reserves -- far more than enough to cover the $22 million in cuts proposed by the governor to help close the general-fund deficit. The money was socked away for more than a decade because the finance department relies on an honor system that doesn’t compare its numbers with the state controller’s figures, according to a San Jose Mercury News report.

Squandered Resources

The Mercury News then looked at all 500 special funds statewide and found $415 million in financial discrepancies from questionable accounts and faulty accounting procedures.

Although the details may be lost on average voters, the scandal is a reminder that the state squanders money even as Brown sticks to the story of services cut to the bone. Since the publicity has highlighted a possible solution -- more efficient use of current dollars -- Brown and the legislators insist that they are serious about streamlining the bureaucracy. Yes, they will reform the state if only Californians do their part and pony up additional tax dollars!

In the final days of the legislative session, a Democratic plan to reform pensions -- in a state with an unfunded pension liability estimated as high as $500 billion -- sailed through both houses and landed on the governor’s desk. This was amazing, given that state Democratic leaders refused until recently to act on even the most modest changes.

The pension deal is fine as far as it goes, but it doesn’t go very far. It offers modest caps on the salary on which the yearly pension formulas are based ($110,000 for those who receive Social Security, $132,000 for those without it). It also bans some of the most outrageous practices (such as collecting a pension after being convicted of an on-the-job felony, and allowing workers to boost their pensions by adding years to their employment history that they didn’t actually work). Most changes apply to new hires, not current workers.

But the governor and Democratic leaders are no more serious about reforming pensions than they are about shuttering state parks. The goal  is raising taxes. That’s too bad, because the one thing the parks episode showed is that California can make ends meet if it exercises a little oversight and discipline.