BOE Misallocation Saga Continues
June 16, 2016
As the Board of Equalization continues work to fix their processes and internal controls, counties are left to wonder when their budgets might be affected by a future reallocation of sales tax revenue, and how much revenue might be reallocated.
The audit performed by the State Controller’s Office (SCO) last year identified a number of problems, including misallocation of sales tax revenue. Unfortunately, the problems extend beyond the period examined by the SCO and the size of other problems could not be determined because necessary information was not available at the time.
Furthermore, the Board of Equalization (BOE) is determined to correct all of their processes, internal controls, and implement a new technology system before they calculate how much money has been misallocated, so that they can be sure that the numbers will not continue to change.
This means that counties and the state will possibly have to wait beyond next fiscal year to find out which funds require correction, though no specific timeline has been announced. The most identifiable problems relate specifically to Proposition 172, 1991 Realignment, and 2011 Realignment, as well as the state General Fund.
While it is not currently known how much money has been misallocated, or what the net result will be when they are corrected, it is worth noting that the net result of the known estimates would result in a reallocation of funds from local agencies to the state General Fund.
As counties will have noticed, quarterly true-ups have stopped for the affected funds. The BOE has taken this action because of problems the audit found with the true-up process. While this will reduce the funding counties receive in the short-term, it might make a future correction smaller in size.
These recent problems follow on the heels of a previously discovered problem where the BOE misallocated $352 million over three fiscal years after passage of the 2010 Fuel Swap. The Fuel Swap problem resulted in too much sales tax revenue going to the state General Fund. Note that many of the newly discovered problems were occurring at the same time as the previously discovered problems.
CSAC continues to work with the BOE, HdL, State Controller, and the Department of Finance to minimize any negative impact on local revenues, a principal to which all involved parties have agreed.
CSAC welcomes any comments your county has regarding the best way to handle the state withholding true-ups and any future reallocation. Comments and questions can be directed to Geoff Neill at email@example.com or (916) 650-8115.