(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.,
You present many valuable points and observations, Major. You may want to become familiar with the Governmental Accounting Standings Board (gasb.org), which issues statements establishing accounting and financial reporting standards for U.S. state and local governments that follow Generally Accepted Accounting Principles. The term “Special Revenue Fund” is used to classify funds that meet certain criteria, but to describe all Special Revenue Funds as slush funds does not follow the intent of GASB Statement 54. My point is, GASB uses specific terms to refer various fund types and transactions, and it is important to be aware of the specific meaning of those terms. The following is an excerpt from GASB 54 discussing Special Revenue Funds:
“Special Revenue Funds
30. Special revenue funds are used to account for and report the proceeds of specific
revenue sources that are restricted or committed to expenditure for specified purposes
other than debt service or capital projects. The term proceeds of specific revenue sources
establishes that one or more specific restricted or committed revenues should be the
foundation for a special revenue fund. Those specific restricted or committed revenues
may be initially received in another fund and subsequently distributed to a special revenue
fund. Those amounts should not be recognized as revenue in the fund initially receiving
them; however, those inflows should be recognized as revenue in the special revenue fund
in which they will be expended in accordance with specified purposes. Special revenue
funds should not be used to account for resources held in trust for individuals, private
organizations, or other governments.
31. The restricted or committed proceeds of specific revenue sources should be expected
to continue to comprise a substantial portion of the inflows reported in the fund.
Other resources (investment earnings and transfers from other funds, for example) also may be
reported in the fund if those resources are restricted, committed, or assigned to the
specified purpose of the fund. Governments should discontinue reporting a special
revenue fund, and instead report the fund‘s remaining resources in the general fund, if the
government no longer expects that a substantial portion of the inflows will derive from
restricted or committed revenue sources.
32. Governments should disclose in the notes to the financial statements the purpose for
each major special revenue fund—identifying which revenues and other resources are
reported in each of those funds.”
Your work in following and reporting on County finances is a great service to the people of Mendocino County. Thank-you.
Thanks Mr. Thurston.
My point was not whether the County is or is not complying with Accounting Standards or whether they are technically “slush funds,” an intentionally provocative phrase that implies that the money may be being used for unauthorized purposes. I chose to use that phrase not because I think the County is playing fast and loose with the taxpayers’ money (although they certainly could be), but because the lack of oversight and auditing and management and reporting makes that a possibility. This in turn puts the burden on the County and their accounting staff to prove that the funds are being properly used and properly managed. So far it’s pretty damn suspicious. Even if the funds are not “slush funds,” they can be mismanaged, which I suspect is the case specifically in the road fund and the Teeter plan fund. How can the Teeter Plan be in the red? Why aren’t the Supervisors asking about it? There are apparently millions of dollars in the Road fund(s), but is it the right amount? Do they need that much money in the road fund to cover reimbursement delays? Or should some of it be spent on the County’s crumbling roads? The lack of attention to these funds by the Supervisors and the CEO/financial team is alarming, to say the least. The public deserves proper reviews and reports, but, like many other aspects of county management, County officials take their big raises, complain about how hard their jobs are and how many meetings they attend, etc., but ignore the fundamental operations of the County. Therefore, I will decline your offer to read up on GASB and leave such bookkeeping matters to the high paid staff and consultants who are charged with those duties.
Fair enough. With regards to the Teeter Plan fund: The plan was that the County would pay out to all the other entities receiving property tax allocations their full amount of taxes billed (i.e. the amount they would receive if everyone paid their taxes in full). In exchange, when the delinquent taxes were paid, the County would keep the delinquent taxes, plus any penalties and interest that were collected. The expectation was that the County would recover the delinquent taxes, and penalties and interest collected would provide additional income to the County. In reality, the amount of additional taxes paid out to other entities has always exceeded the collection of delinquent taxes, penalties and interest. It has been reported that this is due, in part, to a number of parcels in the County which are basically worthless and the owners have abandoned. It has also been speculated that County has not always transferred the delinquent taxes, penalties and interest collected each year into the Teeter fund. The net effect is that the County is subsidizing all the other entities receiving taxes. It’s a shame that no one foresaw this situation.
Dear Mr. Thurston,
Perhaps you have forgotten the one time in County history that the Teeter Plan made it onto the Supervisors agenda. That was back in 2012 when Linda Williams of the Willits News uncovered the many parcels in Brooktrails which were undevelopable and were being sold to unsuspecting buyers who then absconded without paying their taxes. As a result Supervisor McCowen with help from Supervisor Pinches took up the issue and over time they managed to “de-Teeter” most of those problem parcels and the Teeter Plan at that time was making money for the County and was thought to be put back in order for the future. Years went by as everyone assumed the Teeter Plan was tottering along in the black. Then, in the months before Ms. Cubbison was unceremoniously fired she once appeared before the Supervisors at the staff table instead of at the public expression podium. During that presentation Cubbison mentioned, almost off-handedly, that some parcels “might have to be de-Teetered.” We assumed she was referring to the parcels you have in mind. But soon after that, Cubbison was fired and the issue has never re-appeared on the Board’s agenda. So we think that there probably was at least one person who “foresaw this situation” and was in the process of trying to deal with it when she was fired. Thus instead of saying that “it’s a shame that no one foresaw this situation,” a more accurate assessment might be, “It’s a shame the Supervisors fired Cubbison and the issue was ignored.” It’s also a shame that the Supervisors have ignored the status of the Teeter Plan and didn’t at least ask for an update when their hand-picked Cubbison replacement, Ms. Pierce of the CEO’s office, took over those duties.
At the risk of causing most readers to fall asleep, here’s our report from June of 2012 of the outcome of McCowen’s involvement in the Teeter Plan problem:
ON TUESDAY THE BOARD OF SUPERVISORS VOTED UNANIMOUSLY to partially “de-Teeter” the Brooktrails Community Services District. The County will no longer pay to Brooktrails the assessments for sewer, water, and fire, which amount to $120. per vacant lot unless the payments are actually received by the County. The County will continue to pay the taxes assessed on the Brooktrails lots because the Auditor Controller’s office staff and the Treasurer Tax Collector said it was too much work to un-Teeter the taxes. In fact, the Auditor’s staff (the auditor was not present) and the Treasurer seemed downright miffed that the scam was coming unraveled and blissfully unconcerned about the financial impact to the County. Their original recommendation, when McCowen brought the issue up in March, was to do nothing. Having had three more months to think about it, and increasingly under scrutiny for their mishandling of Teeter (the Grand Jury just released a report on Teeter) they recommended the in-between step of de-Teetering the assessments, but not the taxes.
COUNTIES THAT OPT INTO THE TEETER PLAN are required to pay up front all taxes and assessments due to Cities, Schools and Special Districts, and are supposed to benefit when the delinquent taxes are paid back with fees and penalties with 18% annual interest tagged on. The plan is a money maker everywhere but Mendocino County where Dennis Huey and Tim Knudsen served as Auditor Controller and Treasurer Tax Collector since approximately the end of the last ice age. Huey and Knudsen, who ran the retirement board for decades, were also the architects of the non-existent “excess earnings,” an audacious fiction that defrauded the retirement system out of tens of millions of dollars that the County is on the hook for.
INSTEAD OF USING TEETER PROFITS to pay off the original Teeter debt, (the buy out of the then existing $5.5 million in delinquent taxes), the Teeter revenues were dumped into the General Fund where they were used to fuel a year end spending spree, with the result that the Teeter debt doubled in size to over $11 million. It should have been paid off at least a dozen years ago. Except the so-called financially responsible people at the County, the afore mentioned Huey and Knudsen, were not doing their jobs.
THE CURRENT BOARD OF SUPERVISORS, who have been tasked with cleaning up the financial wreckage created by their predecessors, insisted several years ago that all Teeter revenue be directed to paying down the Teeter debt, which has been reduced by several million dollars.
COMPLICATING TEETER is the Brooktrails CSD, a sprawling rural subdivision of 6,000 lots with water for only 1,500. The lack of water and the steadily increasing assessments for sewer, water and fire, compounded by the financial downturn, convinced many Brooktrails lot owners to discontinue making payments on their property. And when they let the payments go they also let the taxes go. After five years the County can sell the tax delinquent properties at auction to recover the back taxes, penalties and interest. Historically, the lots have been purchased by speculators who turn around and market the lots to unsuspecting urban buyers who think water comes out of a pipe while sewage disappears down another. It never occurs to the new buyers that they have bought a lot that lacks basic infrastructure like water and sewer.
HISTORICALLY, EVERYONE BENEFITED FROM THIS SERIAL SCAM, except the unsuspecting lot owner. Brooktrails got the full amount of its taxes and assessments paid up front; the County sold the lots at auction to recover the delinquent taxes with 18% interest; and the speculators got to buy the tax defaulted properties back at auction and resell them to the next wave of unsuspecting marks.
SUPERVISOR JOHN MCCOWEN highlighted the scam last year when he pulled a routine item from the consent calendar authorizing the sale of tax delinquent properties, including scores of vacant lots located in Brooktrails. McCowen objected to the County’s complicity in the on-going scam, insisting that the County needed to at least disclose that the lots were mostly unbuildable. The Board turned a deaf ear to McCowen’s concerns and approved the item 4-1. McCowen raised the issue again this year, augmented by old-fashioned investigative reporting by Linda Williams of the Willits News, who revealed that the tax defaulted Brooktrails properties were no longer selling at auction and hadn’t been selling for several years. After fifty years the Ponzi scheme had Ponzied out, as even the speculators were no longer interested in buying the Brooktrails vacant lots.
AS DOCUMENTED BY LINDA WILLIAMS, the number of Brooktrails lots unsold at auction steadily escalated in the last several years. The number of unsold lots reached 67 in the latest auction. If the lots never sell the County will never recover the taxes and assessments it has already paid out. The 67 unsold lots, which have been in the pipeline for five years, the time needed for tax delinquent property to become eligible for sale, are just the tip of the iceberg. The total number of tax delinquent Brooktrails lots stood at 589 in 2010-11. The only mystery is why the other 4,000 or so vacant lot owners are still paying the taxes and assessments when there are water connections for less than 1% of that total.
BROOKTRAILS WAS UNDER A WATER MORATORIUM for years until they convinced the state they really had enough water for another couple of dozen homes. When the state agreed, the Brooktrails Board of Directors promptly raised the water connection fees to around $20,000, which guaranteed that no one would apply for a hookup. But as long as the 24 prohibitively expensive hook ups are on the books, Brooktrails can say their is no water moratorium, thereby allowing all 4,500 lot owners to think that they too can someday build their American dream home on their Brooktrails lot.
BASED ON THE SUPES ACTION, the County is still on the hook for taxes paid out up front; Brooktrails will no longer be paid the fire, water and sewer assessments up front; no one will buy the tax delinquent Brooktrails properties at auction and more and more lot owners are likely to quit paying the taxes and assessments as they realize they have bought a lot that is unbuildable.
A comparable effort could be undertaken today, taking into account the different particular circumstances. But it would require at least one Supervisor (probably Haschak because most of the parcels causing the problem now are in the Third District) to take the lead. It’s a shame we have a five Supervisors feels like they can take a seven-week long August recess and cares more about their own pay than they do about keeping the County afloat.
That’s a pretty detailed recounting of the Teeter Plan, and I cannot say I disagree with any of it, except to say I do not recall the Teeter Plan ever being in the black.
Dear Mr. Thurston,
What makes you think the Teeter Plan was never in the black? Since there’s never been consistent reporting, there’s no way to know. However, if it’s never been in the black, why didn’t Mendo opt out years ago? It’s a voluntary program.
According to my 2012 account, “Instead of using Teeter profits to pay off the original Teeter debt, (the buy out of the then existing $5.5 million in delinquent taxes), the Teeter revenues were dumped into the General Fund where they were used to fuel a year end spending spree…” So, evidently, there was a profit to the County at least then, but the profits were diverted into the General Fund, which might explain your impression that the Teeter Plan was not in the black. In other words, CEO Angelo was siphoning the profits off periodically to backfill budget holes. Which in turn brings us back to the idea of a “slush fund.”
As I said, I do not recall the Teeter plan ever being in the black. I am referring to any point in time when the cumulative total revenues equalled or exceeded the cumulative total expenditures. Your assertion that there is no way to know does not negate the validity of that statement.
You refer to Teeter “profits”. A profit usually means revenues, less related expenditures. The money that you say was dumped into the General Fund represents only the revenue side of that equation. For any given fiscal year, the profit from Teeter would be the money collected on delinquencies, penalties and interest, less the amount of current year delinquencies that were paid out to non-county entities as part of their property tax allocation. Because of fluctuations in economic conditions, collection efforts, and tax sales, the profit in any single year is not a reliable measure of the health of the fund. If CEO Angelo was, as you say, siphoning off profits, is there any evidence to support that? I’m not saying she wouldn’t, but I thought the Teeter fund being handled by the Auditor-Controller and Treasurer Tax Collector.
Honestly, I don’t think there’s evidence to support much of anything. This began as a request for the state auditor to audit the special funds, not just from a bookkeeping standpoint, but whether they are being properly used and reported on.. Wanna give odds on whether they will be?