Department of Finance History

Prior to Finance’s establishment, the state’s fiscal matters were controlled by the chairpersons of the Appropriations Committees of the two houses of the Legislature. In 1911, the State Board of Control (Board) was created by the Legislature to control fiscal matters and the financial outlays of most state agencies. Governor Hiram Johnson pushed for these reforms to make government more accountable and efficient. The Board consisted of three members—all of whom were appointed by the Governor.

In 1921, the Department of Finance was created when the Legislature amended the Political Code (now known as Government Code) and was officially vested with the powers of the Board. Chapter 603, Statutes of 1921 (SB 876) created seven divisions within Finance: (1) the Division of Institutions, (2) Budgets and Accounts, (3) Purchases and Custody, (4) Printing, (5) Motor Vehicles, (6) Capital Building and Grounds, and (7) Libraries and Histories. The Board remained, in name, as a part of the department, where members were given specific line authority over the different divisions. The first “Head of the Department,” currently known as the Director of Finance, was Gilbert Daniels. The annual salary for the position was $5,000 (or $75,000 in inflation-adjusted dollars). In its first year, there were 154 employees at Finance with a budget of $437,576.

In 1927, the position of Director was created within Finance and the Board lost its powers over the state’s budgeting process. The Director’s annual salary was set at $8,000 (or $123,000 in inflation-adjusted dollars). The bill vested supervision over all matters concerning financial and business policies of the state in Finance, and created three divisions: (1) Budgets and Accounts, (2) the Division of Purchases and Custody, and the (3) Division of Motor Vehicles.

In 1931, Finance was given the responsibility to purchase and maintain land for the state through Chapter 538, Statutes of 1931 (AB 1938).

In 1941, the Director established a separate audit function, which initially conducted only financial audits.

In 1945, modern state budgeting practices were established through Chapter 112, Statutes of 1945 (SB 1139). The powers and duties of Finance were specified to prepare and supervise overall “financial and business policies of the state.” Finance became responsible for creating a modern accounting system for each state agency, as well as for the purchase and selling of bonds for the state (now the responsibility of the State Treasurer). Further, Finance had responsibilities in land management, such as the State Burial Grounds in Sacramento, and land owned by the state in Merced County.

During this time, the Board was also officially integrated into Finance, with the Director serving as its head. The Board was a division within Finance responsible for monitoring the expenses of state departments through auditing.

Finance assumed the responsibility of creating disability accommodations within all state buildings and was also tasked with creating and managing vending stands within all state buildings through Chapter 524, Statutes of 1945 (AB 607), to be operated by licensed blind persons.

Beginning in 1951, Finance started to collect and estimate California’s demographic data. Carl Frisén was the first leader of the endeavor. At the time, it was under the Division of Budgets and Accounts and was called the Financial Research Section. It was later called the Financial and Population Research Section and received more funding in subsequent budget acts.

These activities were not included in statue until years later. Chapter 1013, Statutes of 1969 (SB 688) permitted Finance to provide demographic services to other agencies and departments, as well as the federal government. However, population estimates were not meant to change the allocation of state funds to local agencies or the amount paid to the state by local agencies. Later, these responsibilities were expanded and formalized by creating the Population Research Unit in Chapter 806, Statues of 1973 (AB 1179). The unit was tasked to serve as the single, centralized state source of demographic data for all levels of government, and the reports would be used for state planning and budgeting. This unit is now the Demographic Research Unit.

In 1954, audit responsibilities were expanded to include performance audits.

In 1956, a Local Planning Advisory Committee was created through Chapter 33, Statutes of 1956 (SB 28) to advise the Director of Finance on planning matters.

Chapter 1641, Statutes of 1959 (SB 597) created the Office of Planning under the Director of Finance to reach an agreement on “local and regional planning” among state agencies and local entities responsible for regional planning. Finance represented the state in this capacity given that the Director of Finance was designated as the “coordinating agency for the Governor.”

Finance’s responsibilities with respect to agricultural duties, powers, and purposes were transferred to the Department of Agriculture under Chapter 1714, Statutes of 1963 (SB 1024). Additionally, the Department of General Services was established separately from Finance.

Lead by Senators Walter Lohman and Howard Busby, the Commission on California State Government Organization and Economy (Commission) conducted a study of the internal audit activities within the executive branch to determine the extent to which the fiscal, performance, and evaluation audits met the needs of the state. The Commission recommended that Finance have specific responsibility to expand the scope and frequency of its performance and evaluation audits, and for the functional supervision of all such audits throughout the executive branch.

Finance was required to submit a report to the Legislature by January 1, 1982, containing recommendations regarding which funding, if any, should continue to be appropriated, through Chapter 1284, Statutes of 1978 (AB 3322). In order to support the work required by AB 3322, the Legislature authorized and provided first year funding for the California Fiscal Information System (CFIS) in the 1978 Budget Act.

The creation of the system built on the findings of a 1977 contract with the consulting and accounting firm of Deloitte, Haskins, and Sells. This contract was funded by a federal grant of $132,600. The consultant’s final report in May 1978 identified over 120 interrelated CFIS activities to be accomplished over a seven-year period, at an estimated total cost of $21-27 million. The long-term goal of CFIS was to develop a centralized fiscal and program database, which would support forecasting, modeling, and revenue monitoring.

One component of CFIS was the creation of the California State Accounting and Reporting System (CALSTARS) as a central, uniform accounting system. This system remained in use until 2020, when the Financial Information System for California (FI$Cal) platform launched. CALSTARS was used by approximately 200 state agencies and departments over a 39-year period.

In 1992, Finance merged the Financial and Performance Audits Unit and the Program Evaluations Unit to create the Office of State Audits and Evaluations (OSAE).

In 2005, Finance proposed a plan for a new Budget Information System (BIS) that was meant to better meet Finance’s budget development and administrative needs. However, the next year the administration proposed an updated project plan that significantly increased the scope of the project. The administration argued that a majority of state departments relied on outdated and inadequate technology and the state’s entire financial management infrastructure should be replaced. The proposal was to develop a single integrated financial management system for the state, called the FI$Cal. The project was managed by a steering committee comprised of four control agencies: (1) Finance, (2) the State Controller’s Office, (3) the State Treasurer’s Office, and (4) the Department of General Services.

Over the next decade, it went through several changes, documented in special project reports, which increased the scope, timeline, and often funding for the project. The implementation was structured into waves of feature releases and users were brought on-board incrementally, starting with a pre-wave in 2013. The 2016 Budget Act established a new department to maintain and operate the FI$Cal System.

To protect funding for core public services at the local level, the Legislature approved the dissolution of the state’s 400-plus redevelopment agencies (RDAs) as part of the Budget Act of 2011 (Chapter 33, Statutes of 2011). After the state prevailed in litigation, RDAs were officially dissolved as of February 2012. Finance was given responsibility for the implementation of the RDA dissolution statutes and overseeing the winding-down of the former RDAs. Initially a separate Finance unit, it was merged in with OSAE in 2016.

In response to the fiscal impact of the COVID-19 Pandemic, the federal government enacted six stimulus bills in 2020 and 2021. The 2021 Budget Act created the Federal Funds Tracking and Accountability Unit within Finance to track, implement, and provide oversight of federal stimulus and disaster relief funds (Chapter 21, Statutes of 2021). The Federal Funds Tracking and Accountability Unit also evaluates potential opportunities for enhancements to the FI$Cal to streamline and improve the tracking, oversight, and reporting of various types of federal funding including stimulus funding and disaster response.