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Another Tiny ($2.3 Billion) Accounting Mistake

 If only there were a stimulus edition of Quicken. With billions of stimulus dollars flowing into the economy, some via historically unprecedented avenues, accounting mistakes were inevitable. And, given the magnitude of the stimulus plan, some of the typos and slip-ups were bound to involve astronomical sums of money. Last month, there was the whole $250-checks-being-sent-to-thousands-of-dead-people thing. Then, last week, we noted that the Labor Department had slipped a footnote onto that corrected by $10 billion the amount of stimulus money that the department had put in the unemployment trust fund. This week, ProPublica received a copy of a section of California's corrected application for State Fiscal Stabilization money that fixes an accounting error worth $2.3 billion.

The State Fiscal Stabilization Fund is a $53.6 billion pot created by the stimulus bill. Most of the money is earmarked for education, and to receive the money, a state has to assure the federal government that it will spend at least as much on public K-12 and higher education in 2009 and 2010 as it did in the 2006 fiscal year.

When California submitted its original application for $4.875 billion in stabilization funds on April 15, it showed 2006 figures of $34.905 billion for K-12 funding and $5.435 billion for public higher education. Last month, after Californians voted down various budget measures, Gov. Arnold Schwarzenegger submitted a budget that includes $4.7 billion in cuts to schools over the next two years. The plan made it painfully obvious that California might have trouble topping the 2006 figures in its application, potentially jeopardizing its right to money from the stabilization program. That's where the accounting error comes in.

Going over their numbers, officials in California realized that they had counted more than $2 billion in "settle-up" funds, which were guaranteed to schools in 2006 but not actually spent until the following year. Settle-up funds are owed to schools that have not yet received all the money they are entitled to under California's Proposition 98, which promises that 40 percent of the state's general fund be spent on schools.

The accounting fix lowered the education funding bar that California must meet to receive SFSF funds. "This technical adjustment was made to ensure that we treat all funds consistently across fiscal years in our State Fiscal Stabilization Fund application," says Kathryn Gaither, California's undersecretary of education. "We're continuing to work with the federal government, and we expect to hear final word on our revised application soon." According to John White, a spokesman for the federal Department of Education, no state has had its SFSF application turned down thus far, so it's a good bet that California's revised application will be accepted.

Based on its revised application (which also includes community college funding that was left out on the first go-round), California is still aiming for the funding figures in its original application but now has the wiggle room to deal with the deep and unavoidable cuts that are looming. "It frees up $2 billion in the terms of the ‘maintenance of effort' requirement in the application," says Carol Bingham, director of the state Education Department's fiscal policy division, "so the 2009 and 2010 figures can be dropped down if they need to."

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