Balancing the County’s Budget Deficits
on the Backs of Children By Ray A. March
Part 28
Feb. 13, 2002
Smoking Gun: Treasury Helps Pay MMC Debt
Less than two weeks after the Children and Families Commission fired Donna Michelson, Modoc County Treasurer Cheryl Knoch openly informed the commission that the treasury helps pay the balance of funds that run in the negative. Such as the hospital.
This disclosure by the county’s elected official responsible for deposits to the treasury was exactly what the embattled Michelson had been saying for more than a year -- that Prop. 10 Trust Funds were being misappropriated.
Incredibly, Knoch was saying the treasury not only covered Modoc Medical Center debts but apparently other county departments as well. The commission’s minutes of the Feb. 13, 2002 meeting state:
“Ms. Knoch provided an explanation of how the county currently manages the incoming funds, explaining that every fund currently in the county treasury helps to pay the balance of funds that run negative, such as the hospital.” (Boldface emphasis added).
Eight years later on March 30, 2010 during a workshop session conducted by the Monday Night Group in an effort to investigate how the county managed to misappropriate an estimated $20 million from the treasury, Knoch was feeling pressure.
“This money needs to be replaced in the county treasury,” she said from a seat in the audience. “I’m the one who is going to prison and be behind bars.”
Remarkably, at the Feb. 13, 2002 meeting of the commission, Phillip Smith said he was satisfied with keeping the Prop. 10 funds in the care of the county treasury, according to the minutes.
Commissioner Rosemary Nelson, Michelson’s only ally and apparently appalled at Smith’s blatant position, countered that the children under the Prop. 10 program come first and the hospital debt was not the responsibility of the Children and Families Commission.
“…children need to be the commission’s priority and to satisfy the hospital’s debt is not these children’s nor the commission’s responsibility,” Nelson retorted, according to the minutes.
Unmoved with Nelson’s argument, Smith said, “he feels just as strongly that the hospital needs to be available to those same children…in the community.”
Undaunted, Nelson pointed out that the commission does not receive regular fiscal reports from the county nor does it have a memorandum of agreement with the county for services.
Attending this meeting in addition to Nelson and Smith, according to the minutes, were Tracey Cochran, chair; Dr. Edward Richert, Donna Geldreich, Alice Lybarger and Carol Callaghan as Carol Harbaugh’s alternate. Commissioners Patricia Cantrall and Rusty DuVall were noted as absent.
The difference of opinion between Nelson and Smith in 2002 personifies much of the debate in 2012 with one faction arguing there was justification in the misappropriation because treasury money was going to support the hospital while another faction argues that the misappropriation was illegal and those responsible should be held accountable.
No action was taken by the commissioners following Knoch’s oral presentation. The minutes do not reflect who recorded them.
(However, on Feb. 22, 2011, nine years after Knoch made her admission to the Children and Families Commission the Modoc County Board of Supervisors unanimously voted to pursue a $12.5 million claim naming Knoch and former auditor Judi Stevens as the two officials who “most likely” violated state law in the misappropriation of the treasury.)
In a manner that appears to be political tradition, the commission could not rest under the criticisms of CPA Kristin Domenichelli when she wrote that Knoch’s three-point memo was a jaded and misleading scare tactic, but instead the commissioners were ready to strike back at Domenichelli with criticisms of her “behavior.”
Cochran brought an item to the agenda that was intended to discuss “Ms. Domenichelli‘s unprofessional behavior at the last meeting and regarding her communication with Ms. Michelson,” but the matter was tabled.
Next: Part 29
Wrapping it up
13 comments:
This is really a simple case: Someone was given someone elses money to hold and spend for specific items only. That person decided to give the money over to something other than the specified entity. Add all the details and hype you want and it still breaks down to taking what isn't yours and giving it to someone else without due process. Sounds like criminal activity to me. With more than one person involved you have organised criminal activity.
Do these First 5 commissioners have insurance (public performance bonds) that will help protect the taxpayers against their inept, and quite likely, illegal actions?
If not, why not?
Quote to remember from this Modoc Fiscal Fiasco:
"…children need to be the commission’s priority and to satisfy the hospital’s debt is not these children’s nor the commission’s responsibility,”
First 5 Commissioner, Rosemary Nelson
The County has always covered temporary deficits for County departments and special districts. We are a small county so there are no deep pockets to cover unexpected expenses, revenue shortfalls, and the constantly changing demands of the State and Federal governments. Do you really want to force them to stop this life saving discretion?
The small special districts such as fire protection (which also does emergency medical first response) get nowhere near enough money, not even when all "staff" are unpaid volunteers. That's why we have fund raisers, and need to get grant money just to buy needed hand-me-down equipment. The Fort Bidwell Fire Protection District gets about $ 7,000.00 per year in taxes, which just covers required insurance and utilities. It is about the same for all the small fire districts.
Our present problem came not from covering temporary deficits but from letting the Hospital deficit problem go on for so long.
Greg Small
Fort Bidwell
Dear Greg,
YES, if it is done illegally I DO want to stop this "life saving discretion". There is actually a LEGAL way to do this. If you are uncertain about that, ask Darcy. That provides the discretion to "borrow" with a clear tracking method and it is clear where the losses have gone and need to be made up. If your Fort Bidwell cannot survive on $7,000 per year, then maybe the district needs to get a small tax levied to increase it enough to meet it's needs. This is the community paying for what it needs and wants. Taxes are not all "evil" as certain folks want us to believe. They spread the costs of (hopefully) necessary services among everyone in the community. I am not happy to potentially pay some tax for the Cal Fire group, but would happily vote for a levy for Modoc Rural, which serves where I live. I could need their services some day (hopefully not, but things do happen).
Our present problem came from ILLEGALLY covering temporary deficits, and not dealing with why, year after year there is not enough money to cover the expenses of certain necessary groups. And yes, the hospital was part of that list. But, since we did not know where the deficit monies were coming from, how could we try to solve this problem? Cover it up, don't discuss it, tell people like me (and this is Pat C.) that we (Modoc County) have been frugal so have enough money to cover these losses. An out-and-out lie of course. But without it being clear WHERE the deficit monies were being borrowed, how could a plan be made? How could we know how bad it was?
So you are wrong. Doing these little balancing things illegally are what got us here. And it truly frightens me that you, who were on a Grand Jury thinks it was "necessary". God Save Us from unethical people, they are what will sink this County, this State and this Country.
Anonymous April 19 9:28 am,
Well, if the prior Auditor did not follow the proper, legal procedure we are of course not surprised. I was responding to the article's implication that any covering of deficits was illegal and immoral, which it is not if proper procedures are followed. Actually the prior Auditor began charging interest for such "loans" in the 2005 time frame. Whether that actually met the legal requirement of the time I do not know. Also we still do not know exactly when the cumulative deficits actually tapped "restricted" funds rather than using funds within the discretion of the Board.
The problem in Fort Bidwell and elsewhere is that there is simply not enough money generated in the community, so any increase in taxes is a genuine hardship. The new CalFire tax of $ 150.00 per residence about doubles what taxpayers pay and provides no service to us. It is just another example of the State and Federal government sucking the life out of us.
It frightens me that you have not distinguished between necessary acts performed improperly and genuine failures such as letting the Hospital costs grow out of control such that "restricted" funds were used. The 2005-2006 and 2006-2007 Grand Juries struggled with numerous issues at the County Hospital and that was about the time that the debt began to climb after five years stable at 3 Million. Any illegality was the least of our problems, and in any case was not obvious at the time.
Greg Small
Fort Bidwell
The Modoc Record once again sanctioned the unofficial "official" response as to how and why we all got into debt:
Because we made that choice knowingly.
A stunningly stupid statement, particularly given that, on the one hand Treasurer Knoch admits to the interfund/comingling borrowing and lending scheme in 2002, and yet subsequently, according to the Record, the county officials were collectively “shocked” and “stunned” to learn about this and the subsequent debt from CAO Charlton in 2009.
Honestly, the Record has been lying by omission for years about the illegal borrowing and lending scheme, and now they are trying to deceive everyone by framing this debt issue as something we all somehow agreed to in our sleep.
Many taxpayers have asked time and again for the Record or whomever to provide the meeting(s) and the agenda items to back up the claim that the taxpayers and their elected representatives chose illegal borrowing and poor bookkeeping as the method we most wanted to use to solve out fiscal problems, but to no avail.
The Record should do all of us favor: stop trying to frame this debt issue into something other than what it was and is – a misguided and underhanded attempt to keep the entire county whole while kicking the real issue of reducing services and expenditures to meet the actual budget down the road for others to deal with.
The bottom line is that during this time we had poor managers, poor BOS oversight, and poor newspaper coverage about what was really happening in our community; this despite the fact that the Record was told over ten years ago by many people that the illegal borrowing was going on.
Since the Modoc Record has over a decade’s worth of practice keeping this illegal borrowing scheme under wraps and away from public scrutiny, this taxpayer suggests that the Modoc Record just keep its mouth shut about the county debts supposed origins were from now on.
After all, the Modoc Record has lost any credibility they might have had in this matter, and the fact that they are attempting to continue the deception is, quite frankly, embarrassing for all of us.
1:35PM - The Record reporting was abysmal regarding the county treasury debt during this whole time; and for them to now try to rewrite history by saying that creating this debt was due to county officials making a “conscious effort” to keep the hospital open is not only unsupported by the facts, but a blatant attempt at historical revisionism.
However, the facts and what little reporting that was done says otherwise:
The BOS gave direction at least 6 years ago to county officials to keep their hands out of the restricted funds:
Per the Modoc Record:
"Chairman of the Board Dave Bradshaw said the hospital is in a survival mode and will have to live within its means until improvements can be made." ~ Modoc Record, August 4th, 2005
This isn’t an announcement of the “conscious effort” by county officials to keep the hospital open, but rather a warning that if the county kept robbing Peter to pay Paul that there would be hell to pay at some future date.
Now that hell has come knocking, the belated “we meant to do that” excuse for these millions of dollars of misused county funds simply doesn’t hold water.
“I'm not upset that you lied to me, I'm upset that from now on I can't believe you”
-- Friedrich Nietzsche
Sure. Blame past management of the hospital for the debt and the illegal borrowing practices. That is like blaming the printer for the poor quality of the reporting done in the Modoc Record newspaper.
The Modoc Record would have us believe that the financial choices made and those who made them over the past decade or so were a benefit for this community and the taxpaying public, rather than a burden that could, and should, have been avoided.
This type of unsound thinking is what got us into this mess; those folks had choices and they made poor ones – over and over again – mainly choosing not to make budget cuts when they should have, and instead choosing to keep the status quo until the bank ran dry.
The supervisors, Auditor Stevens, Treasurer Knoch, and CAO Maxwell had the fiduciary responsibility for safekeeping our taxpayer funds – and trying to explain it away first by saying they made a conscious decision to misspend funds, and secondly trying to assign that responsibility, and therefore the blame, onto past MMC management is both cowardly and incorrect.
Well, choices have consequences, as those that have been laid off are feeling. For those who made the decisions that resulted in this fiasco, they should be no less subject to these consequences than those who are now being affected by the end result of their actions.
So how did we get here? A portion of The Ralph M. Brown Act, which deals with having an open government, sums it up quite well:
“The people, in delegating authority, do not give their public servants the right to decide what is good for the people to know and what is not good for them to know. The people insist on remaining informed so that they may retain control over the instruments they have created.”
Had those unnamed “county government officials” mentioned in the Records editorial of this week heeded this advice, we would not be in the horrible shape that we are in now.
What is also certain is that these government officials never asked the taxpayers for permission to do what they did.
With regards to the Modoc Record, they are supposed to be advocates’ on the public’s behalf and keep the public informed of the actions taken by our public officials; and not be the apologists for the public servants who fall short of the mark of public laws and expectations – the results of which we will feel for decades to come.
“What you do speaks so loudly I can’t hear what you are saying.”
― Henry Adams
Not only has the underhanded financial planning tragedy of Auditor Stevens, CAO Maxwell, and now the First 5 commissioners proven to be a failure, but it has also been shown to have been a reckless and ill-advised venture from the very beginning.
Ray March’s reporting on this multi-million dollar subject matter is proving to the Modoc County taxpayers that informational meetings and public records existed at that time showing not only that taxpayer cash was being misspent illegally, but also that local officials and the newspaper responsible for reporting this to the taxpaying public decided instead to keep it as low profile as possible, all in order to protect the status quo.
All along this chain of events the county and the local paper had choices to make: to keep the public unaware of what was really going on, or let the taxpayers help decide the fate of their own community.
And what have the taxpayers in Modoc gotten because the county officials and the local newspaper took it upon themselves to decide this for us without our knowledge or consent?
Other than $20 million dollars in debt, what the taxpayers have gotten out of this is that the ignorance imposed on us by the county officials and the local newspaper has proven to be anything but bliss.
"The cruelest lies are often told in silence."
~ ROBERT LOUIS STEVENSON, Virginibus Puerisque
The Modoc Record propaganda claiming that county officials were making a “conscious effort” to keep the hospital open thus resulting in the debt is both disingenuous and misleading.
The inference by the Modoc Record and the county officials is that certain unknown individuals knew what was going on with the behind-closed-doors borrowing plan this whole time, and carried out the illegal borrowing for the good of the local taxpayers.
What's obvious now is that the only constant in the county government and the Record’s reporting during this time is the lack of transparency and accurate information shared with the taxpayers.
Not that this information was missing, mind you; after all, Treasurer Knoch spelled out the illegal borrowing/lending methodology quite well to the First 5 commissioners in 2002.
What was missing was any acknowledgement to the taxpayers at large that the county had decided to skip cutting costs or forego salary and benefit increases for any county employees or programs in favor of putting the taxpayers into debt, plain and simple.
Apparently since all of the big-wigs in Modoc knew about this when it began over ten years ago (Maxwell, Stevens, Knoch, BOS members, many departments heads on the First 5 commission, the Record newspaper, et .al) then that fact alone somehow made it acceptable public policy in their eyes.
The whole borrowing system and its belated rationale for doing it falls apart, however, once you begin to realize that, if this was the publicly approved plan to save the hospital, then why did these select county officials and the newspaper choose not to tell anyone about it? Saving the hospital, after all, was a noble cause, so why the secrecy?
The concealment became necessary for several reasons. First, not all of the borrowed funds were used to keep the hospital open. As Treasure Knoch stated in 2002, the county treasurer operated essentially as a “slush-fund,” where income from whatever source was placed and used for whatever purpose these county officials decided. By default, because there was no austerity plan in place, employee salary and benefit increases took up a major part of these illegally borrowed funds.
This is where the pretentiousness comes in. Using the as-yet undeclared “Save the Hospital” campaign as the motive for the Modoc County slush-fund economics, these county officials – with the blessings from the local newspaper through its lack of reporting – decided not to tell the taxpayers that they were commingling funds that did not belong together, that they were not accounting for those funds properly, that they were spending funds on items not allowed for in their budgets, and, most egregiously, that they were not reducing spending to offset the deficits in a variety of county programs.
These county officials and its sanctified newspaper did nothing more than perform a $20 million dollar bait-and-switch, all designed to keep the county programs and their cronies from feeling any economic pain due to their collective mismanagement of the county treasury.
In the end, the “conscious efforts” of these self-appointed know-it-alls accomplished little of value for the taxpayers; it simply kicked-the-can of social responsibility down the road, along with the pain and the millions of dollars of debt – directly onto the shoulders of their unsuspecting neighbors.
Quotes to remember about this Modoc fiscal fiasco:
"These county officials and its sanctified newspaper did nothing more than perform a $20 million dollar bait-and-switch, all designed to keep the county programs and their cronies from feeling any economic pain due to their collective mismanagement of the county treasury.
In the end, the “conscious efforts” of these self-appointed know-it-alls accomplished little of value for the taxpayers; it simply kicked-the-can of social responsibility down the road, along with the pain and the millions of dollars of debt – directly onto the shoulders of their unsuspecting neighbors."
Quotes to remember about this Modoc fiscal fiasco:
"These county officials and its sanctified newspaper did nothing more than perform a $20 million dollar bait-and-switch, all designed to keep the county programs and their cronies from feeling any economic pain due to their collective mismanagement of the county treasury.
In the end, the “conscious efforts” of these self-appointed know-it-alls accomplished little of value for the taxpayers; it simply kicked-the-can of social responsibility down the road, along with the pain and the millions of dollars of debt – directly onto the shoulders of their unsuspecting neighbors."
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