Players Still Can’t Agree on Rules in State’s Budget Numbers Game

It sounded like a relatively simple request when Gov. George Deukmejian asked members of the Commission on State Finance to come to an agreement on what constitutes a balanced state budget.

The exasperated Deukmejian, tired of what he called an “accountants’ debate,” asked the commission in February to resolve conflicting claims that the state had ended the 1987-88 fiscal year in the red.

Esoteric Issues

On Thursday, however, a special meeting of the commission to look into the problem produced a free-for-all debate over accounting practices, and it appeared that a simple answer would be a long way off.

At times, the nearly two-hour debate by the seven members of the commission--all but one of whom holds an elective office--did indeed sound like an accountants’ debate.

The commissioners discussed such esoteric accounting issues as encumbrances, disencumbrances, and carry-over appropriations. Boiled down, the debate centered on when state expenditures should be counted--during the budget year when the appropriations are approved or when the actual payments are made, perhaps a year or two later?

But the heart of the matter was politics.

The Republican Deukmejian is on the hook--put there by state Controller Gray Davis, one of the Democrats thinking about running next year to succeed Deukmejian, who has decided not to seek another term.

Davis closed the books on 1987-88 reporting a $343-million deficit. He included as financial liabilities all of the contracts signed that year for goods and services (called encumbrances). The deficit resulted because the controller’s books showed that available revenues were $343 million less than the legal appropriations.

The controller subsequently was backed up by state Treasurer Thomas W. Hayes, acting Auditor General Kurt R. Sjoberg, and Legislative Analyst Elizabeth G. Hill. The only dispute among them is the size of the deficit, which ranged from a low of $93 million to a high of $1.4 billion, depending on the method of accounting that was used.

But the governor’s budget continued to show that the state ended the year in the black, albeit by the razor-thin margin of $4 million. Knowing the state was close to the margin, Deukmejian Administration Finance Director Jesse R. Huff in January ordered all state departments that had not yet received goods contracted for during 1987-88 to cancel the contracts (a disencumbrance). Thus, he claims he was able to save at least $80 million and keep the state in the black.

Davis disputed Huff’s ability to save that much and said that even if he did, the books are closed and the deficit is now part of the historic record.

And there the matter stood as Huff, Davis and the other five members of the commission sat down Thursday in a Capitol hearing room to see if they could reach an agreement on a method of reporting state expenses that would satisfy all parties.

Somewhat predictably, the meeting broke up after Democrats on the commission were caught by surprise by a motion made by Huff that basically would have put the commission on record as endorsing the accounting methods the finance director used in determining that the state ended 1987-88 in the black.

Assemblyman John Vasconcellos (D-San Jose), chairman of the Assembly Ways and Means Committee, called the motion “patently political” and said he was “offended” that the finance director, who represents Deukmejian on the commission, made the motion without distributing copies of it to other commission members beforehand.

Questions About Motivation

Davis argued against any changes in accounting, saying it “would unduly raise questions about our motivation and call the state’s good name into question.”

The motion fell one vote short needed for passage when one of the four Republicans on the commission, Assemblyman William P. Baker (R-Danville), refused to vote because of opposition from Democrats.

Davis left the hearing room accusing Deukmejian of trying to “rewrite history.”

“The governor wants to somehow magically convert a deficit into a $4-million surplus, a feat that would make Merlin the magician proud,” Davis said.