One reason for California’s tardiness is the incomplete rollout of the state’s new accounting system. Launched in 2005, the Financial Information System for California, or FI$Cal, was intended to streamline the state’s financial processes. But 18 years and $1 billion later, FI$Cal has yet to be fully implemented, forcing accounting staff to consolidate data across multiple systems.
Also complicating recent attempts to produce a state audit was the pandemic‐era meltdown of California’s unemployment system. Although many states had problems keeping up with the rush of unemployment claims in Spring 2020, California’s crisis was far worse, combining long delays for legitimate claimants with tens of billions in benefits collected by scammers. Unlike most other states, California had no procedure for matching claimants against a list of prison inmates.
California’s Employment Development Department wasn’t able to produce a reasonable estimate of the amount of unemployment fraud committed during the pandemic. As a result, the state auditor concluded that the California’s unemployment fund may have “material misstatements in receivables, liabilities, and expenses,” and gave California’s 2021 financial statements a negative audit opinion.
In hope of improving the timeliness and quality of California’s audited financial statements, the auditor’s office has moved staff away from the task of monitoring local‐government finances. Until October, the auditor’s office was maintaining a local‐government high‐risk “dashboard” showing which California cities were in financial distress. But it canceled its dashboard project, placing California behind states that have longstanding fiscal monitoring programs for local government like New York and Ohio.
California stepped up state oversight of local governments after Stockton and San Bernardino went bankrupt in 2012. Rising property values and federal Covid relief have filled municipal coffers in subsequent years. The lack of more recent bankruptcies may be encouraging complacency. Covid funds are running out, the housing market is stagnating, and residents are leaving. Municipal fiscal distress may return this decade. If it does, the auditor won’t be equipped to provide early warnings.
Meanwhile, California’s local governments are taking on their own big, hairy, audacious goals and not attending to core services. San Francisco is studying reparations for slavery and implementing public banking, while failing to provide public safety and clean streets. Cities around the state are adding sustainability managers to reduce municipal carbon footprints, even though any individual city in California contributes a small fraction of 1% of global greenhouse gas emissions.
The Golden State is blessed with mild weather and natural beauty. Earlier generations created an ecosystem of higher education and venture capital that has generated enormous wealth. But these benefits don’t guarantee a high quality of life in perpetuity. If state and local government waste taxpayer money on ambitious projects and fail to execute basic functions, residents will continue to exit.
