By John Howard | 11/19/12 5:00 AM PST
Months before California voters approved new taxes in the Nov. 6 election, accounting practices in the state budget were changed – changes that ultimately could make it much harder to define just how much money the state has taken in or is likely to get.
The changes were approved by the Legislature and governor as part of the budget’s assumption that voters would back Propositions 30, which raises some $7 billion annually in temporary sales and income tax hikes, and Proposition 39, which raises $1 billion annually by halting a 3-year-old corporate tax break.
At issue is a shift in the state’s accrual accounting procedures related to revenue from the two propositions. The Legislature’s nonpartisan fiscal adviser says the shift should be scrapped and replaced with a “simpler, logical” system by 2015.
Budget legerdemain is nothing new: The change this year was only the latest in a series of accounting moves over many years that ultimately have the effect of showing a state budget in better balance than it actually is. Money isn’t hidden, it’s moved around, and it often flows backward instead of forward.
In business, cash accounting reflects revenue from a transaction when the money is paid or received. Accrual accounting, universally used by all but the smallest businesses, counts money at the time the transaction is reported.
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