Them's Pretty Fancy Accounting Tricks, Pardner

Texas Comptroller John Sharp has won plenty of accolades for his two-year crusade against waste and inefficiency in his home state. That includes plaudits from President Clinton, who has launched a "searing" audit of the federal government, a strategy closely modeled on Sharp's Texas Performance Review. Now, Sharp and some aides have begun shuttling to Washington to help Vice-President Al Gore formulate Clinton's audit program.

Maybe, though, the Administration should take a closer look at Sharp's results. Yes, his staff of 100-plus auditors has struck fear in the hearts of state bureaucrats. And legislators in 1991 did adopt more than half of his $4.2 billion in budget-cutting recommendations, allowing Democratic Governor Ann W. Richards to escape Texas' biennial budget crunch without imposing an income tax.

LEDGER-DEMAIN. But a closer look at Sharp's reviews qhould shake the faith of anyone counting on Clinton's budget bulldogs. Most of Sharp's savings in the name of government reform are really accounting sleights of hand and revenue increases from higher fees, tuitions, delayed tax credits, and the like.

Of the $2.4 billion in savings and other measures eventually approved by legislators from Sharp's first plan, $700 million at most will come from spending reductions, says Jared E. Hazleton at the Center for Business & Economic Analysis at Texas A&M University. And one study by the state auditor's office says lawmakers had achieved just $99 million in actual cuts as of last September, halfway through the budget cycle.

Sharp himself claims cuts of more than $400 million for the year. Surely, his efforts have brought results, from consolidating the state's dozen or so health and human service agencies to eliminating $500,000 worth of decorative plants. More important, the audit may have changed the way government monitors itself. Sharp's team, staffed by mid-level CPAs and bureaucrats, replicated the "reengineering" approach that many corporations have employed to wring out inefficiencies.

But many reckon the process, even if comprehensive, will at best delay the state's day of financial reckoning. "Most of the big-money items start with the words 'defer payment' or 'accelerate collection,' " says James P. Oliver, executive director of the bipartisan Legislative Budget Board, which draws up the first draft of the state budget. For instance, Sharp's 1991 recommendations included delaying a payment of $234 million to the teachers' retirement fund by a day to knock it into the next budget cycle. Legislators "who know anything about finance should know they're building in problems for the future," warns Oliver.

'LEAST RESISTANCE.' Texas representatives already are wrestling with an estimated $3 billion-to-$5 billion deficit for the two-year budget cycle starting in 1994. To help close the gap, a second Sharp audit released in January turned up an additional $4.5 billion in spending cuts, fee increases, and accounting maneuvers (table). Again, he's casting a wide net: The 460 proposals include capturing additional federal matching funds ($1.4 billion) and cutting out free meals for prison guards ($11 million).

Sharp confirms that about half hisrecommendations involve accounting changes or added revenue collection, reflecting in part an effort to win over lawmakers by proposing more palatable measures early on. "Legislatures are a lot like rivers," he says. "They take the path of least resistance." He predicts legislators will adopt more of the proposed cuts and consolidations in 1995 rather than resort to a state income tax.

Not everyone is convinced. "Sharp is camouflaging major increases in state expenditures by talking about efficiency improvements," snipes Texas Republican Party Chairman Fred Meyer, who notes that the state budget has jumped from $48 billion in 1989 to a proposed $67 billion in 1993.

Not that folks don't appreciate Sharp's thinking. "Even with the smoke and mirrors, it's an effort worth making," says state Representative Talmadge Heflin, a Houston Republican who acknowledges Sharp could save Texas $1 billion in two years. Says Raymond C. Scheppach, executive director of the National Governors' Assn.: "Texas has done a much more comprehensive job" than the other 30 states involved in performance reviews.

So far, Sharp's act is playing well in Washington. Gore's team, under the day-to-day care of Sharp deputy Billy Hamilton, is shacked up a block from the White House and plans to unveil its proposals this fall. But in a town so accustomed to budgetary tricks, Sharp's model is likely to be judged once again more for the savings it promises than for how it proposes to get there.