(First draft of a Note to the state Auditor.)
Mendocino County has never done a very good job of keeping track of its “special funds.” Just a casual glance at the County’s last two budget books shows how sketchy, incomplete, haphazard, and half-assed Mendo’s management of special funds is. In some cases, they’re not even mentioned in the budget book, in other cases all we get is a budget line item and a number without explanation; sometimes there’s a description or explanation but no numbers… etc.
Neither the public nor the Supervisors get monthly or quarterly reports of billing against these special funds (i.e., what demands were made on them), what their balances are, what funds have been received, or how much, if any, has been “borrowed” for other purposes.
In effect, a “special revenue fund” is a euphemism for a slush fund.
According to the budget book, “Special Revenue Funds” are “Restricted revenue sources, many by statute, that may only be allocated for specific purposes. Services that are funded with Special Revenue Funds include mental health services, Sheriff and Probation special projects, and roads.”
We couldn’t find any special funds that are associated with the Sheriff’s department or Probation. Although there’s the “asset forfeiture fund,” that the DA more or less controls in conjunction with other local law enforcement agencies. There’s nothing in any of the budget books about the “asset forfeiture fund,” even though it’s considered equivalent to tax money for accounting purposes. This is the fund that the DA used to pay for the “training” that was questioned by then-Auditor Chamise Cubbison and which was followed by the DA and the Supervisors ousting Cubbison without due process or independent investigation.
The weasel word “include,” means that these three limited subjects are only a small part of the special funds picture.
The Teeter Fund, for example, is a fund which is supposed to receive collected property taxes and then pay them out with a predictable amount to schools and special districts, and the County itself. The idea is that the County pays out the specified amount, but it gets to keep all penalty and interest from late payers (when and if they eventually pay) which is supposed to be a net revenue for the general fund:
Budget Book 2024: “The Teeter Fund runs most of the year with a deficit cash balance and, therefore, incurs an interest ‘expense’ instead of interest ‘revenue’.”
Right there, there’s something wrong. Nobody has ever asked why the supposedly revenue-generating Teeter Plan is running a “deficit cash balance” or why it “incurs an interest expense” (whatever that is) when it’s supposed to make money and make interest on that money. It’s not supposed to be in debt.
Budget Book: “The County’s goal for the Teeter Plan is to always first cover any current year interest expense and any current year property tax delinquency, with the redemption revenues collected throughout the current year. After that, any excess revenues can be added to the General Fund as fund balance available. The Auditor-Controller’s 2023-24 projection for the Teeter Fund is to impact the general fund at approximately $500,000.”
What? The Teeter Plan costs the County $500k? Why? It’s supposed to make money! Where’s the audit?
The Road (Administration) Fund.
There are tens of millions of dollars in the County’s two major Road funds, but there’s no description of them in the budget book. Some of it is for storm damage repair and later reimbursement, typically from FEMA. The rest is for road maintenance. But there’s no accounting for the funds, and no regular determination to see if the funds are being sat on or used to repair the County’s dilapidated roads. Where’s the audit?
The Measure B Fund and associated borrowing.
Budget Book (as quoted from the text of Measure B): “The creation of the Mental Health Treatment Fund is entirely dedicated to fund improved services, treatment, and facilities for persons with mental health conditions into which 100% of the revenue shall be deposited. For a period of five (5) years, a maximum of 75% of the revenue deposited into the Fund may be used for facilities with no less than 25% dedicated to services and treatment; thereafter, 100% of all revenue deposited into the Fund shall be used for ongoing operations, services, and treatment. The Board directed that all Measure B funds must be approved by the Board of Supervisors before allocation.”
Most of the Measure B money so far has gone to the Redwood Valley Training Center, the grossly overpriced Crisis Residential Treatment house next door to the Schraeders, and the pricy Sacto architect/consultant who administered and designed them and the Psychiatric Health Facility. Very little has gone to “services and treatment.” There’s never been any accounting of any expenditures for “services and treatment” nor “ongoing operations, services and treatment,” nor has the Board individually approved any Measure B expenditures.
Complicating this fund further is the Board’s decision to “borrow” from it to cover overruns of the jail expansion project. Where’s the audit?
The Mental Health Fund.
There are two main funds for mental health services. The “Mental Health Service Act” funds (from MediCal) and the similarly named “Mental Health Services Act,” (From Prop 61, the “millionaires tax,” which together add up to almost $40 million. These funds allow the County to pay the Schraeders (and others) for their “services” and then collect the reimbursements from MediCal years later if there’s no hiccup in the complicated billing. There’s no description of the complicated process in the Budget Book, much less any accounting, bookkeeping, or reporting. Nor is there any reconciliation of amounts due with amounts received. If there’s a policy and procedure manual on this, we have not heard or seen it mentioned. Where’s the audit?
Cannabis Equity Fund. The state has given counties millions of dollars which was supposed to help pot growers who can prove they were targeted and harmed in the past by the pot raiders. Instead, most of the money has gone to the County’s mismanaged pot bureaucracy. But there’s never been a public accounting of it, who got it, where it stands, what’s left of it… Where’s the audit?
Measure P emergency services fund. This is another fund not mentioned in the Budget Book. Presumably, millions of dollars of revenue from a sales tax increment which kicked in a couple of years ago in the wake of the sunsetting of most of the Measure B tax. The millions are coming in to the County and the County is has finally begun grudgingly doling it out to fire prevention and fighting services in quarterly fractions. Is it the right amount? Who’s keeping the interest? Where’s the audit?
Business Development Fund(s)
Budget Book: “During this time period [last fiscal year], West Business Services assisted 422 businesses with over $21 million of loans/grants and capital. Specifically, 321 businesses received $5,228,600 of COVID grants, 33 businesses received $2,441,600 of COVID EIDL loans and general business loans during [missing text] accounted for 68 businesses receiving $15,326,482 (Attachment A). [Attachment A is not in the budget book.] Additionally, EDFC provided 11 loans to businesses for $1,112,634 in FY20‐21 and 15 loans to businesses, for $1,937,489 YTD 21‐22. As of the date of this report, EDFC is on track to distribute an additional $109,000 in micro‐business grants to approximately 42 businesses, and West Center will provide an additional $120,000 CDBG CV grants to 12 low‐moderate income businesses.”
Ok, grants are nice, assuming they’re fairly administered (a problematic assumption in Mendocino County). Where’s the list of the businesses that got those grants and how much? What about the “loans”? Who got them? How much is the County owed in loan repayments? It’s certainly not in the budget book, nor is there any description of the mechanism for loan repayment. Where’s the audit?
Vehicle Replacement Fund. No description in the budget book beyond the title. Has it been properly managed? Is it overdrawn? Are vehicles being properly replaced in a timely and cost-effective manner? No information is available. Where’s the audit?
Facilities Maintenance Reserve Fund. Self-descriptive. From recent CEO reports we have gathered that a lot of facilities maintenance and associated spending has been deferred. Does that mean the Fund is empty? Or is it being held back for some reason? Where’s the audit?
Liability Insurance Fund (aka the misleadingly named “Internal Service Fund”).
Budget Book: “Funds used for the activities associated with various insurance programs used by the County including but not limited to Workers Compensation and General Liability.”
This fund is used, among other things, to pay expensive outside attorneys for pending legal cases for subsequent reimbursement (presumably) by the County’s liability insurance carrier. Millions of dollars are paid out every year, but nobody tracks to see if the insurance company(ies) pay(s) back the legal fees, in what amount, or if the County’s liability insurance rates are going up in subsequent years to cover the payouts. Where’s the audit?
Disaster Recovery. The Budget book says that almost $17 million is budgeted for this year for “disaster recovery.” This must be another fund that allows the County to pay related disaster recovery expenses in the hope that the Feds (FEMA, etc.) will reimburse it. No accounting is offered. Where’s the audit?
Reserve Funds are not listed in the Budget book.
ARPA (Covid Relief) Fund. Is there any left after it was tapped to balance last year’s budget? It’s not mentioned in the budget book.
PG&E Settlement Fund. Same question.
Opioid Settlement Fund. Same question.
Where’s the audit?
Not directly related to these unmanaged, unreported “special funds,” the Budget Book casually reports that: “The Executive Office prepares and presents quarterly budget updates to the Board of Supervisors. These reports consist of year-to-date information including County department revenue, the County’s discretionary revenues, expenditure levels, new and upcoming issues that may affect the budget, and other related information. Quarterly reporting is another opportunity for the Board of Supervisors to provide direction to staff relating to the budget.”
Absolutely False. The Executive Office does no such thing. Given that this reporting is an important management tool, and taken together with the other huge info gaps in the budget book and the lack of reporting or tracking of the “special funds,” such outright falsehoods make all their other claims of budget management suspect.
Conclusion: Mendo’s budget book skims over or leaves out a lot of financial info that the public and the Supervisors should have access to — if the County keeps track at all. Further, Mendo doesn’t do quarterly reporting as claimed in the budget book. And Mendo has no idea where all its special funds stand — revenues, expenses, delays, obligations… In fact, they’ve never reported on these funds. Ever.
Where’s the audit?
Will the upcoming $800k state audit address these funds?
Most of these budgets could be loaded into an excel spreadsheet with little trouble. Start with the budget/grant amount and then list all expenses day by day as they apply. Post them all online in for anyone to access.,