The state controller is the chief financial officer of California, which is the eighth largest economy in the world. He or she dispenses and accounts for all of the state's payments, including employee wages, and audits state spending. California's controllers are elected every four years by the voters, and have often been central players in the state's budget negotiations, determining who gets paid and how, as the funds authorized for use each year dwindle.

California Economy Ranking in the World (EconPost)

The controller is one of the offices established by California's original constitution in 1849, which provided that the controller must be paid, could be impeached and would be elected at the same time as the governor. In 1879, the revised constitution established the Board of Equalization, in charge of taxation, and made the controller an ex-officio member.

The state raised about 70% of its revenues from property taxes until a state constitutional amendment in 1912 changed the method of raising revenues and, in the words of  Controller A.B. Nye “affected many other changes in the State’s financial arrangements, and it has been my endeavor to supply proper information regarding all of these.” Nye’s biennial report to the governor noted that other former practices had also changed. Legally required estimates by the controller for legislative appropriations were expanded beyond just those for maintenance and operations to include building construction and other “necessary improvements of the class for which special acts are passed.”

While the constitution has undergone several revisions and myriad amendments since, and the controller now sits on 81 boards and committees, the general scope of the office's authority has not changed. The controller continues to be the sole distributor of state money, with broad responsibility for maintaining California's fiscal soundness and avoiding waste.

1912 Annual Report of the State Controller

Constitution of the State of California 1849 (California State Archives)

California Controller (Ballotpedia)

The state controller is the only official with constitutional authority to take money from the treasury (Article 16, Section 7). The controller's primary function, then, is to administer the state's budget, while the treasurer holds and invests state funds, functioning as the state's banker. Although duties vary from state to state, there is no meaningful difference between a controller and a comptroller. Indeed, California's "controller" was a "comptroller" until 1862.

The largest portion of the controller's budget is taken up in handling payments. This includes payroll services for state employees and funds to local government. The controller reimburses localities for implementing programs mandated by state law and for some other claims, as well as administering payouts (apportionments) such as those for public education from state lottery revenue.

The controller also collects the estate, inheritance and gift taxes and overdue tax on gas, trucks and insurance. In order to determine correct estate taxes, the controller appoints probate referees to each county, who appraise estates for the government.

The controller's office is the repository for unclaimed property, such as abandoned safe-deposit boxes and undeliverable insurance payments. The office offers a search engine cataloguing the property and mails notices to its owners. If an owner fails to come forward, the controller auctions off any goods and sends the proceeds, along with any cash, to the treasury.

In addition to dispersing and collecting money, the controller's office provides information about the state's financial condition and spending, including formal reports and accounting figures, personal finance education and transparency tools. The most recent of these last is the database of state employees' compensation, created by Controller John Chiang in the wake of the Bell scandal involving alleged municipal fraud and mismanagement.

The state controller's office conducts audits on state spending, distinct from the state auditor's reports in that they tend to be strictly focused on accounting and financial practices.

The controller sits on myriad boards and commissions, substantially influencing state policy on a broad range of matters, including taxes, employee pensions and state bonds.

The controller is an elected official. As of 1990, when Proposition 140 was passed, she or he is limited to two terms in office.

Divisions of the State Controller's Office (State controller’s website)

The state controller's office contracts mostly for office supplies, information technology, business consulting and legal services. The office's role in implementing payroll and reimbursement systems statewide make it more prone to interagency contracts than most state bodies: in the first three quarters of 2011, more than $76 million of the controller’s budget went to other agencies, much of it related to the 21st Century Project to update the payroll system. Other agencies paid the controller’s office more than $14 million for training, audits and miscellaneous services.

Government agencies, state employees, labor unions and taxpayers have the most to gain or lose from the controller's decisions. The controller has been repeatedly faced with the question of whether to pay employees less—via furlough, temporarily lowering wages or stopping paychecks altogether—during budget crises. Day-to-day decisions about financial policies and reimbursements, and about who to audit and how thoroughly, also impact employees and their advocates, state agencies and municipalities, and the taxpayers who fund government and claim its services. By maintaining (or failing to maintain) the state's creditworthiness, the controller also affects the economy as a whole.

3-Year Budget (pdf)

Spending at the Controller’s Office

The controller's responsibility for eliminating fraud and waste means extra embarrassment when those problems come from within his or her office. The state auditor's revelation in August 2011 that the controller’s office was one of five agencies defrauded of more than $6,000 by an employee was, at minimum, ironic. The controller's office is also vulnerable to the politicization of its spending, as was the case when Controller Ken Cory arranged its $5-million move out of the capitol building in 1986, and when Controller John Chiang followed through on his predecessor's plan to bring the office's furniture up to code.

While this spending and misspending has failed to attract long-term criticism, problems with the 21st Century Project have been more severe. The project to update the state's outdated payroll system is on its second vendor, having started over after the first filed for bankruptcy, and the Legislative Analyst's Office has revised initial estimates of a $130 million cost upward to $326 million. The payroll system, first authorized in 2005, should be fully functional by the end of 2012.

Investigations of Improper Activities by Agencies and Employees (State Auditor’s website) (pdf)

Cory's Plan to Make $5-Million Move Criticized (by Leo C. Wolinsky, Los Angeles Times)

Yacht Party Wankers of the Day (by David Dayen, Calitics)

State Controller's 21st Century Project, 2009 Analysis (Legislative Analyst's Office)

State Controller's Office: 21st Century Project (Legislative Analyst's Office) (pdf)

Waste, Mismanagement and Fraud

As auditor of all the spending it authorizes, the controller's office often uncovers mismanagement and fraud in other agencies and contractors. In 2011, the controller’s office revealed that several departments had outstanding loans to employees in the form of paycheck advances or unconfirmed travel reimbursements. These totaled over $13 million. Controller Chiang has also charged the Senior Care Action Network with “fleecing the state” of more than $300 million in overpayments, and pressed Department of Health Care Services Director Toby Douglas to hold the contractor accountable in August 2011.

These failures of financial procedure are less notorious than the corruption revealed in the city of Bell. In the summer of 2010, the Los Angeles Times' Jeff Gottlieb and Ruben Vives reported that city manager Robert Rizzo was making nearly $800,000 annually, with a guaranteed 12% raise each year. Further investigation revealed that the city sold bonds financed by illegal property taxes and that a city council member loaned his own organization $72,000 in public funds. Rizzo and seven others are under indictment.

While the state controller's office is not responsible for the local money involved in Bell's fraud, Controller Chiang has had a major role in investigating and explaining the scandal. He has since pushed for legislation to expand the controller’s authority to audit cities and towns, and set up an online database of public salaries. As part of the heightened interest in local financial affairs, the controller took the somewhat rare step of auditing a city, Montebello, in 2011. The audit took issue with more than $31 million in expenditures.

California Agencies Lent Millions to Employees Who Never Repaid (by Anthony York, Los Angeles Times)

Health Plan that “Fleeced the State” Stands to Grow (by Christina Jewett, California Watch)

Is a City Manager Worth $800,000? (by Jeff Gottlieb and Ruben Vives, Los Angeles Times)

Scandal-Plagued Bell Received Accounting Awards (by Chase Davis, California Watch)

Prompted by Bell Scandal, Bills Would Give California More Power to Probe Fiscal Abuse (by Patrick McGreevy, Los Angeles Times)

600,000 Local Government Salaries Posted Online (by Chase Davis, California Watch)

California Questions $31 Million in Spending by Montebello (by Jessica Garrison and Abby Sewell, Los Angeles Times)

Budget Battles

California's perennially overdue budgets have been a source of conflict between controller and governor, as well as a long stream of lawsuits. In 2003, the California Supreme Court ruled that the state could withhold employees' salaries when budgets were overdue, although it would still be required to pay the federal minimum wage. Controller Steve Westly hastened to assure state employees that they'd be paid in full, regardless of any ruling.

The issue arose again in 2008, when Governor Schwarzenegger ordered employees' wages lowered. Controller Chiang refused, saying that the operations required were beyond the payroll computer system and would expose the state to legal action for violating overtime and retirement-contribution rules. “The authority to issue people’s paychecks is mine,” Chiang said, before calling the governor's order “improper and illegal.”

Schwarzenegger sued Chiang and won, but not until the budget issue had been resolved. When he reissued the order during the 2010 budget negotiations, Chiang once again refused to comply and the two sued and countersued.

2008 also brought mandatory furloughs, which started at one day a month—a 5% reduction in pay—and increased to three by 2010. On this issue, Schwarzenegger and Chiang were again at odds, with the controller's office filing briefs in support of a union lawsuit to end the furloughs. Chiang was praised for supporting workers' rights by some and derided as in thrall to union contributors by others.

Chiang's extreme measures in the face of budget crises were not limited to keeping workers paid, however. In January 2009, Chiang ordered a temporary hold on tax refunds to save money. By July, his office was issuing IOUs rather than checks to pay its bills. Many major banks refused to accept the IOUs, forcing their holders to wait months until they matured (with 3.75% annual interest). A small-business owner sued Chiang and Treasurer Bill Lockyer for refusing to pay her outright. By the time California returned to writing checks in September, almost $2 billion in IOUs had been issued.

In 2011, when newly-elected Governor Jerry Brown vetoed the Legislature's proposed budget, Chiang stopped paying lawmakers. The newly-passed Proposition 25, he said, required him to withhold legislator pay when a budget was overdue. Although Prop 25 was vague as to how and when pay would be docked, it does state that legislators should not be paid or reimbursed for expenses “from midnight on June 15 until the day that the budget bill is presented to the Governor.”

Chiang's decision was predictably unpopular with the Legislature, particularly with his fellow Democrats who controlled it. Democratic Assemblyman Mike Gatto accused Chiang of wanting to “beat up on the popular kids.” Democratic Senate President Pro Tem Darrell Steinberg has since suggested that the pay stoppage should be challenged in court.

No Treading Lightly for Westly (by Lynda Gledhill, San Francisco Chronicle)

John Chiang: Working Class Hero (by David Dayen, Calitics)

California Controller's Fortunes Have Risen Through Battles With Governor (by Shane Goldmacher, Los Angeles Times)

Controller Joins Unions in Lawsuit Challenging Schwarzenegger (by Michael Rothfeld and Patrick McGreevy, Los Angeles Times)

Big Banks Don't Want California's IOUs (by Ryan Knutson, Wall Street Journal)

Businesswoman Sues California for Paying With I.O.U.s (by Rebecca Cathcart, New York Times)

Budget Deal Ending Need for I.O.U.s in California (by Jesse McKinley, New York Times)

Politician Pay: All Eyes on the Controller (by John Myers, KQED News)

John Chiang's Pay Blockage Upends Budget Talks (by Kevin Yamamura, Sacramento Bee)

Steinberg Says No-Pay Decision Needs to Be Challenged (by Kevin Yamamura, Sacramento Bee)

Efforts to improve the function of the controller's office have been largely focused on scaling up auditing operations to eliminate more waste, rather than on responding to problems within the office itself. The Little Hoover Commission's response to a bond oversight bill notes that from 2003-2006, the controller’s office recouped $13 for every dollar spent on audits. The state auditor has repeatedly recommended that the controller be authorized to hire more auditors to regain more overbilled funds, particularly from state mandates.

After the Bell scandal, Controller John Chiang sponsored several bills to give his office more authority to audit. The bills didn't pass, but expanded local audit powers were given to the state auditor in the next session.

Senate Bill 784: State General Obligation Bond Oversight (Little Hoover Commission) (pdf)

State Mandates Fact Sheet (California State Auditor) (pdf)

New Law Widens State Audit Powers (by Steve Scauzillo, Contra Costa Times)

Redevelopment Agencies

California is home to around 400 redevelopment agencies (RDAs) taking state funds to build homes and parking garages and trains in the communities they serve. In 2011, Governor Brown signed a bill to save $1.7 billion and potentially shut them all down.

Redevelopment is a strategy for revitalizing “blighted” neighborhoods—areas with high vacancy rates or crime where developers might otherwise be loathe to invest. After determining blight and establishing an agency, redevelopment borrows funds for projects in the hope that development will raise property values and thus property taxes. The agencies get a portion of property taxes above the level at the time their projects started. The state then reimburses local government for some of the taxes claimed by the RDAs.

Redevelopment agencies are managed locally, but they report to the state Department of Housing and Community Development and to the state controller’s office. As Governor Jerry Brown first brought political attention to redevelopment during budget negotiations, Controller John Chiang released an audit of 18 of the agencies, reporting golf course rehabilitations, “blighted” beachfront mansions and questionable administrative spending. Local governments rushed to defend RDAs, which provide affordable housing and deliver much-needed state funds to cities and towns.

The California Redevelopment Association and the League of California Cities sued to block the state from closing down the agencies, but in December 2011 the state Supreme Court ruled the move was legal. However, the court invalidated a companion piece of legislation that allowed the state to essential create a new redevelopment program that would give $400 million back to the state in subsequent years.   

So the debate continues.

Gov. Jerry Brown Signs Laws to Ax Redevelopment Agencies, Collect Taxes From Online Retailers (by Shane Goldmacher, Los Angeles Times)

Suit Asks State Supreme Court to Overturn State Action Targeting Redevelopment Agencies (by Patrick McGreevy, Los Angeles Times)

State Supreme Court Upholds Abolition of Redevelopment Agencies (by Maura Dolan, Los Angeles Times)

Redevelopment is "Pork" for Developers

Chiang announced his redevelopment agency audit in January 2011 and released it less than two months later. “The heated debate over whether RDAs are the engines of local economic and job growth or are simply scams providing windfalls to political cronies at the expense of public services has largely been based on anecdotal evidence,” Chiang said in a statement. The lack of empirical evidence about redevelopment does nothing to assuage those skeptical of its value. There's no proof, critics say, that redevelopment helps either local economies or the economy overall.

Chiang's audit unearthed widespread problems: an area with multimillion dollar homes categorized as blighted, subsidization of a high-end golf course project, misused funds and lack of required financial reporting. In one city, public officials' salaries were paid with redevelopment funds. Many violations found in annual audits went unreported. “The lack of accountability is a breeding ground for waste, abuse and impropriety,” Chiang's statement on his audit results said.

Failures in accounting and overly broad definitions of blight aside, many question the government's role in subsidizing businesses like entertainment venues and restaurants in the first place, especially when the property taxes that pay for those subsidies would usually go to schools or firefighters. In choosing projects, RDAs also give certain businesses a competitive advantage over others, including any businesses that already exist in the "blighted" area. Even without the abuses Chiang and his staff found, RDAs fighting crime and economic depression with bars and stadiums--sometimes to the detriment of preexisting structures--can be a tough sell for libertarians, progressives and school systems.

Redevelopment Money Fight Heats Up as State Controller Announces It Will Audit 18 Agencies (by Catherine Saillant, Los Angeles Times)

State Controller Highly Critical of Redevelopment Agencies (by Duane W. Gang, Press-Enterprise)

Redevelopment Is Redistribution (by Katy Grimes, Cal Watchdog)

Jerry Brown Redevelopment Alert: Wealthy Eli Broad Gets $52 Million for a Garage; the Entirety of South L.A. Gets $32 Million (by Tibby Rothman and Jill Stewart, LA Weekly)

Redevelopment Is Smart Private-Public Partnership

Supporters of redevelopment were quick to point to political motivations behind Chiang's audit, and to accuse him and Governor Brown of cherry-picking the worst project examples. The flexibility and variation in redevelopment programs means that some projects will succeed while others fail, and some will be more obviously beneficial to the public than others. The mandatory 20% of redevelopment funds that go to affordable housing is an oft-cited example of the programs' good work, and affordable housing advocates attempted to save that component of redevelopment after Governor Brown announced that RDAs were on the chopping block.

Many California mayors have been eager to defend RDAs as good partnerships between the private and public sector: “Without redevelopment agencies,” several mayors said in a joint press conference, “private investment would not get involved in community improvement activities.” That involvement creates construction jobs and, proponents contend, helps keep communities economically strong.

While maintaining that California can't afford them, even Governor Brown has admitted that RDAs can have a positive impact. In the face of such agreement on redevelopment's potential, some wonder why RDAs could not be reformed rather than defunded.

State money that has been going to cities and towns via redevelopment will cease to do so under recent legislation, and it's doubtful that those funds will be redirected to other local programs. In a time of economic scarcity, ending redevelopment is asking cities and towns to do more with less. It may also be illegal. Proposition 22, passed in November 2010, prohibits the state from interfering with local property taxes. A ruling on the issue is expected by early 2012.

Redevelopment: Complex, Diverse Agencies in Fight (by Malcolm Maclachlan, Capitol Weekly)

Opinion: In Redevelopment, Negotiate a Deal Both Sides Can Live With (by Emil Marzullo, Capitol Weekly)

John Chiang, 2007-2015

Steve Westly, 2003-2007. Westly became controller after working as a vice president at eBay and ran for governor while in office. State Treasurer Phil Angelides defeated him in the Democratic primary, and went on to lose to Arnold Schwarzenegger. Westly founded and continues to work with a clean technology venture capital group.

Kathleen Connell, 1995-2003

Joseph Graham "Gray" Davis, Jr., 1987-1995. Davis's political career culminated in a term and 10 months as governor, from 1999 to 2003, when he was recalled.

Kenneth Cory, 1975-1987. Cory was a longtime protégé of Assembly Speaker Jesse M. Unruh whose 22-year political career began in 1967 as a four-term Democratic Assemblyman from Orange County. He was elected controller as “the man oil companies fear most” but was also known for jousting with banks. He sued several for wiping out dormant accounts with huge service charges—and settled with most of them—but Bank of America fought back and eventually ended up paying the state $57 million. Cory was criticized for his support, as a board member of the California State Teachers’ Retirement System, of a $50 million loan to an oil company that turned out to be fraudulent and resulted in imprisonment for the CalSTRS chairman, but he was not accused of a crime.

Houston I. Flournoy, 1967-1975

Alan Cranston, 1959-1967. After two terms as controller, Cranston served in the U.S. Senate for 24 years. He ran for president in 1984 but withdrew from the race after performing poorly in the primaries.

Robert C. Kirkwood, 1953-1959

Thomas Kuchel, 1946-1953

Harry B. Riley, 1937-1946

Ray L. Riley, 1921-1937

John S. Chambers, 1913-1920

A. B. Nye, 1906-1913. Nye was appointed controller by Governor George Pardee after Edward P. Colgan's reelection and death. Pardee had been denied his party's re-nomination (this before California had a direct primary) for governor in favor of James Gillett, who was willing to be more friendly towards the Southern Pacific Railroad's interests. Once installed, Governor Gillett attempted to name another controller, but Nye refused to give up his position and the courts upheld him. Nye went on to win another term in office, and died himself shortly before completing it.

Edward P. Colgan, 1891-1906

John P. Dunn, 1883-1891

Daniel M. Kenfield, 1877-1883

William B. C. Brown, 1876-1877

James W. Mandeville, 1875-1876

James J. Green, 1871-1875

Robert Watt, 1867-1871

George R. Oulton, 1863-1867

Gilbert R. Warren, 1862-1863

James S. Gillan, 1861-1862

Samuel H. Brooks, 1860-1861

Aaron R. Melony, 1858-1860

George W. Whitman, 1857-1858

Edward F. Burton, 1857

George W. Whitman, 1856-1857

Samuel Bell, 1854-1856

Winslow S. Pierce, 1852-1854

John S. Houston, 1849-1852

California State Controller (Wikipedia)

James Gillett (Wikipedia)