Now you could argue that a little cosmetology on budget figures doesn’t matter. The LAO, even though it projected a negative reserve in the general fund for the end of 2012‐13 at the time of its November 2012 review, nonetheless saw a brighter outlook ahead due to a combination of Prop 30 and a recovering state economy. But actually, there is a problem with elastic budget accounting. Fiscal cosmetology has costs, not to the budget but to the making of sound budget policy. In theory, accrual accounting assigns revenues and expenditures to the period in which they actually occur. It should be a better guide to policy than cash accounting which can be affected by accidents of timing. If a check arrives on June 30 or July 1, there should be no real implication for policy but there will be in cash accounting but not accrual. The problem with accrual, as found in California budgeting, comes not in theory but rather in practice. In actual state practice, revenues and spending can be moved around under accrual accounting for reasons of appearance. Such discretionary accrual can distort perceptions rather than make them more accurate. It is important to note that elastic accounting did not start in November 2012, nor was it an invention of Jerry Brown. Unfortunately, it is a long tradition. We flag the issue here because the best time for fixing the problem is when the budget is not under strain. During periods of crisis, considerations of consistent accounting are inevitably submerged by circumstances. The LAO could flag the use of elastic accounting and produce consistent figures. But even though it is non‐partisan, LAO does answer to the legislature and the legislature, just as the governor, likes flexibility in accounting. At one time, the state did have an independent budgetary review agency and one could be recreated. Absent such an entity, fuzzy methodology is likely to prevail. Hints of a Better Era “We are beginning a new era in California. I think it will be a better era.” Senate president Darrell Steinberg56 “By the way, living within our means means we don’t get everything.” Governor Jerry Brown57 It is common practice for governors to leak out hints of what their January budget proposal will contain before making the formal announcement. The main leak of substance was that the governor would be proposing a change in the structure of funding for K‐12 education. In essence, since Prop 13, the state had been a key funder of public schools. A hodge‐podge of an allocation system had developed based on average daily attendance and then topped by various categorical programs for particular school activities. Educational reformers had argued that funding should vary by child so that students with more difficult educational problems (such as lack of basic English) should receive more money than others. Of course, that is an abstract concept. Any change in funding structure might advantage some districts and
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