Our Money Is Safer With Criminals?

by Mark Scaramella, May 4, 2011

The Supervisors opened last week’s meeting with a mutedly triumphant announcement that they had come to a tentative agreement with the public attorneys union.

The County's attorneys will probably take a 12.5% permanent salary reduction and count their blessings. Matt Finnegan represents the County's lawyers. Finnegan has worked in the DA's office as a prosecutor. He told the Board that he expected his membership to vote on the pay reduction agreement by this week. While the 12.5% is less than the County asked for, 12.5% is a pretty good whack. The deal may not be quite done.

Then the fun began.

Supervisor John McCowen pulled a request from the consent calendar for out-of-state travel to a National Association of Counties meeting in Portland, Oregon.

Guess who had looked forward to going on the junket on the taxpayer dime?

Supervisor Kendall Smith, of course.

If McCowen hadn't demanded that the jaunt be discussed by the full board, Smith would be booking her nicely appointed hotel room.

“The budget situation in general and the board budget itself is a challenge,” said McCowen. “We can’t approve out of state travel or travel to DC to lobby Congress. We need to draw a finer line for the Board budget.”

Right on, bro.

CEO Carmel Angelo, an old travel buddy of Supervisor Smith's, defended the $1500 for a free trip to Portland for Smith, pointing out that Smith was a voting member of NACo and that the trip had been “discussed by board and we decided we needed to send a delegate.”

“I don’t recall that,” McCowen said.

Angelo: “I can find the minutes and show you if you like. No federal or state lobbyists, only our statewide associations at this point.”

McCowen remained unconvinced, so the discussion of tax paid travel for the leadership went on.

Supervisor John Pinches, always on the alert for indefensible spending, recalled that the Board had once voted to withdraw from NACo, but then stayed in to get a small prescription drug price break for Mendocino.

“So I don’t support this,” grumbled Pinches. “I don’t know NACo’s specific track record but it’s pretty bleak. These organizations are all about themselves, not about the members. What would Mendocino County gain? What would be pushed for at this convention? It’s not worth the money or the membership.”

Double right-on, bro.

NACo's website tells us that the three-day meeting includes: Subcommittee meetings, a reception, featured speaker Aron Ralson, a "mountain climber and inspiration for the film, 127 Hours," exhibits, educational sessions, “Conference-wide Event: Party in the South Block Parks!”, more exhibits, luncheons, "Enjoy the fantastic restaurants in Portland!," more educational sessions, election of officers, and closing reception.”

What do you think, taxpayers? Should we send the 4th District Supervisor?

Supervisor Carre Brown agreed that the County was “very strapped financially” but that it was a “difficult call.”

CEO Angelo, in the voice of the pure martyr, noted that the County had already terminated its lobbyists and that she herself was sacrificing a trip to Washington DC this year.

Smith went off into free association mode about what she may or may not have said about travel and memberships at previous board meetings, before she got around to mentioning that she had already told the State Association of Counties that she not only would attend, but she'd be part of their “Policy Formation Committee” as well as their “Environment and General Land Use Committee,” that, that, that....

“I told them I’d show up,” she said, “and now the seat’s lost because I previously told them I’d be there.”

Supervisors are paid $68,000 plus a blank-draw travel stipend and an array of other benefits most Americans can only dream of. She doesn't have $1,500 to attend this thing if it's so important?

Pinches reminded Smith that the County “has no money. Where will we get 5%, much less 15%, in the Supervisors budget, if not this? The Board has to give up something. We are asking employees to give up something. We’re asking landlords to give up their rental agreements with the County. We’re asking everybody to give up something! But yet we’re not giving up nothing as a board!”

Triple right-on, bro.

Smith of course was unpersuaded. No more freebies for me? How dare you, Mr. Man!

“The Supes budget was cut dramatically and it will be again,” Smith declared (falsely), implying that a measly $1,500 for her should not be refused.

Pinches continued: “The CEO told all departments to save 15%. That includes the Board budget. There’s no way we can do that. So if we can’t make 15% shouldn’t we at least try to save 2 or 3%? If we don’t do it out of these line items like travel — we can’t do it out of salaries and benefits. So where’s it gonna come from? Are we just not gonna give up nothing?!

Angelo: “Yes. It will be challenging to get 15% out of the Board budget unit as it will be to all of our budget units.”

“Challenging?" Pinches exclaimed. "It will be impossible if we don’t do it in areas like this.”

Angelo: “The Board should look at policy. We are pulling out of everything. We could become an island all our own because we are dropping out of organizations left and right and not participating and, you know, for me this travel is representative of what would this board like to do as a policy decision? This is a vital committee. Are we going to drop out of everything?”

Pinches: “The Congress and the legislature are supposed to be there for us? Isn’t that their job?”

Smith: “They don’t set policy for counties, that’s our job.”

McCowen: “This might be reasonable travel for all the reasons stated; it’s only $1500, but I don’t think we can afford it. … We’re certainly not going to get a lobbyist who’s going to get it done by going to a NACo conference. Whatever they vote, it won’t repair Noyo Harbor or raise Coyote Dam. I move to deny.”

Pinches: “Second.”

Supervisor Dan Hamburg couldn’t contain himself. “I’m always the one who’s talking local, local, local. But I think it’s impossible to make good decisions locally without looking at things from a broader perspective and that’s what these organizations are all about. I am a very reluctant traveler. I think if you look at my travel budget at the end of the year you’ll see that I travel as little or less than any other Supervisor, except maybe my colleague to my left who doesn’t like to leave his district. [Laughs] I’m kidding Johnny [Pinches]. But, um, you know…

Pinches: “My district’s bigger than some states.”

Hamburg: “Mine’s pretty big too. Mine— just traveling around my district really satisfies my need to be on the move. But I really have to agree with the CEO that cutting ourselves off from these organizations is penny wise and pound foolish. … I’m glad that Kendall is willing to go up to Portland to a National Counties meeting and bring back with her, you know, whatever that organization has to offer and I’m sure they have much to offer Mendocino County, and I think it’s true throughout County government. I mean, if we start getting this really inward we can’t be a part of organizations that look at things in a broader perspective than just our singular county. I think we’re just asking for more trouble. And I think we’re not allowing outside creative thoughts and actions to be part of the mix of what we do here. So, I mean, particularly, if during the budget hearings it was understood by the Board that we were staying in NACo, for whatever reason, even if it was for the prescription drug benefit, part of being in an organization is showing your face once in a while, and I know there’s people in this county that think, Why should we travel? There is travel that is extraneous, but attending a single National Association of Counties meeting in the calendar year, to me, and particularly when it’s in Oregon, which is, you know, really, just a hop, skip and a jump from where we live — I just, you know, I think we should do it and I’m going to vote against the motion.”

Smith called Hamburg's unconvincing argument for his pal's free weekend in Portland and raised him twice the blather.

“I think, Supervisor, that you should call this isolationism. That’s truly where we’re going in terms of the local turn of events, Sonoma County is stepping up their efforts outside the County, they’re not rolling them back, they’re stepping them up, they’re making additional trips to Washington, they are keeping their eye on very critical programs that they feel that if they advocate for they’re gonna be successful in winning congressional support. As we did away with our federal lobbyist, Humboldt hired one, so they’re obviously going in a very different direction than we are thinking that this is the time that you need to pay attention to the external world that has everything to do with your own survival. So, I’m very concerned in general, but specifically I would like to ask the board that if, if we’re going to make this decision we make it relative to the next fiscal year, and, and, and then no member of the board will sign up for the CSAC appointment and then I think we should drop the membership. [Sarcastic laughter — looks at County Counsel Jeanine Nadel.] Counsel is saying no, she actually has some sense about these things. I think we really need to progress in a respectful process with respect to the process! It’s like they elect… like, let’s just cover cost and if we’re not really willing to be participants, let’s say it up front, let’s not later say, well, we’re not going to participate. I mean, I, I, … I, I, I think it’s to, to, to have told CSAC that I was going to participate because we had discussed it, I knew there were costs involved that were said at a meeting, that we budgeted for it, um, I think the amount here is capped at last year’s and I said that anything in excess I would personally be responsible for! I think it might even be able to be done for under $1500. But if it’s not, then I would take responsibility for any overages that are necessary for the going and coming and the attendance. So, um, that was the commitment on my part in terms of what it would take to cap the cost of what it was last year.”

Pinches stood firm.

“The Supervisors budget last year was $609k. If we achieved just a 5% reduction that would be around $31k. Has anybody got any idea where the Board of Supervisors budget will be reduced by up to $31k? We can’t even achieve a 5%, can we? But yet we’re going to ask our department heads and county employees and everybody else out there to achieve this 15% reduction? We just reduced our attorneys by 12.5%, but we can’t even achieve 5%? That’s embarrassing!”

Smith: “Why are we micromanaging the Board of Supervisors? Why don’t we micromanage counsel’s travel? She travels a lot! Then there’s the CEO! What about our department heads?”

Having thrown Sister Nadel under the fiscal bus with the childish argument that the other Sisters in the high-pay job slots still get to travel but here you are picking on me-me-me-me screaming meemies! Smith harrumphed into a brief silence as Pinches challenged, “What about them? Cut their travel budgets too!”

This may have been Pinches' finest hour. His bullshit detector was hitting on all cylinders.

Smith: (Shudders.) “Unbelievable!”

Angelo: “We probably…”

Smith: “We need to move on.”

CEO Angelo repeated her recommendation that a representative attend, adding with zero supporting evidence that there were “policy considerations.”

“There’s not a department head in this room that we don’t send to their statewide associations. I mean, we… We have people travel for good reason and I can think of a lot of ideas, I can tell you, department heads would come back and meet with me and talk about what other counties are doing and we look at how to implement those best practices. … I’m concerned about dropping out of everything. I think it would only hurt this County and we are looking at the budget, we are looking at that 15% from all budget units, and, and, quite honestly department heads have cut their travel consistently over the last couple years and so has this board.”

Smith echoed: “So has the Board!” (Not.)

McCowen: “I think we do need to cut more. The other departments are being assigned a 15% cut. It will be a challenge for many of them, particularly the smaller departments to meet that, but we expect them all to do what they can. We should do the same.”

The Board then voted 3-2 to deny the travel, Smith and Hamburg dissenting.

Nobody ever really said what benefits, if any, might accrue from Smith’s attendance — just that it was somehow “good.”

Kendall Smith has never come back from any of her previous publicly funded trips to propose a specific thing for Mendocino County. She “reports” (reports — in the same sense that reading from the minutes a week later could accomplish for free) and then says that her “report” was worth the thousands and thousands of dollars in travel and accommodations.

* * *

Supervisor Hamburg pulled another item from the consent calendar, that one about the County's investment pool fund, noting that it all made sense to him and that he was happy to see that the County had $170 million in the pot.

County Treasurer Shari Schapmire was comparably enthusiastic.

“You’ll be happy to learn that if we did this right this minute we’d be at about $200 million! We have a lot of funds right now because of the property tax dollars that are coming in right now. So this is just the investments. It does not count what’s in our checkbook. We have a lot of school bond money. Approximately 70% of this fund is schools money throughout the county, that’s why it’s so high.”

Then Hamburg made his real point, the politically correct point sure to resonate with Mendolib where saying the right thing is the same as actually doing the right thing.

“Just looking through the different firms that we’re invested with I noticed that they come from all over the world, a couple of Swedish banks, a couple of French banks, a Swiss bank, a Delaware trust. But when I went through these and actually looked at the names, I went, Gee, are these the kinds of institutions that Mendocino County should be involved in? Because many of these institutions have really shaky ethical records and records of having been fined millions of dollars for various kinds of activities. Let me just ask, Do we put any… Let me just mention, Merrill-Lynch is the wealth management arm of Bank of America and that happened in the 2008 crisis when Merrill-Lynch went out of business and of course they were heavily involved in the CDOs. They were fined $100 million for publishing misleading research. I think they also paid their management $3.6 billion that they got out of taxpayer funds that were given to them under the TARP program, by the federal government. Credit Suisse was dinged for money laundering, for giving money for weapons to the county of Iran which is obviously not an ally of the US. Credit Suisse employees were reported to have stripped the identities of Iranian banks enabling funds to be transferred to the Atomic Energy Organization of Iran. Credit Suisse advised Iranian banks on methods to hide their identities so they could send more than $1 billion for money laundering. I know we’re not in charge of the ethical lapses of the institutions that we invest in, but it does make me uneasy as a Board member to see that we’re investing with companies that I think have lost their moral and ethical compass.”

“Uneasy”? Not “appalled”?

Schapmire: “I appreciate that. My first priority is safety. I know everybody knows that. What happens with a Treasury pool, it’s not just here, it’s throughout the state of California. We’re very limited on what we can do. There’s only so many places we can put our funds and what happens is we are basically very heavily weighted in financial institutions. So right now just about every bank out there has had, especially, the bonus issue. I didn’t quite hear all that detail about Credit Suisse. I didn’t know all that.”

Hamburg: “I googled these companies and just read what came up.”

Schapmire: “How far back was that?”

Hamburg: “Which? The money laundering?”

Schapmire: “The Credit Suisse. I hadn’t heard… "

Hamburg: “2009.”

Schapmire: “OK. I hadn’t heard all that in that detail.”

Hamburg: “In 2008, 13 employees of Credit Suisse were arrested in Rio de Janiero for operating an illegal money transfer scheme. They were accused in 2007 of money laundering, tax evasion, fraudulent banking operations, operating without a banking license. That was in Manhattan, attorney Robert Morgenthau, the Justice Department. They fined Credit Suisse $536 million for money laundering.”

Schapmire: “Wow!”

Hamburg: “I mean, these are the companies that we’re hanging out with, so… I don’t mean hanging out with, but investing our money in.”

Schapmire: “Yeah.”

Hamburg: “You know, just as one Supervisor I know this business — some might say this has nothing to do with Mendocino County because these are big international firms — but I don’t know. It just makes me very uneasy.”

Schapmire: “With the banks. We are very heavily… We had commercial… We have commercial paper… We’re not doing that right now, but our negotiable certificates of deposit are all banks. Even the medium term notes are a good percentage of banks. Our strategy is on these… what we’re doing is trying to be as diversified as possible. We used to be, before the meltdown, we would have about 10% invested in the banks. We didn’t have to have as many banks. Now we have about 5%. We’ve tried to, we’ve lowered that down in the last couple of years. With these banks we’re trying to be diversified throughout the world and we’re looking at the top banks within, within the strong countries. Unfortunately, some of them fall in what you’re saying right there. Had I known that with Credit Suisse at that… when we bought this it looks like in December of 2009. So it looks like that was a ways after that. We try to stay clear if there’s things going on, just like we had the issues, had some issues over in Europe so we stayed clear for a while of those. We try to watch what’s going on at the time we make the purchase. Our intent is, once we buy something, don’t hold it to maturity. That’s how, that’s how we basically keep everything secure. But I just want to go back, my first priority is safety. So that’s my primary overriding issue is safety.”

We had hoped that at least Mendocino County’s Treasurer would be more financially articulate than this, and we also think the Supervisors might consider placing our money under fully adult legal supervision at a local credit union or with the Savings Bank of Mendocino.

Supervisor Pinches has his blind spots, blind faith in the integrity of the financial markets for one.

“These are cash investments too. They’re not stocks and bonds so that they’re not, you know, they’re not like buying stocks from a company. These are cash investments. They are sold, like I said, it becomes compliance, or not, not compliance, but certificates of deposit, you just keep until maturity, then you get full pay out.”

We certainly hope so, and we're about to find out, aren't we?

Hamburg: “I just wanted to bring this to the Board’s attention and the public’s attention. We should be very careful with these investments. We’ve already had one crash. I don’t think we’re immune from another one.”

Pinches: “We learned a lot from the Orange County debacle in the mid-90s."

We did? Seems like everything's worse to me.

"There’s been a lot of investment changes since then," Pinches continued. "The County of Mendocino investment pool is really just a holding company for your special districts and school districts and everything. There’s a small percentage of our actual dollars in there. With the Teeter debt it gets it right down to the near zero range, but not that close.”

McCowen tried to bring the room back down to earth: “I appreciate Supervisor Hamburg bringing these things forward. So many of these things are actually foreign companies. When I was first on the board I wanted to know if there was more we could do locally with these funds to help stimulate our local economy or even that the local banks benefit somehow. Basically, the explanation was the local entities don’t meet the qualifications necessary to be appropriate for these types of investments. Is that a fair summation of it?”

Schapmire: “You’re talking about Savings Bank of Mendocino?”

McCowen: “Yeah, or…”

Schapmire: “They’re not publicly traded or anything. But what I’m investing in here are negotiable CDs. They have CDs, but they don’t necessarily, are not negotiable. So that’s what we invest in. Negotiable. But even at that time, if anybody came to me and said, We want you invest it that way, I would look at that. I haven’t turned down… I haven’t gone out to them, but they could come to me if they’re interested in doing that. The problem is they have to actually have collat… they have to be collateralized to hold this, probably like at 110%.”

(The fact that the Savings Bank is not publicly traded is a major argument for placing public money with them.)

McCowen: “And they don’t want to…”

Schapmire: “And they probably don’t want to do that. We’ve offered, and I think I’ve mentioned this to you before, our service bank maybe 15 years ago was Savings Bank and they weren’t big enough to do it themselves; they had to have Security Pacific, basically, be like a parent company that kinda oversees them; they weren’t big enough, and at one point they were like, OK, we don’t want to do this anymore. So it’s not like we would not participate, absolutely, I love Savings Bank. They’re my bank.”

McCowen: “So we’re open to that if they’re willing to jump through the hoops?”

Schapmire: “Oh yeah!”

McCowen: “They would need to jump through the hoops.”

Schapmire: “Yes. They realize the hoops because I think they would be contacting us if there weren’t any hoops, so…”

***

General Services Director Kristin McMenomey and a couple members of her staff presented a long overdue facilities consolidation report. Ms. McMenomey calculated that 31% of County’s leased and owned facilities are now “vacant,” most of it space that was, until recently, occupied by the much-reduced mental health staff.

McMenomey’s team, leading off with a title seemingly written in Albanian from which it was then machine-translated into neo-fascist English —“Facility Consolidation Fiscal and Considering Factor Summarizations” — calculated the cost of various consolidations and the anticipated savings from consolidation. The report, its title notwithstanding, was comprehensive and clear; the Board approved it with minimal comment.

The proof, however, of the estimated cost savings remains to be seen and may not happen since nobody asked for a follow-up report on the progress of the estimated savings. Perhaps by August, when the Board starts serious work on next year’s already seriously unbalanced budget, somebody will ask if the estimated savings were actually achieved. But don’t hold your breath.

Phase II of the consolidation plan — those involving Fort Bragg — was put off for two more months.

AVA readers may recall that only one week earlier the Board was told that they’d get an update on the Fort Bragg consolidation within 30 days. Everybody agreed that delay costs the County money. Now it seems that the Fort Bragg consolidation has been put off for yet another month without comment from the Supes who wanted it sooner.

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