Balancing
the County Budget Deficits
on the Backs of Children
Editor’s
Note: We want to thank all our readers for following the multi-part
series “Balancing the County Budget Deficit on the Backs of Children.”
Part 31 concludes the series, but we will return in a few days with
more on the subject of the county’s $20 million misappropriation of
the treasury.
Part 31 -- The Final
Today
Summing it Up, An analysis
In this series based on official public records we have shown an inflexible Modoc County Children and Families Commission, one unwilling to accept and follow the advice of its executive director and a lone commissioner, that Prop. 10 Trust Fund moneys be removed from the county treasury.
In fact, it’s been detailed that the commission knew its money was being spent to cover other county department debts, including the Modoc Medical Center -- especially when Treasurer Cheryl Knoch routinely revealed that was the case in 2002 -- seven years before then-CAO Mark Charlton exposed the on-going treasury misappropriation and put Modoc County into a financial spin.
Knoch’s admission apparently was not enough to motivate the commission to move the money out of the treasury, even though there were strong implications from Auditor Judi Stevens that she also was using Prop. 10 money for purposes other than the state-mandated use -- all against state law.
The commission understood that Prop. 10 was new and it required certain duties and responsibilities. Could the meetings have been conducted more professionally? Was there a list of requirements and internal controls set by Prop. 10 law?
They all knew the law and the proper procedures in following it because the executive director and other commission members contacted various counties with inquiries. These other counties all offered to help and apparently provided Modoc County with their processes and procedures for the commission and programs.
In 2001, before Michelson was fired, Modoc County was not in compliance with the state and Prop. 10 requirements. The commission knew this, it had the opportunity and access to do it right, and it did not take action to correct the problems.
Within this background there is the discussion with Knoch at the commission’s Feb. 13, 2002 meeting, following the firing of Donna Michelson. Knoch’s comments should have sent up two red flags -- one red flag for illegal use of county treasury funds and another for illegal Prop. 10 accounts and management.This alone was sufficient justification for a qualified audit.
Because Executive Director Donna Michelson and apparently other commission members had contacted various counties, the commission had knowledge of the key issues needed to run a Modoc County Children and Families Commission program and for receiving and managing Prop. 10 funds. Someone, in addition to Michelson, should have taken action.
The question begs to be asked, did Knoch know, or should she have known, that even in 2001 and 2002 that she was apparently wrongly managing county funds, and particularly the Prop.10 funds, considering the state had provided specific guidelines and laws for the use of those funds?
The questions pile up, and for now some remain unanswered.
Why was Modoc County Supt. of Schools Carol Harbaugh so consistently adamant about keeping the Prop. 10 funds in the treasury even when she acknowledged in her April 2, 2002 memo that the state wanted those funds -- in every county -- to be kept separate?
And when there was pressure to remove the funds from the treasury why did Harbaugh suggest they reside in her office?
Why did Harbaugh want Executive Director Donna Michelson directly under her control, and why was she allowed to operate on behalf of the commission without direction or authorization?
Did Cantrall, who has maintained an apologetic innocence of the misappropriation ever since its disclosure, read the minutes of the Feb. 13, 2002 -- as she should have -- which would have made her aware of the misappropriation? It’s been established that she wanted the funds to remain with the county treasury, even in face of violating the law.
By osmosis alone, if not directly aware, Cantrall’s successor on the commission, then-supervisor Mike Dunn, should have been acutely aware that the misappropriation was taking place -- at one point he was chair of the commission.
When in 2001, Modoc County CAO Mike Maxwell and Auditor Judi Stevens did not want to sign an MOU with the Children and Families Commission, members of the commission had a great opportunity to operate independent of the county. They missed it.
The Modoc County Children and Families Commission of 1999-2002 was a group of individuals serving a purpose directed by state law that they apparently did not have the training and knowledge to perform effectively -- and to do it as required by state law and code.
But there were sufficient safety nets among them to prompt them and provide them with correct processes and actions. In all due respect, they were not as dumb as they appeared to be.
In fact, it’s been detailed that the commission knew its money was being spent to cover other county department debts, including the Modoc Medical Center -- especially when Treasurer Cheryl Knoch routinely revealed that was the case in 2002 -- seven years before then-CAO Mark Charlton exposed the on-going treasury misappropriation and put Modoc County into a financial spin.
Knoch’s admission apparently was not enough to motivate the commission to move the money out of the treasury, even though there were strong implications from Auditor Judi Stevens that she also was using Prop. 10 money for purposes other than the state-mandated use -- all against state law.
The commission understood that Prop. 10 was new and it required certain duties and responsibilities. Could the meetings have been conducted more professionally? Was there a list of requirements and internal controls set by Prop. 10 law?
They all knew the law and the proper procedures in following it because the executive director and other commission members contacted various counties with inquiries. These other counties all offered to help and apparently provided Modoc County with their processes and procedures for the commission and programs.
In 2001, before Michelson was fired, Modoc County was not in compliance with the state and Prop. 10 requirements. The commission knew this, it had the opportunity and access to do it right, and it did not take action to correct the problems.
Within this background there is the discussion with Knoch at the commission’s Feb. 13, 2002 meeting, following the firing of Donna Michelson. Knoch’s comments should have sent up two red flags -- one red flag for illegal use of county treasury funds and another for illegal Prop. 10 accounts and management.This alone was sufficient justification for a qualified audit.
Because Executive Director Donna Michelson and apparently other commission members had contacted various counties, the commission had knowledge of the key issues needed to run a Modoc County Children and Families Commission program and for receiving and managing Prop. 10 funds. Someone, in addition to Michelson, should have taken action.
The question begs to be asked, did Knoch know, or should she have known, that even in 2001 and 2002 that she was apparently wrongly managing county funds, and particularly the Prop.10 funds, considering the state had provided specific guidelines and laws for the use of those funds?
The questions pile up, and for now some remain unanswered.
Why was Modoc County Supt. of Schools Carol Harbaugh so consistently adamant about keeping the Prop. 10 funds in the treasury even when she acknowledged in her April 2, 2002 memo that the state wanted those funds -- in every county -- to be kept separate?
And when there was pressure to remove the funds from the treasury why did Harbaugh suggest they reside in her office?
Why did Harbaugh want Executive Director Donna Michelson directly under her control, and why was she allowed to operate on behalf of the commission without direction or authorization?
Did Cantrall, who has maintained an apologetic innocence of the misappropriation ever since its disclosure, read the minutes of the Feb. 13, 2002 -- as she should have -- which would have made her aware of the misappropriation? It’s been established that she wanted the funds to remain with the county treasury, even in face of violating the law.
By osmosis alone, if not directly aware, Cantrall’s successor on the commission, then-supervisor Mike Dunn, should have been acutely aware that the misappropriation was taking place -- at one point he was chair of the commission.
When in 2001, Modoc County CAO Mike Maxwell and Auditor Judi Stevens did not want to sign an MOU with the Children and Families Commission, members of the commission had a great opportunity to operate independent of the county. They missed it.
The Modoc County Children and Families Commission of 1999-2002 was a group of individuals serving a purpose directed by state law that they apparently did not have the training and knowledge to perform effectively -- and to do it as required by state law and code.
But there were sufficient safety nets among them to prompt them and provide them with correct processes and actions. In all due respect, they were not as dumb as they appeared to be.
22 comments:
Sorry Ray, but I beg to differ with you on this one! They WERE/ARE as dumb as they appear. Sad, but true. In Modoc any assistance offered from other counties is met with the "don't tell us what to do, we know everything" I've been in the 'other' county and have personal experience so I know how ignorance and fear in Modoc comes across as arrogance.
6:36 post. I beg to differ with you. Dumb or stupid isn't the problem, it's arrogance and self importance and self imposed ignorance. They always insisted on remaining ignorant so they could say "I didn't know". I experienced this about fifteen years ago when I met with county officials to present a problem about road maintenance. I tried to submit documents to prove my case but they actually turned their heads away and pushed the papers away so they would not see them. They do not want to know when thay are wrong.
It is more than just a bit deceitful for present and former county officials, First 5 Commissioners and the Modoc Record to champion putting the rest of us Modocer’s into debt without us even knowing about it, and then claim they just did it “for our own good.”
Even with repeated and ongoing warnings that spending funds in this way was inappropriate and quite likely illegal, these fellow citizens ignored the warnings from other counties, from other auditors, and from other community members and decided to go ahead and do it anyway.
The civics and government courses must be pretty bad these days when taxpayers can’t tell any more that they are not only being snowed by their government and the local newspaper, but that they are also being taxed without their consent – which is what this borrowing and its subsequent debt really is:
Taxation without adequate and responsible representation.
This $20 million dollar debt is nothing more than us Modocer’s being taxed by other Modocer’s without our consent for well over ten years to pay for things we didn’t get a chance to have a say on.
“When a new source of taxation is found it never means, in practice, that the old source is abandoned. It merely means that the politicians have two ways of milking the taxpayer where they had one before.” “
* H. L. Mencken quotes
Mr. Rutledge, if you would name the officials involved and the specific issue about road maintenance, that would add to our overall knowledge and would be appreciated.
Ray,
In 2002 it is rather unlikely that any First 5 funds were being used to cover the Hospital Debt, and similarly unlikely that any other "restricted" funds had yet been used. The Treasurer's comment in 2002 about using County funds to cover temporary budget shortfalls for County departments and special districts was a general comment about short term adjustments that were within the Boards legal discretion and responsibility. No law we have been talking about had been violated.
It wasn't until a bit later that the Hospital deficits began to climb radically and the Grand Jury began to call the alarm and the Modoc Record began reporting the deficit monthly. In 2002 the debt had been level for 5 years and the Hospital had been breaking even, so it would have seemed that the debt was under control.
Greg Small
Fort Bidwell
Greg - your comments are confusing, in that on the one hand they argue that the debt was "under control" and yet, here we are, potentially $20 million dollars in debt, all without any public disclosure, despite many warnings to the contrary.
Because the county has already admittedly deficit spending, many think that the restricted borrowing - which is illegal if you do not pay it back (and the county never did) or if you use it for a purpose it was not legally intended for - has been paying the hospital bills, the employee salaries and benefit increases, and other county costs for many years prior to 2000, thus beginning the deficit spending at a much earlier time than cited thus far.
Because of the county’s long standing practice of slush-fund accounting described by Treasurer Knoch in 2002, along with recent admissions of illegal lending by County Librarian Cheryl Baker, and the fact that the library - a separate tax district created by the voters for one purpose only: to provide library services - the illegal borrowing amongst the county departments and schools became the preferred way of doing business, and in effect turned out to be nothing more than a shell game where they gambled with the taxpayers money and lost.
In other words, the library, the road dept., mental health dept., and probably every other department that had a positive fund balance at any time over the past 20 years has borrowed and lent moneys without proper accounting to the local taxpayers, the programs they serve, or the state.
The debt was never “under control” as you claim, because it was never acknowledged as a problem. If it were, the Modoc taxpayers would have certainly heard about it in the Modoc Record, and they would therefore not be about $20 million dollars in the hole right now.
Please try to keep the time line in mind. Comments in 2002 were not about deficits and audits in 2009. The only deficit in 2002 was from the Hospital and that debt had been level for 5 years (the Hospital was breaking even for five years).
The Board can spend the County's money anyway it chooses, spending "restricted" monies occurred later than 2002. Your "slush-fund" accounting in 2002 was just normal budget adjustment. There was no illegal borrowing in 2002. Saying that the debt was never under control is just Monday morning quarterbacking.
No one is excusing the Board's complete failure to react appropriately when the Hospital deficit skyrocketed in 2004 and the economy collapsed in 2008. But claiming to see irrefutable signs in the past puts an impossible expectation of predictability on elected officials.
Greg Small
Fort Bidwell
Greg - that is the point. Neither you, nor anyone else has any verifiable information on when the deficit spending and not repaying began - before 2000 or after.
There is no evidence to be had that the borrowing from restricted departments and accounts was ever repaid in a timely manner and with accrued interest (or at all) - actually the evidence points otherwise.
What seems clear is that it was a systemic problem and practiced throughout all of the county departments for quite a long time.
In the end the county borrowed from whoever it could to keep the entire county whole and they didn't cut expenses when they should have.
If they had acted more prudently, and not tried to keep all of the employees and departments whole, we would not be in debt right now.
Greg, please provide proof for this statement:
"There was no illegal borrowing in 2002."
I am backing Greg on this one - there are no adequate records to indicate that restricted funds were illegally used to finance the general fund departments, mainly the hospital, prior to 2002.
Keep up the good work, Greg.
7:44PM, with all due respect, the absence of evidence does not mean that it did not happen.
Great 7:44. Make decisions based on no evidence. That's how we got $20 million dollars in debt. As Dr. Phil would say about this kind of decision making: "How's that workin' for ya'?"
Oh 7:44pm - If only Modoc County had used any type of clear thinking and open communication with the taxpayers to ensure that their books were in order and that they would not be, what is it, almost $20 million dollars over-spent? With no plan to pay it back even.
We are millions of dollars in debt and have several county officials saying that we were borrowing from the restricted accounts to pay for accounts in the arrears, and yet you still deny what you see all around you.
"Nothing in the world is more dangerous than sincere ignorance and conscientious stupidity."
Martin Luther King, Jr.
Greg, the BOS cannot just spend taxpayer money "any way it chooses," and such an ignorant statement is indicative of the hubris which surrounds the attitudes of those involved in this whole debacle.
Public servants are just that – people whom the taxpayer’s hire to get the taxpayers work done – and I would humbly suggest that spending millions of dollars of the taxpayers money that the taxpayers did not actually have and without the taxpayer’s consent is not only fiscally irresponsible and most likely illegal, but morally reprehensible as well.
As Winston Churchill noted, “Perhaps it is better to be irresponsible and right, than to be responsible and wrong. “
Unfortunately in Modoc’s case, these county officials and the local newspaper were both irresponsible and wrong about this” borrow first, and we’ll pay it back if we’re caught” financial plan.
To the "no evidence" crowd,
I have provided considerable evidence and explanation, what is your counter evidence? You make accusations and never give any evidence or explanation. Just as in court, there is no such thing as "proof" there is only evidence and explanation.
The budgets and audits of the 2002 time-frame (aka evidence) show that the debt was very likely within the County's discretionary funds and had not tapped into any legally "restricted" funds (aka explanation). We elect Supervisors exactly to make budget and policy decisions. They decide whether Roads or Health gets such and such an amount for their budget. At any time they can decide to transfer funds from one department to another, or to borrow to make ends meet. Its called management.
In any retrospective analysis of past evidence it is possible that newly discovered evidence will change the whole picture. You could be absolutely wrong; I could be absolutely wrong. But absent new evidence we have to cope with the available evidence, which currently suggests that no legally "restricted" funds were used by 2002.
Greg Small
Fort Bidwell
Greg, you are making the assumption that the audits and budgets in the 2002 time-frame were accurate.
That is not evidence - that is supposition.
Not only that, but the evidence (the facts) thus far (i.e., the millions in misspent funds and the subsequent debt) are more than adequate an explanation that the budget and the audits were most likely not accurate during this time, particularly since the supposed hospital "debt" already exceeded several million dollars by then.
The facts clearly show that:
1) The county was borrowing money for an extended period of time without making the needed offsets to keep from going into debt. That’s called mismanagement. It’s also unlawful.
2) The auditing and budgeting procedures were not sufficient to account for the taxpayers funds during this time. That’s called mismanagement, and it is probably also unlawful, in that public officials have a fiduciary duty to protect the taxpayers’ money.
3) County officials and the Modoc Record knew that the funds were commingled and being lent willy-nilly throughout the county with no pay-back provisions at all, and yet they chose not to tell their constituents or readers - and they also did nothing until CAO Charlton brought the debt out into the light of day.
That’s called gross mismanagement, it’s untruthful, and it’s unlawful.
So your claim, Greg, just to be clear, is that because the 2002 era audits (that are the basis of all of the future audits, which have since been found to be less than worthless, other than the taxpayers having to spend $1,000,000 to try and fix them) and the 2002 era budgets (that are the basis of all of the future budgets, which have since been found to be totally inadequate in explaining the borrowing and debt to the taxpayers until Mr. Charlton pointed it out in 2009), the taxpayers can therefore be confident that the county did not illegally use restricted funds during this time?
Based on the fact that neither the audits nor the budgets have been accurate or complete enough to tell the whole picture for as far back as we can afford to look without borrowing even more money to do so, a more logical conclusion is that the misspending and mislending between all county funds, including restricted funds such as schools, has been going on for a long, long time.
Mr. Small - the truthfulness of any budget, county or otherwise, relies on having completely accurate numbers from the preceding years on which to base its beginning balance.
Given that one lone employee, Tony Richno, found that thousands of dollars of taxpayer funds were inaccurately reported for many years in just one small area of the budget shortly after your tenure as Grand Jury foreman ended, thus making it appear that there was more money than was actually on hand at the time, and given the extent of the debt, it seems much more likely that these errors in accountability were both wide-spread and ongoing – and did not just magically appear sometime after Treasurer Knoch’s 2002 admission of the illegal lending amongst the various county funds to the Modoc County Children and Families Commissioners.
The fact that the 2006-2007 and previous Grand Juries missed these budgetary and auditing inaccuracies and/or did not follow through on them is unfortunate, to say the least.
But to say that the illegal borrowing did not begin prior to 2002 based on the data that we have thus far is just too big a stretch to make based on the data available today.
I am not by any means the only county employee to have found issues with the county's accounting practices.
I know of other employees who found discrepancies and brought them to light. They don't work for the county anymore either.
I left county employment on my terms. Not everyone has been as fortunate.
Tony Richno
Anonymous May 21 6:51p,
The audits and budgets in the 2002 time-frame are in fact evidence. They exist; to a good approximation they reflect the facts of the time; and so far no other similar evidence of higher quality has come forward. Their quality is good enough to support my argument that the debt was too small to tap into "restricted" funds (remember evidence does not speak, an explanation or argument must be made based on the evidence).
Yes, in the 1996-2002 time-frame about 3 million was spent over revenue causing internal debt, the audits show that. So what is your evidence that they were substantially wrong in 2002? Also what is your evidence and explanation that deficit was misspent? Governments, organizations, and households often go into debt for good reasons.
Re 1), yes, by 2005 it was clear that the Board was not able to resolve the debt problem competently. Both the Grand Jury and the Modoc Record began to sound the alarm. But back in 2002 the debt had not increased in five years, and steps had been taken to reverse it. The solutions just did not work, and other events worsened the situation.
Re 2), yes, it is probable that the audits in the 2002 time-frame were not wholly accurate, but no one has done a retrospective investigation that far back, so there is no evidence other than the budgets and audits themselves and they show the debt. It is unlikely that any serious law was violated. It is likely that some laws were violated, just as you and I certainly violated many laws in 2002, most of which we have never even heard of.
Re 3), it is uncertain what each County official and the Modoc Record knew in 2002. Do you have actual evidence or personal testimony that you are willing to swear to in an affidavit? When the Record and the Grand Jury sounded the alarm in 2005, they were ignored by the public.
It is pretty hard to show significant mismanagement or illegal activity in the 2002 time-frame. You can be angry and frustrated that things did not go better, but there is little that cannot be reasonably disputed.
Anonymous May 22 8:11a,
Yes, my argument is that the 2002 time-frame audits were accurate enough to show that "restricted" funds had not yet been used. The debt was simply not large enough. Unless you can show me evidence to the contrary, I don't see how a "long, long time" argument can be substantiated.
Anonymous May 22 9:04a,
There are always errors in any large system. The amounts of such errors are not likely to increase the debt in 2002 so that it would threaten "restricted" funds. I am surprised that you did not bring up the $ 400,000.00 double payment to a contractor some years ago, but even that would not increase the debt enough.
The Treasurer's statement in 2002, reported by Ray, does not reveal any illegality but rather minor adjustments fully within the legal discretion of the Board.
Greg Small
Fort Bidwell
Tony, I am sorry to learn that you are no longer a county employee. The county lost a good employee.
Chad Jessup
I agree with Mr. Jessup. However, if Mr. Richno is still working for the local hospital, then for the most part he and the others there are county employees. They are paid to a large extent with local taxpayer dollars, and even today, the county of Modoc is still borrowing money from "itself" to pay for the deficit spending which the hospital remains unable to control.
Since the Modoc Medical Center was reformed into its own taxpayer-funded district, it has done little different fiscally than before – in other words, it is still losing money and has no means to repay it other than raising more taxes or borrowing money.
What this continuing deficit spending seems to indicate is that over the past 30 years or so it has not been who has been running the hospital that is the central difficulty, but rather that it is how the hospital is being run that is the crux of the problem.
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