Ever heard of the state’s Debt Limit Allocation Committee? I hadn’t until I read a state audit that found this committee squandered roughly $2.7 billion in bond funds that were intended to build housing. Yes, one of the state’s organizations responsible for allocating funding for affordable housing can’t even get the money out the door for its intended purpose.

This is not surprising. This is the inevitable consequence of a government that gets too big and too complex, has too much funding, and has no accountability, so no one keeps their eye on the ball.

The Debt Limit Allocation Committee, which is the branch of the State Treasurer’s Office that issues bonds for private projects with a public benefit, had $3.5 billion in tax-exempt housing bonds to allocate to developers to incentivize them to build low-to-moderate-income housing.

But the committee dropped the ball and kicked the bonds, all $3.5 billion of them, to the California Pollution Control Financing Authority, which finances green projects. In a game of musical chairs, the pollution authority got stuck with several billion dollars it would never be able to spend. Overriding its own staff recommendation to decline the funds, the pollution authority took the bonds and spent $800 million, letting $2.7 billion expire when the deadline to distribute the funding passed. Whoops.

So now we have California voters, trusting and good-hearted souls, agreed to a bond issue that they will pay back in the future with their tax dollars, believing that those in state government—who are paid more than those in the private sector on average—would distribute those funds for new housing construction.

But when government is no longer founded on principle, integrity, and accountability, government commitments are routinely broken—and not just a wee bit, but to the tune of billions of dollars. And California ends up squandering what would be new housing for tens of thousands of people.

But it is worse than that. Much worse. This 10-year-old failure was implicitly covered up until it came under the scrutiny of the state auditor, who discovered this massive mess-up in late 2020, stating in a none-too-kind report as follows:

“The absence of a comprehensive and coordinated plan allowed the Debt Limit Committee to mismanage and ultimately to lose $2.7 billion in bond resources with little scrutiny, a loss that the committee failed to publicly disclose and struggled to explain.”

Who was on the committee at that time (2012)? Governor Jerry Brown, state treasurer Bill Lockyear, and state controller John Chiang. Sean Spear was the executive director.

Such a committee should not be staffed by the governor, treasurer, and state controller. None of these positions offer additional bandwidth for any of these people to deal with allocating billions in housing funds. But in any case, what do these members have to say in response to questions about the committee’s failure to allocate those bond funds? Brown: silence. Lockyear: silence. Spear: silence. Chiang says he doesn’t remember the bonds. Nada. The code of silence.

It is not as if the Debt Limit Committee members didn’t understand that the bonds had a deadline for distributing the funds. They did, and they drop-kicked the $3.5 billion to the Pollution Committee, which bought another three years for distribution, resulting in $800 million spent on various green projects.

“If the committee had allocated bond resources based on demand and past use of bonds and assigned more of the remaining bonds for affordable housing purposes, it might have avoided substantial waste,” noted the auditor’s report.

The auditor’s report notes that the Debt Limit Committee now has implemented accounting and auditing practices to track distributions and amounts that are carried forward to future years. Really? What a novel, outside-the-box idea: using elementary accounting methods to keep track of account balances, distributions, and carryovers!

Please tell me, how could any organization dealing with $3.5 billion not implement standard accounting practices? 2012 wasn’t the stone age. There are over 150,000 accountants in the state; they are not unicorns. There are even free online apps that can do this.

Now, I know what you are thinking. Doesn’t the state have to file any IRS forms on this kind of stuff? They do. They need to file an IRS form that keeps track of funds carried forward. So, were those IRS forms ever filled out? Who knows. The state treasurer now indicates that they will make sure that what they report to the IRS and what they keep track of internally will be consistent. Now, there is another breakthrough!

You really can’t make this up. And despite this, the state budget grows rapidly, with no change in accountability. Governor Gavin Newsom has proposed a state budget for fiscal year 2022–23 that will rival the size of Finland’s total GDP. These types of inexcusable and grand mistakes will continue until California voters vote differently, or until the state empties out, whichever comes first.

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