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County Notes: Housing Hindrances

Supervisor Mulheren (writing on her facebook page): “In the past developers have stated these [school developer] fees are a hindrance to adding additional housing, I haven’t heard from anyone on the subject yet so I am keeping an open mind. I hope the public actively engages in this conversation with the school board. We have a great need for market rate housing and I would hate to see this be a barrier. More to come I’m sure.”

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On the list of “hindrances” to market rate housing in Mendocino County, school developer fees are pretty low. Supervisor Mulheren might want to look a little closer to her office for more important hindrances. The biggest hindrance to development in Mendocino County, especially in the unincorporated areas, is her own Planning Department which she assiduously avoids criticizing, much less reviewing. Where’s the Planning Department’s list of projects/permits applied for and their status and how long they’ve been under review and what’s holding them up? 

There’s also the little problem of water and septic systems for housing. As far as we know, the County’s long-delayed “Housing Element” update of the General Plan has yet to even identify parcels in the unincorporated areas of the County where new housing could be built because no effort — literally none, zero — has been made to plan for the minimum necessary infrastructure, much less provide it. The two market rate housing projects which were proposed back before Covid on the outskirts of Ukiah have not come up or on to the Board’s radar since then. That beleaguered Chico-developer who bought the Lover’s Lane property on the north end of Ukiah must be pulling his hair out, and the former Garden’s Gate housing project on the south end of Ukiah has not moved for years. (The first time it was proposed Mendo sat on the permit application for years; the applicant finally threw up his hands when the housing bubble burst back in 2009 and moved to South America.) The last we heard the County still hadn’t approved a traffic plan or a second access route for the semi-revived Garden’s Gate project. 

If Supervisor Mulheren was really concerned about housing hindrances, she’d look into her own bureaucratic backyard, and not divert attention from her own staff by pretending that school developer fees are any kind of serious “hindrance” to market rate housing.

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Mendo’s Big New Re-Fi

An item on the Tuesday, August 16, 2022 Supervisors agenda asked the Supervisors to approve more than $18 million— or was it $28 million? — in new mystery refinancing for… for… for…?

Agenda Item 4C:

“Discussion and Possible Action Including Adoption of Resolutions (1) the Mendocino County Board of Supervisors and (2) the Mendocino County Public Facilities Corporation, Providing for the Execution and Delivery of a Site Lease, Facilities Lease, Purchase Contract, Trust Agreement, and the Execution and Delivery of County of Mendocino Certificates of Participation, Series 2022 and Certain Additional Documents Relating Thereto, in the estimated Amount of $18,145,000.” 

That paragon of transparency was then explained by a bunch of Whereases:

“Whereas, the County desires to achieve debt service savings with respect to the Series 2012 Certificates and reduce the annual rental payable by the County under the Facility Lease, dated as of May 1, 2012 (the “Series 2012 Facility Lease”), by and between the County and the Corporation…” … “Whereas, the County has also determined to finance various Projects set forth in the Facilities Lease hereinafter referred to…” “Whereas, in order to effect such prepayment and to finance the Project, the Corporation and the County have determined that it would be in the best interests of the Corporation, the County and the citizens of the County to authorize the sale, execution and delivery of Certificates of Participation, Series 2022, in one or more series (with such other or additional series designations as may be approved by the County) on a tax-exempt or taxable basis in an aggregate principal amount not to exceed $27,000,000 (the “Series 2022 Certificates”), pursuant to the terms of the Trust Agreement (the “Trust Agreement”), by and among the County, the Corporation and U.S. Bank Trust Company, National Association, as trustee (the “Trustee”)…”

There were lots more similar whereases in six or so attachments to this item. We waded through the attachments at the time before the meeting to see if there was any plain English. There was none. 

At the Tuesday Board meeting, however, after considerable confusing financial discussion, it turned out Mendo was basically refinancing their existing debt (including the Pension Bond which is due to expire soon) at today’s lower interest rates, and at the same time adding $18-$20 million in new debt to borrow $10 million in actual dollars to cover the jail expansion overrun (currently estimated at $8 million) and a couple of other facilities upgrades for a couple mil more. 

On a purely financial basis, the refi/new debt makes technical sense. But even though the Board had previously discussed asking the state to cover the jail expansion overrun, that option never came up in Tuesday’s discussion. Nor did anyone ask about why the jail expansion project is overrunning so much even after having several major features pruned from its initial specifications. Given that the jail expansion design and planning has been farmed out to former CEO Carmel Angelo’s favorite gold-plating design firm, Nacht & Lewis in Sacramento, the same outfit that cost Mendo $5 million for a $1 million house (the “Crisis Residential Treatment Center”), it’s a good bet that the Nacht & Lewis people have figured out a way to milk Mendo for lots of overhead, admin and “project management” costs that an ordinary design and build contract would not. 

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Bogus Tourism Numbers

Mendo’s tourism promotion people get a no-questions-asked handout of about $600k per year out of the “bed tax” (transient occupancy tax) which constitutes about half of their $1.2 million marketing and promotion budget. Every year they pay a consultant to tell themselves and the Supervisors how effectively they spend their subsidy, a marketing subsidy no other local industry receives. Last spring Supervisor Dan Gjerde rationally argued that Mendo should only match the portion of the bed tax revenues that come from unincorporated areas, meaning less than half of the $600k. But Supervisor Williams and his other colleagues claimed doing so would jeopardize tourism employment, as if a few less facebook posts and Chronicle and tv ads and wine and dine freebies for restaurant reviewers would translate into job loss. 

The tourism people and their well-paid self-assesser Runyan and Associates always talk in glowing terms and throw numbers around loosely to make it seem like their marketing is well worth the $1.2 mil they waste on it. 

For example, in their recent report they claim that “Mendocino County generated an estimated $433 million in tourism-related revenue in calendar 2021, with lodging accounting for the lion’s share at $148 million. … With the fiscal year ending June 30, 2022, tourism-related state and local tax revenue hit $46 million.” “Tourism is a driving force in Mendocino County,” noted Visit Mendocino’s Travis Scott, with an additional $208 million generated in tourism-related employment.

Those are impressive (but irrelevant) numbers. Notice that they cleverly say “…state and local tax revenue,” not local revenue. The other numbers would be undigestibly big no matter what they were. Casual readers of Visit Mendocino’s propaganda are supposed to think that the $600,000 subsidy they get has something to do with those big numbers, when there’s no correlation at all. In fact, over the years the bed tax revenues have simply gone up and down with the local economy no matter what Visit Mendocino does. 

If Visit Mendocino wanted to prove that the County subsidy really produces jobs and tax revenues they would have agreed with Gjerde and let the County save $300k to see if that reduction affected tourism. But of course, that kind of fiscal prudence would never occur to the people getting unaccountable free money from the Supervisors.

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The ‘Adopted’ Budget

Here is a revenue chart we found in the County’s Budget Book for the 2021-2022 Fiscal Year (which ended June 30, 2022). Correct us if we’re wrong, but it looks like Mendo estimated about $76 million in revenue, but then “adopted” $85 million. No reason is given, nor do we fully understand what they mean by “adopted.” The point is, as the County employees union points out, Mendo underestimates its revenues when preparing the budget, then revises those estimates as the year unfolds, typically upward to reflect what comes in. And this does not include all the extra federal revenue that has come in and some of which has gone out. 

Note, however, that the “adopted” cannabis taxes are $6.5 million, about $2.5 million over what was “estimated.” Mendo now says pot taxes are way off and will only be about $3.5 million. 

The only conclusion we can draw, tentatively, is that Mendo is bad at estimating revenues, among several other things. So besides the well-known lack of ordinary budget reporting, we now have to add that the Supervisors and their staff need to do a better job of estimating (and collecting) revenues. A cynic might say that they intentionally underestimate revenues so that they can squeeze the budgets submitted by the departments. And then at the end of the year when they add it all up, they can brag about having been on or under or on budget. That sounds very much like something former CEO Angelo would do, and it’s likely that it continues. 

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Retired Auditor Staffer Norm Thurston Explains:

With regards to the County budget page, the “Estimated” column usually represents the amount estimated by the Department preparing the estimate, which in the case is probably the Auditor’s Office. The amounts appearing are most likely a good-faith, conservative estimate, using the best information available at the time. Conservative estimates of revenues reduce the chance that there will be a short-fall in revenues by the end of the fiscal year (a practice I endorse). 

The “Adopted” column is the estimate the CEO’s Office wants the Board to adopt, and the Department may or may not agree with that estimate. There may be motivation to over-estimate revenues in order to balance the budget, especially if it appears that a different Department was responsible for preparing that budget estimate.

The County follows a formal process, whereby the budget must be “adopted” by the Board of Supervisors by a certain date (maybe 3 months after the beginning of the fiscal year), but in recent years the budget has been adopted much earlier. Following submission from the Departments, but prior to adoption by the Board, the CEO’s office may enter any changes the deem desirable, without a formal process. Following adoption, the budget can only be adjusted with Board approval.

The Auditor-Controller is in the process of closing-out the 2021-22 fiscal year. Once that is finished, a comparison of budgeted vs. actual amounts for these revenue accounts (and all other accounts) should be available from the Auditor-Controller. To the extent that actual revenues are below budgeted amounts there will be less funds than originally anticipated to carry-over to the following year.

Happy Labor Day! I hope the County’s SEIU employees get the raise they deserve.

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