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The Editors

BOS May Dip Into Treasury
This Time Legally

State and county officials may be close to solving the question of how to prevent the county from declaring bankruptcy, and ironically the answer lies with very treasury that got the county in trouble in the first place.

A review of state law, according to Darcy Locken, county auditor, appears to give the Modoc County Board of Supervisors authority to make temporary transfers from the treasury to off-set county operating costs for the fiscal year.

Such a drawdown on the treasury applies only to funds under the board’s jurisdiction and does not impact school money or other funds belonging to special districts and must be repaid by June 30 of next year, according to Locken.

The county has been under mandate from the State Controller’s Office for more than a year to repay the treasury what is now estimated at $12.5 million that was misappropriated by the board over several years.

The misappropriated funds belonged primarily to the schools, the road department, special districts and other restricted accounts-- all outside the jurisdiction of the board.

It’s not clear if this new method of borrowing from the county treasury will ultimately resolve the question of whether the state will come forward with a long-term loan to replace the misappropriated $12.5 million.

On Tuesday Locken will ask the board to approve a resolution enabling her and Cheryl Knoch, county treasurer, to temporarily transfer from an “internal” treasury pool estimated at $6 million.

“We have enough in the treasury to cover all the special districts such as schools, fire and cemetery,” explained Knoch. “Those are external funds. What’s left are internal funds. That money is under the jurisdiction of the board of supervisors because it is not governed by another board.”

Depending on how the county manages this new source of money, including repayment of “dry loans” to the treasury mainly from tax revenues later in the year, the state reportedly will consider options for providing the county bail out funds.

“If they continue dry period loans into next year it helps make it more possible for the state to provide some assistance,” said a source who spoke on the condition of anonymity due to the sensitive nature of the discussions between the state and the county.

County officials held a teleconference call this morning (July 23) with state officials to iron out legal ramifications of borrowing from the treasury. At the same time the state has under consideration a request from the county for a loan to replenish the raided treasury. No time frame has been set for the state to make a decision on whether to make either a short-term or long-term loan to Modoc County.

“Obviously we want to move as quickly as possible,” said a spokesman for the State Treasurer’s Office.

Until the board makes its apparent legitimate move on the treasury it faces a negative cash flow projection through the end of the year and not enough income to pay expenses which include an estimated $485,000 monthly payroll.


-- Ray A. March

Announcement

KQED Public Radio is currently airing a special report on public radio stations throughout the state on rural health concerns in communities along Highway 299 in northern California. To hear the segment of the hour-long report that covers Modoc Medical Center just click on the gold audio arrow above right. The report can also be accessed through the link below.

http://www.californiareport.org/archive/R201007222000/e

MMC Income Tapped


While a $750,000 loan to keep Modoc Medical Center (MMC) open is welcome news to county and hospital officials, the repayment terms set by the California Health Facilities Financing Authority (CHFFA) are tough and could be the bare minimum standard for any additional bail out money coming to Modoc County in the near future.

To guarantee repayment CHFFA requires that Modoc County pledge MMC gross revenues to repay the loan, to include “all revenues, income, receipts and money received by or on behalf of the borrower.”

A Modoc County Daily News query to MMC CEO Monica Derner asking for clarification of this statement in regards to limits of revenue due to the state over the five year term had not been answered at press time.

In addition, Medi-Cal reimbursements to MMC up to $15,000 per month will be intercepted by CHFFA through a contract with Department of Healthcare Services.

Besides limitations on how the money can be spent CHFFA also requires that the loan proceeds be placed in a restricted account exclusive to MMC, not to be touched by the county.

Byrne Sends Message to BOS
Via Modoc Daily News Blog

In a move unprecedented when it comes to open government in Modoc County, Supervisor-elect Geri Byrne has issued a public appeal to include her in financial discussions with the state.

Byrne, who said she regularly follows news coverage of the county’s fiscal crisis on the Modoc Daily News Blog, yesterday posted a comment saying she was ready to join county officials in their talks with state finance officers.

“I stand ready to go to meetings in Sacramento at my own expense to learn first hand what is going on,” Byrne wrote in an electronic message to the blog.

County supervisors have never posted to the Modoc Daily News Blog, and rarely respond by e-mail to media queries from the Modoc Independent News. Exceptions have been when both Chair Dan Macsay and CAO Rick Rudometkin asked to be removed from the Modoc Daily News Blog notification list.

“As a supervisor-elect, I feel it would be beneficial if myself and Mr. Allan be included in these ongoing discussions as we are the ones who will have to make work whatever is decided,” she stated in the comment section of the blog.

Allan, who defeated incumbent Macsay in the June primary, could not be reached for comment.

Asked by the Modoc Daily News Blog if she has been approached by the Board of Supervisors to participate in any of its on-going efforts to resolve the county’s fiscal crisis, Byrne said she had not.

“When I was first elected back in June Macsay said he wanted to include me, but that was the last I heard of that,” Byrne said, noting that next week’s (Jan. 27) agenda of the board does not include any items dealing with the current discussions with the state.

“That’s frightening,” she said. “Unless its under administrative reports. This is the biggest thing facing the county right now and there is nothing on the agenda.”

The county is asking the state to find a way to loan it $12.5 million to be replaced to the misappropriated treasury and also a $4 million short-term loan to make employee payroll in August.

“It would be nice to be in on it because while we’re not going to be the ones to be blamed, we are going to the ones who have to live with it,” she said referring to whatever decision is finally made between the county and the state

County Strikes Out Before PMIB


Despite a two-and-a-half hour private meeting with state finance officials on Tuesday, Modoc County was unsuccessful yesterday (July 21) in getting $12.5 million to replenish its misappropriated treasury.

The Pooled Money Investment Board (PMIB) dispatched the county’s plea for bailout funds without comment in less than a minute Wednesday morning in Sacramento.

The PMIB staff reported it was exploring other options as a way to help Modoc County in its financial crisis, but did not say what those options were.

The day before, officials from Modoc County, along with their contingent of outside legal and financial advisors met for two and a half hours with representatives from the controller’s and treasurer’s offices, department of finance and Assemblyman Jim Nielsen.

Pitching Modoc’s financial distress signal were Auditor Darcy Locken, Treasurer Cheryl Knoch, CAO Rick Rudometkin, Supervisor Dan Macsay, newly retained bankruptcy attorney Michael Sweet, contract financial advisor David Glasser and independent bond underwriter Ken Hedrick.

Modoc’s contract county counsel John Kenny was not present, but joined the meeting by teleconference after it was underway.

No prior announcement of the meeting in Sacramento was made by county officials even though the Modoc County Board of Supervisors voted on Monday to seek last-ditch help from the state.

“No decisions were made at the Tuesday meeting,” a spokesman for State Treasurer Bill Lockyer told the Modoc County Daily News Blog. “It was a thorough, productive discussion, but the up shot is we are continuing to work with county to come up with a plan that will let Modoc avoid bankruptcy.”

“The state treasurer is very interested in trying to find an avenue that avoids the county filing for bankruptcy,” the spokesman explained. “But, he has a duty to make sure that if the state provides some financial assistance to get the county through these tough times that the state is going to get its money back. How does the state obtain adequate security for any assistance it provides the county?

“It’s in everybody’s best interest to keep the county from filing for bankruptcy protection. The only people that it helps are the lawyers. So, it’s not in the county’s interest and it’s not in the state’s interest. That’s why the state is working hard to come up with a solution. So hopefully we will.”

Negotiations with the state hinge on the critical question of how will the county repay $12.5 million if the state did loan the funds? Also, the PMIB staff earlier raised the question that a loan to the county was legally questionable because the county had yet to repay the misappropriated treasury.

The State Controller’s Office ordered Modoc County more than a year ago to repay the money the board and variously-involved officials took from the treasury -- reportedly to cover losses at the county-owned and operated Modoc Medical Center.

In the meantime, in apparent anticipation that the state would not come through with bailout money -- not only to replenish the raided treasury, but to provide cash for making payroll in August -- the Board of Supervisors on Monday hired Sweet to prepare for bankruptcy.

-- Ray A. March

Supt. Of Schools Jones
Looks At Fiscal Crisis

Editor’s Note: In the immediate wake of the Modoc County Board of Supervisors’ move to prepare itself for bankruptcy, the Modoc Daily News Blog asked Gary Jones, superintendent of county schools, if he thought school money was safe.


Q: Do you see a possibility that the BOS/county will go for restricted funds/treasury in order to off-set its impending deficit?

Jones: I honestly do not know what the Board of Supervisors or government officials will do. The way in which information is communicated, decisions are made, and controls are enforced has been haphazard. One cannot accurately predict outcomes where no logical pattern exists.

Q: Are you comfortable that school money is protected, as you have been told it is?

Jones: Am I comfortable? I have not been “comfortable” since June 16, 2009, when it was revealed that school cash was used to pay county government warrants (checks). However, the school cash is definitely more protected than it was one year ago. The school cash is separated into different accounts from all other cash deposited and invested in the treasury.

The school districts and the county office of education closely monitor all of their investments to ensure they are as safe as possible.

Q: Have you moved any monies out of the treasury since this fiscal crisis first surfaced? If so, how much?

Jones: Last September, the school officials considered withdrawing $5.1 million from the treasury, but the county treasurer provided a proposal that separated the school accounts from the government accounts. This proposal met our collective need for greater accountability and security.

Consequently, no large scale withdrawals (amounts greater than $100,000) have been made from the treasury for investment purposes. The school agencies continue to move cash in and out of the treasury, Local Agency Investment Fund (LAIF), and other institutions to provide for the security of assets, to maximize interest, and to pay our bills.

Q: What will be your next move?

Jones: There are some issues about improved communication, the equitable distribution of property taxes, how the county layoffs will affect school enrollment, and how cuts are made in the county’s general fund that will require attention.

In addition, I see a statewide issue that needs addressing. What has occurred in our county should not have happened. The breakdown in oversight is obviously a problem that must be fixed. People in key positions, locally and at the state level, did not do what they were lawfully required to do—even after they were informed of the legal requirements.

The crisis prevention and intervention strategies used to monitor and correct schools in management or fiscal crisis may be an appropriate model for local governments. Sounds like a good next move.

Bullock Recall Moves Forward

At 3:30 p.m. July 19, Gordon Dick, representing the Recall Jeff Bullock campaign, delivered 324 signatures to the Modoc County elections office. The required number was 317.

Shannon Hagge, deputy recorder, clerk and an elections official, confirmed that the number was based on 25 percent of the number of registered voters in District Two.

“I think we have the names we need,” Dick said, “but we got a few more just in case.”

Hagge said she has 30 days to verify the signatures as registered voters in District Two, which comprises New Pine Creek, Davis Creek, Modoc Estates and the eastern portion of Alturas

Dick was originally told that 410 signatures were required, and his reaction was, “the voter registration rolls haven’t been purged for a long time, They currently show 1,627 registered voters in District Two.”

Subsequently the elections office came up with the reduced number of 1,268 registered voters in District Two and told Dick that 25 percent or 317 signatures were required.

District Two Supervisor Jeff Bullock, asked how he felt about the news that the required signatures had been turned in replied, “I’m here to serve the people. If they don’t want me it’s their loss. I’m sad they’re doing this.”

Bullock went on to speculate about a potential recall election. “I don’t think the county has the money to do another election. It could go to a special election, which would cost the county a lot of money. I don’t know who they’re putting up as a candidate. There’s a lot more to it than just putting up a candidate.”

Donations Being Taken In
Don Johnson’s Name

Donations are being taken for a special tree to be dedicated to the late Don Johnson, who was an advocate of the Save Our Hospital (SOH) movement in Alturas.

The tree is to be planted at the Modoc Medical Center, according to a SOH spokesperson.

Donations may be made in Johnson’s name and sent to Judy Mason, P.O. Box 97, Alturas, CA 96101.

“Don Johnson was out on the protest lines when Save our Hospital was just starting,” Mason said. “He never gave up hope of saving the hospital. Don was still fighting to get the healthcare district up to the last night of his life. Let us hope his fight was not in vain.”

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Fix It First Coalition

Modoc County To Prepare For Bankruptcy
 

The Modoc County Board of Supervisors today, July 19, took the first step toward filing for bankruptcy.

By a 4-1 vote the supervisors agreed to expand the legal services of McNutt Law Group of San Francisco to include the preparation of materials that are required before the board can actually file for bankruptcy.

McNutt’s fee will be an initial $100,000, according to board documents, in addition to a $25,000 retainer to cover costs related to representing the county in state negotiations for a loan.

There was no discussion by the board as to specifically what the preparation of materials would entail, but Auditor Darcy Locken gave a glimpse of what the process will involve.

“We officially have creditors,” Locken said during the board’s brief discussion, referring to unnamed vendors who have not been paid and to a water bill from the City of Alturas as examples of the county’s creditors.

“Now we are creating our own creditors,” she added. “We owe people money and we will get sued by the unions.”

The board’s move to prepare for bankruptcy came after it was learned last Friday that the state is hesitant about giving the county a $4 million TRAN loan because it would not be legal to loan the county money when it has not repaid $12.5 million it misappropriated from the county treasury.

However, the spokesman for the State Treasurer’s Office, while confirming the state and county were in discussions last week, said the fate of the TRAN loan is still undecided.

“We did not give them a definitive opinion,” said Tom Dresslar, director of communications to the State Treasurer’s Office. “Preliminarily, our lawyers are saying there are problems, but we still do not have a final opinion.

“We’re still working with the county to try and come up with some solution to get them out of the financial mess they are in,” Dresslar said, “but as of this time there is no solution, no agreement. Nothing the state has signed off on.”

Dresslar said that Modoc County’s request for a $4 million TRAN loan will remain on the Wednesday agenda of the Pooled Money Investment Board (PMIB).

“What will happen is the staff will provide the board with the most current information available regarding the Modoc County issue,” Dresslar explained. “They are not expected to take action on it given requirements for notification.”

Prior to taking action today in preparation for bankruptcy the board voted to ask PMIB to invest $12.5 million in certificates of participation as a way to repay the raided treasury.

Dresslar said the county’s abrupt  shift in its approach for bailout money from the state will be included in the PMIB staff update.

What the Board of Supervisors is facing is the financial entanglement of not enough income to pay expenses which includes an estimated $485,000 monthly payroll, a negative cash flow projection showing the county $321,271 in the red at the end of August, and a treasury that’s missing $12.5 million because the board used funds from it illegally.

Noting the illegal use of treasury funds, the State Controller’s Office issued a mandate a year ago that the supervisors replace the money as soon as possible. To date, they have failed to meet the state order.

Although the Modoc grand jury issued a report that modestly chastised the supervisors and other officials, no civil or criminal action has been filed as a result of the misappropriation.

If Modoc County ultimately files for bankruptcy it will be only the second county in California to take such an action. Orange County filed for bankruptcy under Chapter 9 in late 1994. The City of Vallejo did the same in May of 2008.

Voting against the board’s move to expand McNutt’s services was Supervisor Patricia Cantrall. She did not explain her vote at the time.

-- Ray A. March

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Modoc-gate Reaches Flood Stage
BOS Makes Final Appeal To State

Gasping for financial fresh air, the Modoc County Board of Supervisors is making what appears to be its final call for help from the state.

“Time is of the essence,” board chair Dan Macsay pleads in a letter that is expected to be sent to the state’s Pooled Money Investment Board (PMIB) tomorrow. “If assistance is not forthcoming, the county will be forced to pursue other options,” Macsay warns.

Macsay did not reveal in his letter what the “other options” may be, but the board will hold a special meeting Monday, July 19, at 9 a.m. to consider, among other items, two fiscal-related matters aimed at staving off either a declaration of insolvency or outright bankruptcy.

The first is to act on a proposal to negotiate with the state for a $12.5 million net loan, and the second is to expand the services of McNutt Law Group of San Francisco in order to prepare for potential bankruptcy filing.

Although PMIB is scheduled to hear an information-only request from Modoc County Wednesday, July 21, for a $4 million TRAN loan, that avenue of assistance was apparently closed sometime late last week when the county was informed the state would not make the loan because the supervisors have yet to repay the raided treasury.

Now, the Board of Supervisors is hoping for a long-shot appeal to PMIB to invest in county-issued “Certificates of Participation” totaling an estimated $12.5 million so that funds the board and county officials misappropriated from the treasury can be paid back.

By convincing the state to invest in Certificates of Participation -- which are essentially the same instruments the county was trying to market to institutional investors through a bond underwriter -- there is no need for a Fitch credit rating.

Fitch Rating notified the county in June that it would not qualify for an investment-grade credit rating based on the findings of the two draft audits ordered by the Sate Controller’s Office. The audits have yet to be publicly released.

The move would also avoid the county’s taking the institutional investor route which would open it to further outside investigation of its financial management practices. In addition the county would escape the cost of actually selling bonds on the open market and there would be no bond underwriter commission or other related fees, according to a source with knowledge of the proposed state-county transaction.

Details such as interest rates and pay-back period are not known, but Macsay’s letter promises the state “the county commits to the PMIB to current refund the certificates as soon as practical.”

The letter does not detail where the county expects to get funds to repay the $12.5 million.

In effect, Macsay’s letter is an attempt to take the responsibility of getting the county’s debt off its shoulders and place it squarely on the state, according to the source who spoke on condition of anonymity because of the sensitive nature of the discussions with the state.

A current cash flow projection by Treasurer Cheryl Knoch bears out the board’s financial anxieties.

A cash flow spread sheet provided the Modoc Independent News by Knoch includes the wished-for $4 million TRAN loan, but when that is subtracted from the overall numbers it is apparent the county will not be able to make its estimated monthly payroll of $485,000 in August.

In fact, the county’s cash flow numbers will be an estimated net $321,271 in the red at the end of August, and the negative numbers continue to escalate through the end of the calendar year, reaching a negative high of $1.4 million in December.

-- Ray A. March and Barbara March