State Auditor Shows Budget Deficit in ’88 of $590 Million

SACRAMENTO — In what should be the final word on the existence of a deficit in last year’s state budget, but probably won’t be, California’s auditor general joined Controller Gray Davis and other officials Tuesday in declaring that there was, indeed, a deficit.

Acting Auditor General Kurt R. Sjoberg, in a final budget audit, came in with the highest figure yet, saying the state finished the fiscal year last June 30 with a deficit of at least $590 million and perhaps as high as $1.4 billion.

Previously, Davis put the deficit at $343 million, while other officials went as low as $97 million.

Gov. George Deukmejian still denies the existence of a deficit, insisting that the state ended the year $4 million in the black.

Effect on Budget

The dispute is important because the governor has based his proposed $47.8-billion budget for the next fiscal year on the assumption that the state ended the year in the black. If there are substantial numbers of holdover financial obligations, then what is already a precariously balanced budget could be undone.

There are important political overtones involved because Deukmejian repeatedly has said with pride that he took over a deficit-plagued state in 1983 and turned it around, going from “IOU to AOK.”

Sjoberg’s figure is higher because he said he audited the state’s books using the same generally accepted accounting principles used by private corporations and many other government agencies. When he got finished, he said the state was $590 million in the red and noted that a slightly different reading of the books could put the deficit figure as high as $1.4 billion.

The confusion stems from the use by the state of two different methods of accounting and the differences in interpretation that exist between bookkeepers and finance officials working for the governor, the controller and other officeholders. The differences have existed for years.

But Sjoberg said he is required to use the generally accepted accounting principles. Thus, he counted as liabilities a number of major items not counted by Deukmejian or even Controller Davis. Contributing to the larger deficit figure was $550 million in services by doctors, hospitals and others under the Medi-Cal program that were rendered during the 1987-88 fiscal year but for which no payment has been received.

Sjoberg also said he added up $427 million in taxes paid under protest and other tax payments counted as receipts in 1987-88 even though they were clouded by legal actions that could go against the state.

The controller, whose public statements about the deficit have been challenged by Deukmejian Administration officials, said the auditor general’s report vindicated his earlier warnings about the deficit.

“This closes the book on 1987-88. Every other financial entity (except Deukmejian) has agreed to varying degrees that my conclusions are accurate,” Davis said.

Deukmejian Administration spokeswoman Lois Wallace, an assistant director of the Department of Finance, replied that the auditor general’s report represents “just one more number.”

She added, “Overall, it was no surprise to us that his number was different. We’ve varied every year by hundreds of millions of dollars. We have four different sets of numbers and we believe our numbers are accurate.”

State Treasurer Thomas W. Hayes said in a statement that the dispute represents “a conflict of accounting terminology that doesn’t fully reflect actual revenue.” Hayes said that last year “the state ended up with cash in the bank and paid all its bills” even though the final accounting shows a deficit.