The City of Fort Bragg is Bankrupt

Reading the City of Fort Bragg’s annual budget package each June for the past seven years has been like trying to divine meaning from goat entrails.

Questions about the City's financial status have been asked many, many times in recent years by several concerned residents including Dan Gjerde, Michele White and Vince Benedetti all of whom were elected to the Fort Bragg City Council last November.

The City's Financial Officer, Roy Mitchell, flat out refused to answer questions about how Fort Bragg was doing, fiscally speaking.

The independent audit of the City's finances, performed annually, was actually read by the recently elected reform council members. Mayor White and council member Gjerde invited the auditor to answer questions at the City's Finance and Administration Committee meeting last week. This is the first time any council member has made an effort to examine the City's finances.

For the first time (thanks to Neil Boyle's straight forward reporting in the Fort Bragg Advocate and the new city council majority) the City's million dollar deficit was finally revealed for all to see. It wasn’t that long ago that Fort Bragg enjoyed a budget cushion of roughly $500 per household. As of the last year of this century, Fort Bragg property owners are each $500 in the hole. Where did the money go?

A handful of Fort Bragg residents have poked and jabbed at the City's annual budget with sharp pencils and calculators over the last seven years and divined much meaning from the past budgets.

The City of Fort Bragg is completely and utterly bankrupt — has been for quite some time now. Bankruptcy was inevitable, given the make-up of the City Council since 1992. Most of the past council members, including long-time and current members Lindy Peters and Jere Melo, have apparently pretended to understand the City's basic financial matters. If they weren’t faking it, then their money decisions were made knowing that Fort Bragg’s modest tax base could not support the level of public spending on behalf of certain developers close to the City Council. Either way, these two math defectives especially, caused the City's downfall. Through their blind faith that subsidizing their buddies' development schemes with residents' tax dollars was the right way to manage a city they’ve brought Fort Bragg to the poor house.

Not content with bankrupting the City, Melo and Peters, with former councilmen Olbrantz and Huber all the way on board as most of the damage was done, have given their insider buddies a large financial edge over existing, non-tax subsidized businesses by creating subsidized competition where it otherwise would not exist, ultimately placing existing many less favored Fort Bragg businesses at serious financial disadvantage and significant risk.

Way to go, guys.

To prevent the average Fort Bragg resident from understanding the City's financial status, Roy Mitchell, the City's Financial Officer intentionally scattered the annual budget's raw number entrails over some 65 pages without any real explanation of what the numbers meant. This puts interpretation of the numbers' meaning completely in the hands of the budget's author. Mitchell’s cockamamie bookkeeping made it impossible even for persons trying to guard the public purse to decode the figures.

Fort Bragg's proposed budgets for each up-coming year begin with a narrative which explains the subsequent columns of numbers. The budget also contains recommendations for public spending in the year to come. The city council has always followed the major recommendations made by staff. They have pretended, for form's sake, to look like they’re making tough fiscal decisions by agonizing over the cost of painting the town's museum, for one fatuous example of fake fiscal restraint, but they have never compared the narrative with the actual numbers which followed. And they’ve never examined the previous years’ narratives to see if expenditures were being recommended that added up to a coherent spending plan aimed at providing a civilized level of public amenities to the people of Fort Bragg.

Former City Manager Gary Milliman started the City's fiscal ball rolling downhill toward the red back in 1992 and ‘93. (The City operates on a fiscal year starting July 1 and ending June 30.) When the City Council, on a motion made by Lindy Peters, voted unanimously to borrow $2.3 million, by issuing bonds, to build the signals, streets, lights, water and sewer mains, curbs and sidewalks for Dominic Affinito's Glass Beach development project, Milliman foretold in his 1991 budget narrative of a great fortune to be made by the City if the Council would just help Affinito get his grand project underway.

Back then, the City accounted for its annual budget revenue (income) and expense on a cash basis. At each year end (June 30) Roy Mitchell, the City Financial Officer, then supervised by Milliman, simply recorded the money that came in and the money that went out and merely added the two columns up. These totals would then be taken to the City's Administration and Finance Committee comprised of Milliman and Mayor (now Supervisor) Patty Campbell. This committee was the engine that drove the City's financial activities for the upcoming year — drove it right off the bluffs and into the Pacific, in fact.

Milliman would write a ten-page cover narrative which neatly “explained” the City's 22-odd different financial accounts. This narrative described the City's annual obligations in seemingly simple terms. Together Campbell and Milliman would make recommendations for expenditures for the upcoming year. No member of the Council would bother to look beyond the cover narrative at the almost indecipherable numbers in the actual accounts. Milliman would give the Council one or two token “budget problems” to wrestle with, drawing their attention away from the numbers and spending categories he preferred to keep away from the children, so to speak.

About $5 million of the City's $8 million in revenue it receives each year is “restricted” by state law. “Restricted funds” means these funds cannot be spent for things other than that for which they are collected. For example, when a City resident pays a water bill, this money goes into a special account of funds which can only be used for operation, maintenance, and replacement of the water treatment plant. The City can charge for “administration” of this service, hence a portion of this account's income goes to staff salaries, envelopes, stamps, and the like for billing and maintenance of the water system. Additionally, state health and safety law provides oversight regulation which mandates that the City provide safe and plentiful drinking water to its customers.

Funds not used for maintenance and administration accumulate in the restricted accounts, sometimes for as long as 20 years, and can amount to several million dollars in one account or another. These funds must be held in reserve for the day that a costly piece of water treatment equipment, for example, needs to be replaced or a new device purchased.

This “management” of communal services where groups of people come together, each paying an equal portion of the cost so that all may benefit is the fundamental (some would assert sole) purpose of “government.” Voters don't take it kindly when their government uses their water bill money to pay for city council member trips to Hawaii or gifts to motel developers. State law governing basic service fees (and taxes) is necessarily very, very strict.

Each of the City's several “restricted” fund accounts has a similar state law mandating what the funds can and cannot be used for. $3 million of the City's $8 million in annual revenue is “unrestricted” and is recorded in its “General Fund Account.” The source of th unrestricted general fund revenue is the bed tax, sales tax, traffic tickets, franchise taxes (cable and garbage fees) and so forth. If council members want to spend money on trips to Hawaii or give it away to motel developers they can hand private interests public money from this “un-restricted fund” revenue.

When the City of Fort Bragg started to get into financial trouble, Milliman, albeit cautiously, started the practice of borrowing from restricted funds to beef up the City's general fund. But Roy Mitchell, following Milliman's cautious misuse of restricted funds went hog wild (with Melo's and Peters’ encouragement), ultimately spending down the restricted funds to the point of no return. He “borrowed” from the restricted funds, loaned these funds to the general fund, then spent freely from there. Trouble is, the general fund may never have enough revenue to pay the restricted accounts back and maintain City services at the same time — especially if the funds are needed for an emergency repair or a costly replacement of a piece of equipment.

As new council members unravel Mitchell's crude deception, Roy may want to prepare for time off in a very small space with unpleasant company.

The City was so flush before the ‘92-93 fiscal year that its council members regularly voted to contribute between $120,000 to $90,000 from the General Fund to community groups like Project Sanctuary, the Senior Center, the Youth Project and the Food Bank. $50,000 a year would go to the Chamber of Commerce from the once-flush General Fund account.

Until 1992 the City maintained a “reserve account” within its General Fund account that fluctuated in previous years between $500,000 and $300,000. This was the City's rainy day money for inevitable emergencies during each tightly budgeted year. A water main would unexpectedly burst ($25,000). In 1990, the City hired extra law enforcement for Redwood Summer ($30,000). Whatever came up, the City was well prepared.

But in 1992, with the City borrowing the $2.3 million (via issuing bonds) to pay for the major Glass Beach improvements for Affinito, as well as a new road and stoplight for McDonald’s, Boatyard Shopping Center, and Baxman's soon-to-be motel south of town, the City suddenly had $200,000 worth of interest to pay on this “loan.” Glass Beach, according to the contract signed by Milliman and Affinito, was supposed to quickly develop and provide the new property tax income that would not only cover this additional $200,000 in juice, it would bring in “surplus” income to boot!

But Affinito did not “perform” according to the schedule in the contract he signed with Milliman. Denny's, a western apparel store, and Holmes Lumberyard were eventually constructed at Glass Beach, but the bulk of the houses, apartments, and condominiums were not. The City had to dip into its General Fund to cover much of the interest and principal on the $2.3 million gift to good ol’ Dom. Moreover, the City had lent other well-connected several business owners funds it didn't have in anticipation of the extra income the Glass Beach project was supposed to generate.

For the 1993-94 fiscal year, Governor Wilson introduced a state budget that would eventually shift city, county, and special district (like the rural fire districts) property tax income from these entities into California's schools and state agencies. In order to hide the increasing problem the City was having on paying the Glass Beach debt, Milliman, with the help of Mayor Patty Campbell, estimated to his City Council members that the City would lose somewhere between $17,000 and $118,000 a year from Wilson's property tax revenue raid. But Milliman was forecasting an event that never did happen in Fort Bragg.

The County of Mendocino did suffer a significant financial setback from Wilson's raid on the property tax. The county struggled though hard years of work furloughs and refinancing its debt to eventually balance its budget. Special districts, like fire districts and the Fort Bragg Recreation District, without other sources of revenue to fall back on, were the hardest hit. Milliman used the outcry of fiscal woe from these jurisdictions as cover for his activities with the City of Fort Bragg finances.

In reality, the City of Fort Bragg did not suffer at all from Wilson's money grab. The City's property tax income revenue was by-and-large comprised of property purchased many, many years ago. These property tax assessments were frozen under Prop. 13 at very low rates. Unlike the County, very little selling and buying had taken place within the city over the years, therefore not many properties had been reassessed at a higher rate. Fort Bragg's property tax “income” was not, nor has it ever been, a significant source of revenue for the City. Ultimately, the City only lost an actual $8,000 under Wilson's property tax raid. But the public believed council members, who moaned and groaned in all the right places, that the City's budget woes were due to loss of this revenue.

Over the ensuing budget years of 1993-94 to 1996-97, Milliman was able to keep the lid on the City's growing financial troubles. Quietly, Milliman escalated his practice (that started with Glass Beach) of subsidizing new development.

One angle Milliman worked in particular was to jump-start development north of town by having the City pay for installation of the water and sewer infrastructure even though council members had voted years before to have the property owners pay for it themselves. His hope of pulling the City out of debt was to increase the General Fund bed tax and sales tax income in order to pay back the money borrowed from the restricted fund accounts.

In 1996, Milliman was forced to resign as City Manager based on events that started with the AVA's revelation of his attempt to secretly purchase the Skunk Train while guiding City financial decisions that benefited the choo-choo business itself, along with other businesses owned by his Skunk Train business partner, Dominic Affinito.

With Milliman out of City Hall, the City's Financial Officer continued Milliman's illegal juggling of City's funds to benefit his own business interests. Since the historic rainy day reserve had been gobbled up long ago and the General Fund had been pledged to cover the Glass Beach and other development subsidy debt load, what was of particular interest to Roy Mitchell was the still fairly plump restricted fund accounts.

The first indication we had that Mitchel was seriously out of control was in 1997 when he proposed that the City take several hundred thousand dollars from its restricted water and sewer fund accounts in order to loan Jim Hurst the money for his proposed golf course on Highway 20. Critics of the proposal carefully explained, citing state law chapter and verse in writing, to Norb Olbrantz (the golf course's big supporter on the council at the time), that diversion of restricted water and sewer funds to an unrelated project was against the law.

Law?

Mitchell was undeterred.

He proposed to have Georgia-Pacific launder federal HUD funds by having HUD pay G-P $500,000 for the golf course land. Then G-P would donate the money back to Hurst so he could use it to build the course without having to abide by HUD restrictions on the use of HUD money. A quick letter of complaint to HUD about the Mitchell-GP-Hurst scheme took care of that one. As of summer of last year, Mitchell was back to the restricted funds again.

Milliman's practice of subsidizing new motels was especially attractive to Mitchell — definitely a family values type of guy — since his brother Mark is a local building contractor. Roy Mitchell’s office, just across the lobby from the City's planner, provided Mitchell with instant info on who wanted to build what and where. People taking out building permits began to complain about Roy popping out of his office and pressuring them to take his brother's business card. Others would quip, “I'm going down to the Mitchell Construction office,” when they had business with City Hall.

During this period and up until Roy Mitchell handed in his resignation in August of 1998 (informing council members he was going into business with his brother), every single motel constructed in Fort Bragg was built by Mitchell Construction. Two of the motels received a combined total of $160,000 in water and sewer construction subsidies handed to them from the restricted accounts by Brother Roy. These tax give aways sailed right on by despite written and verbal protests from shocked budget watchers to the City Council.

Michele White was the budget watcher who discovered that Roy Mitchell had cut a City check to one motel owner for $150,000 for “furnishings” without the City Council's approval. Ms. White had been regularly attending the financial committee meetings. For two years she meticulously reviewed each and every expenditure. One day she noticed mention of the $150,000 check buried deep in a list of several hundred other checks. When council member Darrell Galli called Roy Mitchell to task, Mitchell blew Galli off by insisting that he sat on a loan committee and he was not required to seek anyone's approval before making loans. Peters, Melo, and Olbrantz doo-wopped their OK’s from their seats on the City Council.

Various budget watchers, independent of one another, became increasingly worried about the city's finances and made appointment after appointment with Roy Mitchell over the past two years to try and unravel the increasingly stinking mess. Dan Gjerde, working as a reporter for the Advocate-News at the time, scheduled several meetings with Mitchell and Jim Murphey, the current City Manager, to get answers on the Glass Beach fiasco. Ted Rabinowitsch, a downtown business owner, actually got an appointment with Mitchell, but it took Rabinowitsch hours of careful questioning to unravel only one portion of the twisted budget entrails. Michael Berenz began to repeatedly ask astute questions at City Council meetings. Lindy Peters boorishly defended Mitchell by interrupting and insulting Berenz, hoping no other citizen would risk similar abuse and join in the questioning.

During the period of Mitchell Math, Assistant City Manger Dee Lynn Carpenter wrote memo after memo to Michell asking for clarifications of various crucial City financial transactions. In return, Mitchell issued an edict that Carpenter was not to enter his or the planner's office or “bother them” under any circumstances. Carpenter’s memos remained unanswered. No one on the City Council would pursue the matter of Mitchell’s management of Fort Bragg’s money. Mitchell successfully stonewalled each inquiry into his outlaw fiscal practices, but he began to worry.

Budget watchers were jubilant when Mitchell resigned from his job in August of 1998. When it became apparent that three of the four reform candidates for City Council would be elected in November, Mitchell attempted to go on the offensive by purchasing a half-page ad which contained a picture of Gjerde and White campaign signs on my fence, to give you some idea of the childishly crude mentality spending Fort Bragg’s tax money in recent years.

Gjerde and White won by a landslide. After the election, Roy publicly teamed up with council member Lindy Peters to heckle citizens as they addressed their city council in a small town in a political democracy.

The new council members have their work cut out for them. Mitchell's accounting is a tangled mess and Fort Bragg is broke. Getting the City back on an even financial keel will take several years of focused effort just to unravel Mitchell’s “mispostings” alone. The $1 million deficit is just the tip of the iceberg. This little town was completely debt free ten years ago, but is now crushed under a weight of debt that it can't dig out from under in my lifetime. City staff will be laid off and City Hall services will be cut to a few days a week.

I can already hear Peters and Melo clamoring for the City to allow Affinito to open his illegally constructed blue roof motel, insisting that the City needs the bed tax. That will be their partial solution to a crisis their grossly incompetent tenure as councilmen did much to bring about.

The thing is, guys, Affinito's motel won't create new additional bed tax. It will only take customers from existing motels, driving other tourist businesses into the same bankruptcy slough as the City.

Lindy Peters and Jerry Melo are finished as politicians, as gone as Olbrantz and Huber. Too many understand what they have done, and will understand even better when they can only pay their water bills on Monday mornings because City Hall is closed the rest of the week.