Balancing the County’s Budget Deficits

on the Backs of Children

By Ray A. March

Part 5

May 9, 2001
“Is The Money Just Not There?”

At 5 p.m. four members of the Children and Families Commission met at its 127 South Main Street offices in Alturas to consider a 12-item agenda that included two highly controversial subjects.
   
Attending this meeting were Donna Geldreich, Carol Harbaugh, Alice Lybarger, Dr. Edward Richert, vice chair; and Donna Michelson, executive director and the commission’s only staff member.
   
Absent were the commission’s chair Phillip Smith and Supervisor Patricia Cantrall. In existence for more than two years, the commission had yet to fill out its 9-member board as required by an amended Ordinance 321-A.
   
First of the two divisive agenda “action” items was a written report by Smith following the commission’s April 18 request for Auditor Judi Stevens’ documentation of funds in the treasury. According to minutes of the meeting, Smith stated in his report that all Prop. 10 Trust Fund monies were accounted for, but his report did not contain any written documentation from Stevens verifying his assurance that the funds were safe.
   
Consequently, Smith’s report was tabled on a motion by a cautious  Harbaugh until a special meeting could be held on May 14 when it was expected Smith would be in attendance and provide documentation to support his report.
   
In the meantime, Michelson presented her own written report giving the commission various options to force the county to be accountable for Prop. 10 funds in the treasury. Her suggestion, according to the minutes of the May 9, 2001 meeting, was “to hire a contract auditor/accountant (outside the county) to review the auditor’s and /or county records for the commission as a preliminary step. This way resolution is in-house and eliminates unnecessary publicity.”
   
Apparently at this point in the meeting there was reference to a possible grand jury investigation because the minutes reflect that “Richert commented that seeking a grand jury investigation would be impractical and suing the county would tie up the funds indefinitely; therefore, going with an outside auditor/accountant seemed to be the reasonable way to go.”
   
Harbaugh declared that she intended to “independently” contact the state’s office of Children and Families Commission to see if they could be of assistance. She declined to answer when Michelson asked who she would contact at the state level.
   
The second controversial item on the agenda was a proposal by Michelson to open a Prop. 10 Trust Fund account with the Bank of America in Alturas.
  
Harbaugh quickly moved to forestall any discussion of a Bank of America account “until she had an opportunity to talk independently with certain unnamed persons at the state commission” and “the commissioners did not want to approve a motion to open a Prop. 10 Trust Fund account with Bank of America without first taking action on Chair Smith’s statement…” (regarding the status of the funds with the treasurer and auditor.)
  
It is here that differences of opinion between Harbaugh and Michelson become openly evident. First, Michelson reminded Harbaugh and the other commissioners that in order to protect Prop. 10 Trust Fund money they had previously agreed to establishing a separate account with Bank of America.
   
Then she recommended moving nearly $600,000 from the county treasury to the Bank of America “and that way the commission would know that at least that amount of money, according to Smith’s undocumented report, existed in fact and not just on paper.”
   
Harbaugh, in countering Michelson’s recommendation to transfer money out of the treasury, said “she had independently spoken with the county counsel and county auditor Stevens and they both said they don’t think its legal for the commission to withdraw their Trust Fund and put it in an outside bank account.”
   
That was enough to prompt Michelson into a strong and instructive reaction.
  
“How many times do we have to visit this issue,” she pointedly asked. “It’s not the county’s money! All that is legally required is for the state to initially deposit the Prop. 10 revenues into the county treasurer’s office, and if the commission wanted to they could withdraw that money once it had been deposited and recorded in the county treasurer’s records.
  
“The county treasurer’s office is a legal conduit so that the state will have accurate records for their annual audit. What the commission does once that money is deposited into the county treasury is entirely up to the Modoc commission.
  
“…Rather than the county always requesting the commission to produce written statements, which we have on several occasions, why doesn’t the county provide to the commission the written rules and regulations and/or documentation governing independent public entities that they are operating under so we can all be on the same page rather than the constant hearsay that it’s not legal and the commission in effect having no control over their own Trust Fund?”
  
Michelson did not stop with that, she went on to emphasize, according to the commission’s minutes that:
   
“The commission is separate and distinct from the county and Ordinance 321-A reaffirmed this fact.
   
“The commission is not a county department nor a county agency and the commission has no MOUs (memorandums of understanding) with the county in general nor any individual contracts with the county auditor, county counsel or the chief administrative officer (Mike Maxwell).
  
“The county counsel is the county’s attorney and not the commission’s.
  
“The commission has complete control over their trust fund and strategic plan, yet the commission is constantly confronted with the county telling them that the county has no liability towards the commission.
  
“The commission wishes not to do the payroll for the one employee of the commission.
  
“The commission is told by the county they can’t open an outside banking account yet this operating account is needed in order for the commission to cash checks to pay its employee and operate in a timely manner.
  
“The commission is told they can’t have access to their trust fund unless it’s on the county’s terms, yet the county auditor’s office continues to have complete control over the commission’s money. Why?
   
“Who is running this commission,” she asked. The minutes do not reflect an answer.
   
Directly addressing Harbaugh, but prefacing her remarks with “all due respect,” Michelson asked Harbaugh “what about respect for the power of the Prop. 10 board and its decisions? Doesn’t this board have any power? Don’t their actions mean anything?”
  
Continuing, she observed, “The commission is composed of six members and commissioner Harbaugh is but one member of the board. So, why does the county act as if commissioner Harbaugh and Chair Smith are the entire Prop. 10 board?”
  
“If the county is so sick of this commission, then why don’t they let us withdraw our money as it comes into the county treasury office and be about our business,” she asked. “Is the money just not there?”
  
Michelson’s final question was answered by Harbaugh who made a motion that was seconded by Lybarger to table the agenda item without further discussion until the return of Smith.
   
Not until early in 2009 -- seven years after Michelson asked where’s the money -- was it revealed that it was not in the treasury.
   
An estimated $20 million in state and federal funds in the treasury, as it was disclosed by then CAO Mark Charlton, had been misappropriated through a funneling system that benefited, among others, the Modoc Medical Center.
   
Less than nine months after Michelson argued her case for removing Prop. 10 Trust funds from the county treasury, the commission answered with her firing.
   
More on that.
   
Next: Part 6
    Modoc County Supt. of Schools Carol Harbaugh moves to stymie Donna Michelson.

Balancing the County's Budget Deficits on the Backs of Children

  
By Ray A. March

Part 4

March 21, 2001
Stevens Fails to Show

    The all-important Ordinance 321-A was amended to reflect the fact that the commission operated as an “independent legal entity” separate and distinct from the County of Modoc.
    Consequently, according to records, the commission had no written contract for services with the county and the county had no liability to the commission. In effect, the commission had complete control over its Prop. 10 Trust Fund and its strategic plans.

April 18, 2001

    At a special meeting the commission’s board voted to request that Auditor Judi Stevens give it a written accounting of Prop. 10 monies deposited to the treasury.
    Stevens did not appear before the commission. Instead, her written account was presented to the commission at its May 9 meeting.
   

April 26, 2001

    Records indicate that while the state required that the Prop. 10 Trust Fund be a “liquid fund in an interest-bearing account at all times,” the commission actually voted to invest only 10 percent of the trust fund. This was also reflected in a budget meeting the year before.
    In less than two weeks following the previous April 18 meeting, the issue over the welfare of the Prop. 10 Trust Funds would reach a level of contention that would involve nearly every member of the commission for the rest of the year -- even as the Prop. 10’s governing body the commission made countless efforts to sidestep Executive Director Donna Michelson’s counsel.
    As we shall see on May 9, 2001.
 
Next: Part 5
    Prop. 10 Trust Funds accounted for, but are they really?

Balancing the County’s Budget Deficits on the Backs of Children

By Ray A. March

Part 3

First an overview of  2001

    As records show -- beginning with Steven’s memo of Jan. 8, --  the year 2001 would become an extremely contentious one for the Children and Families Commission.
    And it was all because of the commission’s resistance to move its Prop. 10 Trust Fund to an independent bank account outside the control of the county treasury and auditor’s office, as its executive director, Donna Michelson, had urged.
    Two “camps” quickly formed across from one another. One camp was the lone tent pitched by Michelson and the other was a fortified barracks housing the Children and Families Commission and its allies.
    Records indicate there were accusations that commissioner Carol Harbaugh “started playing up personality conflicts and making Michelson the target of the public and county agencies.”
    Another account that summer of 2001 pointed to alleged nepotism among county employees with lines connecting  Kelly Crosby, Phillip Smith’s alternate, to her mother-in-law Kate Crosby “who does substantial business with Carol Harbaugh and Smith,” to Rick Crosby a mental health counselor employed by Smith who allegedly did not have the requisite credentials for the job.
    However, it appears Kate Crosby had resigned from the commission before her daughter-in-law became Smith’s alternate, according to documents.
    Harbaugh was also targeted in documents when she named Carol Callaghan that summer to be her alternate. “Carol Callaghan is married to Carol Harbaugh’s ex-son-in-law who is in law enforcement,” an unsigned memo states adding that Callaghan was executive director of TEACH, Inc., a non-profit under the control of Harbaugh.
    Documents also reveal a minor flap in which Supervisor Patricia Cantrall complained that Auditor Judi Stevens refused to reimburse her for mileage to an undated Prop. 10 meeting and the supervisor asked the commission to pay for her travel. It is not known what the commission decided to do with Cantrall’s request.
    
Next: Part 4
    The rest of 2001