Budget Shortfall Stirs New Controversy


     SAN FRANCISCO (CN) - A memo sent to California judges defending a judiciary budget estimate that turned out to be off by $70 million has generated another round of controversy over the central court bureaucracy's ability to accurately keep books on the large sums of public money requested by the courts every year.
     The latest dust-up is over a budget estimate by the Administrative of the Courts that in mid-January projected that a fund for trial courts would receive $1.38 billion in the next year from a variety of sources including filing fees.
     Then a more recent budget estimate in mid-March said the earlier estimate of income was too high, by about $70 million. Much of that shortfall was due to a long-term decline in filing revenue which the administrators said they were well aware of.
     The Alliance of California Judges, a reform group, criticized the "massive shortfall," saying it made the effort to rescue court finances through petitions to the governor and Legislature even harder.
     Justice Douglas Miller then followed with a memo saying the Administrative Office of the Court's revenue projections did not reflect a fundamental mistake.
     "You may have seen a letter recently titled 'AOC's Revenue Projections Off by $70 million.' The letter both misstates and misunderstands the revenue projections at issue," Miller's memo said. "The revenue projections are not 'off' but instead reflect the five-year downward trend in Trial Court Trust Fund revenues, something judicial branch leaders have monitored with the AOC's Fiscal Services Office."
     At a meeting in March discussing the new numbers, AOC Finance Director Zlatko Theodorovic said he was "not surprised" by the shortfall.
     But both judges and an accountant said that if the bureaucracy's bookkeepers were in fact aware of the downward trend, then it should have been reflected in the earlier January budget estimate rather than packing a surprise shortfall into last month's new budget projection.
     Karen Covel, an independent accountant with the San Diego firm of Lauer, Georgatos and Covel, said the bureaucracy's finance staff should have noted that trend in its January report to the governor's Department of Finance. "The projection is only as good as the information you use," said Covel who consults on bookkeeping matters for Courthouse News.
     She pointed to the revenue projections for the current fiscal year and for the coming fiscal year. Both include precisely the same income figure, $1.38 billion.
     "If it has already been established that there is a downward trend in fee revenue, why would one assume that projected 2014-15 revenues will remain constant? Shouldn't this downward trend be anticipated and built into the projections? If they've known about this declining fee base for five years, it should have been taken into account in the January '14 projection," Covel questioned.
     "They say they are not surprised and that they knew about the falling revenue, but it should have been in that January column," Covel concluded. "Somebody is not paying attention."
     The current controversy bears a number of similarities to an earlier accounting controversy involving the AOC's report to the Legislature on the costs of the now mostly abandoned Court Case Management System.
     In that earlier matter, in February 2012, the administrative office apparently dropped a multi-million-dollar item on the future costs of the program, in all likelihood a programming error. In that cases, Justice Terence Bruiniers sent a letter defending the AOC's accounting and the AOC's then director said the costs estimates had simply changed over time.
     "It appears they didn't provide the Legislature with any cost information for future years," said Covel at the time. "They did not tell you what lies ahead."
     In an interview over the most recent budget snafu, Alliance director Judge David Lampe of Kern County said the AOC based its numbers on overly optimistic projections.
     "There's no question the AOC overestimated trial court fund revenue in giving figures to the Department of Finance in preparation for the release of the January budget proposal for 2014-2015. Now three months later, they're saying that was overestimated by $70 million, which apparently is reflecting a five year downward trend in revenues. Which judicial branch leaders have monitored."
     He added, "The AOC is not surprised but we are surprised and members of the legislature are surprised because this means they have to negotiate for twice as much as the governor offered just to get the benefit of what the governor was offering."
     "Estimates are by their nature estimates, so they're not necessarily inaccurate in that sense," he continued. "But when they say they are not surprised, that leads me to believe they expected the numbers to be lower and that expectation should have been part of their original estimation on which the January budget proposal was made."
     Miller's memo in defense of the administrative office's accounting said that not only were the administrative office's officials aware of the downward trend, but the shortfall is minor in the overall context.
     "Total revenue in the trial court trust fund from all sources will be approximately $2.1 billion in the current year; so the estimated ongoing $70 million is about 3.3 percent in order of magnitude," Miller said.
     "Revenue projections are not performed in a vacuum," Miller said. "The AOC has been working in close concert with the Department of Finance, and, as appropriate, with the Legislative Analyst's Office, on the status of the fund. The practice of revising revenue estimates is an ongoing process in all state entities."
     But Lampe pointed to the political task the judiciary now faces in trying get the governor to grant that extra $70 million, which raises the total that the branch needs to stay afloat to $331 million.
     "The political task to get additional funding was daunting in the first place. When you're asking the legislature and the governor to come up with $70 million more we didn't expect, it makes achieving a $331 million figure even more daunting. We're already in a crisis. So the $70 million shortfall in the estimate is not adding to the crisis. It just makes repairing it more difficult."