Butte’s ‘Fiscal Cancer’ Afflicts Other Counties

As Butte County struggled through Friday on the brink of bankruptcy, state and local officials elsewhere warned that the county’s threatened financial collapse is symptomatic of money problems facing counties throughout California.

“Butte is just at the head of the line. At least a half-dozen other counties are just a step behind, with more behind them,” said Assemblyman Stan Statham (R-Oak Run), who represents the county in the Legislature.

A new report by the County Supervisors Assn. of California, obtained Friday by The Times, identifies at least 18 California counties that it said were in various stages of financial distress. Of those studied, San Diego and Ventura were said to be the Southern California counties facing the biggest financial headaches.

The report said, “The fiscal cancer that afflicts Butte County is present to some extent in all California counties.” The report warned that “the gradual fiscal collapse of county government, given its present fiscal structure, is inevitable.”

The problem, as most experts see it, is that the state and the courts are requiring counties to provide more health, welfare and other services than local tax bases--or the governor and Legislature--can support.

Most deeply hurt are counties that had low tax rates when Proposition 13 was passed and have been unable to raise taxes to keep pace with rising costs.

One such county, San Diego, “parallels Butte County in an alarming number of instances,” the report said. The county has lost $76 million in tax revenue over the last five years because of cities incorporating or annexing county territory. Over the last five years, as taxes and fees were rising 66.8%, the report said, the cost of state-required programs was rising 90.5%. During the same period, San Diego County’s welfare costs rose 284%.

And while Ventura County now is relatively healthy compared to other counties, “there are storm clouds on the horizon,” the report said.

It cited a budget analysis done at the beginning of the year projecting that spending will exceed tax revenues by almost $6 million in 1991-92 and $18 million by 1994-95.

As for the more immediate problem facing Butte County, a once-sleepy farming region in the Sacramento Valley that is experiencing growing pains, officials said Friday that they would delay a decision on whether to become the first California county to file for bankruptcy, hoping to work out a bailout plan with Gov. George Deukmejian.

Deukmejian on Thursday rejected a $15-million financial aid package approved by the Legislature and offered his own scaled-down plan. County officials said the Deukmejian package would not be enough to keep the county afloat. But, after considering filing for bankruptcy Friday, county officials decided to try to work something out with the governor.

Emmett Pogue, deputy county administrative officer, said, “Bankruptcy is a last-resort-type step. There still are other doors open. So long as there are, we do not want to go through that last door.”

Deukmejian, in a letter to Ed McLaughlin, chairman of the Butte County Board of Supervisors, seemed to suggest that the county could weather the crisis with a bit of state financial aid and some belt-tightening. He did not address broader themes that county officials say are at the heart of the problem.

Among Deukmejian’s suggestions were that the county forgo the purchase of a new fire engine to save $300,000, reduce the amount budgeted for county pay raises and leave unfilled all but 45 of the 183 new positions it hoped to create. Deukmejian, in addition, offered the county a grant of $700,000 and promised to waive or defer $5.1 million in obligations to the state.

Statham, who carried the $15-million county aid plan in the Legislature, said he was so enraged by Deukmejian’s response that he hoped the county would immediately file for bankruptcy.

He called the governor’s proposal “ridiculously inadequate,” declaring that the benefits were mostly “funny money” in the form of letting Butte County off the hook from state obligations that it couldn’t meet anyway.

“The governor is basically hanging Butte County out to dry. It is outrageous that he cannot find a few million in the $55-billion state budget to stop a California county from going belly up,” Statham said.

Deukmejian defended the plan after a speech to business leaders in Sacramento, telling reporters that it was “a responsible, good-faith proposal . . . recognizing that there’s just so much that we can do for Butte County.”

Government officials and experts who have studied county problems statewide say many of Butte County’s problems are showing up in other counties.

Casey Sparks, a consultant to the Assembly’s Local Government Committee, acknowledged that Butte reached the point of bankruptcy faster than other counties. But, she said, “the same problems are there in other counties. They tend to show up first in a rural county because the tax base is smaller.”

Part of the problem is Proposition 13, which requires public votes on tax increases, rather than votes by local boards of supervisors as before 1978, county officials say. Butte County officials asked local voters in the June primary to approve four different taxes to finance the Fire Department, libraries and other services. Voters rejected them all.

Also feeding the problem are state requirements that counties administer and partially pay for welfare programs. Costs of these programs are soaring. According to the county supervisors association report, some counties spend as much as 70% of their general-purpose tax dollars on state-required programs, leaving only 30% to support local programs, such as law enforcement, fire protection and public works.

Statewide, county officials say rural counties like Butte, where living costs are much lower than in the big cities, are a magnet for welfare recipients because people can stretch their grants much further. According to the report, the costs to Butte County for administering the Aid to Families With Dependent Children program rose 322% during the 1980s.

At an Oroville mini-mart Friday, clerk Sue Thompson complained to a reporter: “We have to pay out too much money for state programs and there are a lot of people here on welfare. We’ve had people move here from Oregon just because of the welfare.”

Shuit reported from Sacramento and Gillam reported from Oroville.