- Mendocino County
- Anderson Valley
by Mark Scaramella, January 15, 2013
During a routine discussion of the County’s investment policy last Tuesday, Supervisor Dan Hamburg, and newly elected Board Chair, repeated his concern that Mendocino County places its money with criminal banks.
“I have probably bored you with this issue before. Looking at all the different banks that had been found guilty of various types of chicanery with whom the County does business. … Isn't there some way that we can screen out some of the worst of the scofflaws so that we are not depositing our hard-earned tax money of Mendocino County residents with these banks?
"County Treasurer Shari Schapmire wrote back to me to say that she knew some banks had behaved in inappropriate ways. But she pointed out to me that under the government code these banks are considered to be safe places to put public funds. I thought, why would that be? Why would the government code be setting up, in effect, a cover for institutions that are acting very illegally? It's not just the drug trade. It's illegal armaments going to countries that are on the terrorism watch list, so called....
"So I sent an email to Kristy [Furman, deputy CEO and legislative policy staffer] wondering if maybe our state or federal representatives could look at those government code sections that sort of encourage this activity to continue. And that's my speech. I am just hoping that we can look at those government code sections and see if perhaps there is some way — and I know that the Treasurer has spoken to our investment advisor about this. We obviously haven't worked anything out to this point. But it is something I continue to have an interest in.”
Supervisor John McCowen had another angle on banking the County's cash. He said he hoped the Supervisors or the Retirement Board could "reinvest some small portion of the funds that we hold locally… I assume that the starting point for the county would be the investment policy… Perhaps Chair Hamburg and I could discuss with the Treasurer bringing forward an agenda item sometime in the next year.”
Supervisor Pinches urged caution: “We talk about this money like it's our money. It is in the County of Mendocino's treasury pool. But very little of it, a very small percentage of it comes under our control. It's mostly special districts and school districts and college districts. To talk about taking that money and taking it away — this money is short-term money because you never know when, for instance, a college is going to need $40 million bucks of their money to build a new building or something — so… it's not really available at any level to put out for some long-term investment.”
Hamburg: “I think we all realize that. There are three responsibilities that are listed in our investment policy and I think it's clear that number one is safety, number two is liquidity and number three is return. But what you said about this roughly $200 million in the investment pool at any point, the fact that it is not our money is all the more reason from my point of view that it should be invested carefully in institutions which are really trustworthy and not institutions that are being fined $2 billion and institutions that are on watch lists from the regulators and so on.”
Don’t hold your breath waiting for any changes in the County’s investment policy or their selection of banks for their savings accounts. This has all been mentioned before, but nobody has ever followed through with anything in the way of specific proposals.
Newly elected Fourth District Supervisor Dan Gjerde waited until the subject of appointing a replacement for former Supervisor Kendall Smith as the County’s representative on the pension system board to suggest a more prudent and conservative approach to pension projections and investments.
After the Board agreed to appoint Supervisor McCowen to the open seat, Gjerde noted, “I would hope that Supervisor McCowen and the other members of the retirement board would listen to my voice in support for their acting without fear… If, for example— we had a presentation from the new CEO for the retirement board [a reference to newly hired pension manager Rich White] in board chambers in December. He talked about how the return on the investment for the last ten years was about 6.25%. And yet their hoped-for rate of return is 7.75%. And there's some talk about dropping it to 7.5%. I think if you look at the city of Fort Bragg [where Gjerde was City Councilman for ten years previously], part of the financial success of the city of Fort Bragg is that our budgets have been based on actual evidence from years in the past, not hopes for revenue in the future.
"Taking a prudent course like that would make more sense for the retirement board. So I hope that they look to their past track record of performance in making their projections for revenues for the future. That would be a financial burden for the county in the short-term [because the County’s portion of pension allocations would go up if the assumed rate of return was lower]. However, in the long term what they are doing is creating a bigger burden for the County because every time they underperform their target they then, every 10 years or so, look for a bond which is entirely paid for out of the general fund.
"So not only is the County paying the principle, it is paying the interest on that. If we were just paying it upfront there would be a smaller bill at the other end of the period. Half of the county payroll is from state and federal sources. If that bill was coming in each year the County could bill half of that to state and federal sources. But as it has worked in the past 100% of that is coming from local taxes, not from state and federal sources. Because 100% of that bond payment is coming out of local tax dollars and cannot be charged to work that is to be done in the future by county employees who are billed from state and federal sources. So my general wish is that the retirement board members would act without fear and be more prudent in their projections. The County will have to deal with the facts. But I would rather have the County pay upfront than pay a bigger bill in five or ten years down the road."
Gjerde's absolutely correct. And it's good that he's bringing these kinds of questions up.
CEO Angelo didn’t quite see the County’s pension system payments the same way: “I do not believe that the money we pay to the pension obligation bonds is 100% general fund. Those costs are allocated to the departments. The auditor confirms what I am saying. So there may be a misunderstanding. Maybe I don't understand what you're saying, but if I understand what you are saying, the pension obligation bond is paid for by money from the departments, so it's not 100% general fund, it does include state and federal dollars. And the auditor is nodding her head.”
Gjerde tried again: “My understanding is that if the debt incurred in the pension system is from a previous year's work, you cannot charge the state and federal government for a deficit that was incurred in a previous fiscal year. You can only ask for reimbursement from the state and federal government for an employee's work which is conducted in a year in which they do the work.”
Of course, but…
Auditor Meredith Ford: "The pension obligation bond payments are made as a percentage of payroll so that every pay period when the department is charged for their payroll costs, they are charged their share of the various overhead accounts which include retirement and health insurance costs. Included in the retirement costs are not only the county's contribution of normal costs but also a piece for the pension obligation bonds. I am not sure if that puts the issue to rest because I'm not sure what the rest of your question really related to."
Gjerde: “The total compensation of a given employee does not include debt incurred by the pension board for underfunding the pension fund in years past.”
Gjerde, new to the Board, probably assumes he's dealing with people who know what they're talking about.
Ford: “We are subject to an outside audit every year. Galina has looked at how we are calculating our pension bond costs and how we allocate them to the departments. Another auditor looks at requirements for single audits. And they have had no exceptions without we charge out any of the pension obligation bonds costs. So I don't see that there is any issue."
Auditors paid by the people they're auditing find for their paymasters, a fact Mendocino government, from school boards to supervisors, haven't quite grasped.
McCowen wanted to know if the departments are assigned a percentage of costs to cover the unfunded liability in the pension system.
Auditor Meredith Ford confirmed that departments also pay part of the unfunded liability.
And it was left there with the issue unsatisfyingly semi-clarified. Chair Hamburg suggested that Supervisor Gjerde look into the question separately and perhaps bring it up again later. Gjerde apparently realized that he wasn’t going to resolve the question with the general assurances from McCowen or staff. It will be interesting to see if Gjerde himself follows up. He's on the right track.
* * *
Supervisor McCowen wanted to be reappointed to the North Coast Railroad Authority (NCRA) board. “I have been on the NCRA board for two years. As challenging as we find our situation here with the county, the challenges for NCRA are immeasurably greater. It's pretty hard to operate an organization where every year on an annual basis the expenditures are double what the revenues are. Without our own printing press I'm not sure how we manage to do that."
It’s simple, Supervisor. Just make vague promises to politically connected Democrats at the State and federal level who continue to promote the fantasy that a train will again run from Sausalito to Eureka, and the feds will keep funding those same politically connected Northcoast Democrats.
McCowen continued, “It's a critical time for the NCRA. One of the challenges that that board has faced is lack of continuity, lack of institutional memory. I think that I have been a solid contributor to the board over the last two years. I think it is important to have someone from Mendocino County who is very aware of the need to improve the financial condition of the NCRA and hopefully improve the way NCRA presents itself to our communities. It's kind of an embarrassment sometimes when you look at the lack of maintenance of the NCRA line in our cities and the County in general.”
Supervisor Pinches, who has a ranch in the rail-impassable Eel River Canyon, took a somewhat softer line than he usually does on this subject, but soon reverted to full-bore skepticism.
“I think one benefit of the NCRA to Mendocino County has been their commitment to clean up the Eel River Canyon. They have been able to hire attorneys and do this and that and everything else. But that was their main commitment going back to 1930 and their commitment through the California Transportation Commission which gave them over $5 million to clean up the Eel River Canyon. I don’t think they can document where they spent whatever peanuts they spent doing that. I would like to see you [Supervisor McCowen] follow up on that issue because with the issues in Humboldt County and Sonoma County that's different. But our issue when it comes to the NCRA, the primary issue is that they meet their commitment to clean up the Eel River Canyon, which they received a considerable amount of money for but they never followed up on.”
And never will because the whole show is so thoroughly corrupt it's thrilling.