For individual department budgets, encumbrances (commitments for the procurement of goods or services which have not yet been received by the state) are accrued as expenditures by departments at year-end and included in the expenditure totals. This treatment is in accordance with the budgetary/legal basis of accounting and consistent with individual department budgets.

For the purpose of determining the overall General Fund balance, Government Code Section 13307 requires that encumbrances should not be counted as a budgetary expenditure until the delivery of the goods and services. Furthermore, Generally Accepted Accounting Principles (GAAP) require that encumbrances be reflected as a reserve against the General Fund balance and not as an expenditure, as in budgetary/legal basis accounting. Government Code Section 13306 and state policy require compliance with GAAP whenever it is in the best interest of the state. This budget reflects a statewide adjustment to reduce expenditures on a budgetary/legal basis by the encumbrance amounts to comply with Government Code Section 13307 and GAAP. A reserve of fund balance for encumbrances for this same amount is shown in Summary Schedule 1 for the General Fund.

COMPUTATION OF ENCUMBRANCE ADJUSTMENT

The State Controller's Office accumulated a preliminary estimated General Fund encumbrance total of $954,630,000 from 2012-13 year-end financial statements submitted by state departments. For budgeting purposes, encumbrances are estimated to be at the same level for the 2013-14 and 2014-15 fiscal years and are assumed to be liquidated (paid) within the next fiscal year. The Encumbrance Adjustment Table summarizes the methodology and the calculation for the encumbrance adjustment.