California surplus slashed during crisis State uses more than half of $8.5 billion hoard on power

By Russ Britt, CBS.MarketWatch.com Last Update: 7:51 PM ET Mar 21, 2001

SACRAMENTO, Calif. (CBS.MW) - State Controller Kathleen Connell Wednesday denied a request for transfer of surplus monies, saying California has spent nearly two-thirds its surplus to keep the lights on.

But state officials scratched their heads at Connell's action. They say it revolves around a routine bookkeeping issue, one that could prove embarrassing for the controller in her bid for mayor of Los Angeles.

Connell said the state has lopped off $5.3 billion from the $8.5 billion in surplus funds it had in January. That leaves it with $3.2 billion.

Connell made the finding in denying the transfer $5.6 billion of additional monies from the state's general fund to a fund set aside for economic uncertainties.

"As chief financial officer of California, I have a responsibility to monitor California's cash flow, and I am deeply concerned about putting the state's general fund in a deficit situation in light of the energy crisis," Connell said in a statement.

Connell said the state would need to borrow $2.4 billion to fulfill the request, made by state Finance Director Tom Gage and Chief Legislative Analyst Elizabeth Hill.

Spokesmen for both offices said, though, that the $5.6 billion transfer request is routinely made - and required by law - to help California get through irregularities in state cash flow.

Brad Williams, spokesman for the state legislative analyst's office, insisted the request was not made to help the state pay for more electricity.

"It has nothing whatsoever to do with the energy situation," Williams said. "We do this every year."

The figure requested is based on the prior fiscal year's surplus. And that figure is supplied by Connell's office, said Sandy Harrison, finance department spokesman.

"It would have the same number, regardless of whether we had an energy crisis," Harrison said. "It's really a minor matter."

Officials at Connell's office seemed unaware of the state's procedure. Asked about the departments' finding, Connell spokeswoman Lisa Casalegno said: "I was not aware of that."

In a letter to Gov. Gray Davis, Connell also asked for notice when the state Department of Water Resources makes any energy purchases or negotiates future buys.

Connell added that she wants information on purchases worth more than $55 million, calls for new cash flow estimates for the next 30 to 60 days and called for the water resources board to ensure that bond sales are completed by the end of May.

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Davis' office had no comment on the request.

Russ Britt is a Los Angeles-based reporter for CBS.MarketWatch.com.

-- Martin Thompson (mthom1927@aol.com), March 21, 2001