Auditor Calls for Immediate Cuts to Offset Deficit

The Board of Supervisors needs to immediately cut programs and lay off employees to offset a projected $5-million annual deficit, save Ventura County’s high bond rating and ensure that the county can pay its bills on time, the county auditor said Tuesday.

Unless supervisors act decisively, even bankruptcy is a long-term possibility, county Auditor-Controller Tom Mahon said. But he added that he is sure supervisors will act soon to put county spending in line with revenue.

“This definitely can be handled; this isn’t something that’s going to break the county,” Mahon said the day after new Chief Administrative Officer David Baker warned that the county is “near financial chaos,” then abruptly resigned.

“If you think of this as a hill, we’ve reached a plateau,” Mahon said. “If corrective action is not taken, we could go down. But if corrective action is taken, we’ll start going back up. This requires immediate action. And I feel the board is prepared to take the necessary steps to correct the problem.”

Supervisors said Tuesday that they will do what is necessary to cure the problem, but will not act in the next couple of weeks, as Mahon recommends.

“I would hope we can have action by the first of February to balance this year’s budget,” Supervisor Frank Schillo said. “We need to act really quick, but we’re not going to do it in two weeks.”

Supervisor John K. Flynn even questioned whether ongoing cuts are necessary. He said the board is confronted almost annually with midyear projections of budget deficits; they reached more than $30 million four years ago. Supervisors eventually balanced the budget with a combination of layoffs and program cuts.

Flynn added that the current cash-flow problem the auditor cites may be of Mahon’s own making.

The supervisor said financial experts tell him that Mahon may have underestimated the amount of money he could borrow this fiscal year then repay when receivables, such as property taxes, roll in.

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“If my assumption is right and he could borrow more and pay it off each year, then he should borrow more,” Flynn said. “Tom needs to take another look at that before I’m willing to take a $5-million cut. And I asked him to do that today.”

But Mahon said he borrowed the maximum allowed under federal guidelines last year, and he’s convinced that the county has a serious budget problem. As things are, the county’s financial situation--brought to a head by millions of dollars lost in a mental health billing scandal--is precarious, he said. And if no cuts are made, the county will spend $5 million more this year than it takes in--and the red ink would only increase after that, he said.

The county needs to cut that extra $5 million from its $572-million general fund for basic services, which is part of an overall county budget of $950 million.

“This budget would become the platform on which future budgets would be done,” he said.

So future budgets would also be in balance as long as supervisors reject extra programs unless cuts are made elsewhere at the same time to offset the new spending.

Simply freezing wages and jobs in the 7,100-worker county bureaucracy isn’t good enough, Mahon said, because those are temporary measures and could be reversed in time. The supervisors should instead consider eliminating or reducing the sizes of county programs, he said.

No matter where the cuts are made, “they will be in programs that are near and dear to people’s hearts,” he said.

Supervisors declined to discuss what programs they might cut, if they conclude such cuts are needed.

At stake if supervisors fail to act decisively, Mahon said, is Ventura County’s basic worthiness for credit. If lenders were to conclude that the county is shaky financially, the roughly $75 million it borrows each spring could cost taxpayers much more in interest. The county now has a strong A- rating from Standard & Poor’s, which evaluates the soundness of bond investments.

“This could definitely affect our rating, depending on how we address the issue and resolve it,” Mahon said. “It is our responsibility to demonstrate to the investment community--to our underwriters and rating agencies and to investors--that we have taken appropriate action to deal with the problems.”

Mahon said he received a call of concern Tuesday from the county’s bond underwriters--Lehman Bros.--after word spread of Baker’s sudden resignation.

“They wanted to know what was going on,” he said. “I told them we have a serious problem, but I feel we’re going to get it resolved. I told them we would keep them advised.”

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More pressing, Mahon said, is simply having enough money to pay the county’s recurring bills.

The county’s cash-flow problem was cited prominently in Baker’s resignation letter as an important problem.

“This is an alarming, irresponsible situation, if true,” Baker wrote. He also noted, pointedly, that Mahon had not warned potential bond buyers in the county’s most recent borrowing statement of its cash-flow problems.

Mahon said that is because the statement was written last spring, before those problems occurred. He said he notified underwriters and bond raters of the problems as they developed in recent months.

In previous years, Mahon said his office would routinely pay bills when they came in, instead of waiting for the due date to approach.

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“Now we are taking advantage of that [extra] time period,” he said. “If it’s due on the 15th, we don’t pay it on the 10th. And that helps. . . . Nowadays, it’s more critical. We have to watch it on a daily basis. We are being much more conscious of exactly what we have.”

The county has missed no payments, or payrolls, so far, Mahon said. And he said he doesn’t expect it will, if the supervisors move quickly to cut spending.

Cash is so tight now because of the ripple effects of the county’s mental health billing scandal, the auditor said. The county recently settled a federal lawsuit by agreeing to pay $15.3 million over five years to make up for a decade of overbilling Medicare.

The settlement includes an “integrity agreement” that will cost the county an additional $3.5 million, including $1 million for this fiscal year, to hire consultants to monitor the way the county bills for its services.

Add to that, Mahon said, $4 million in state mental health funding the county lost last fiscal year because of improper paperwork. State payment of millions more has also been delayed, he said.

“The mental health thing triggered [these cash-flow problems]. They came out of the blue,” he said. “But the basic problem is that we spend more money than we take in.”

Mahon said he first warned supervisors of an increasing budget deficit in September.

There was formal recognition of the problem Oct. 19, when the board adopted what appeared to be a routine set of budget adjustments. The last page of that 21-page document was a statement of 16 strategies designed to further reduce the budget this fiscal year and next, beginning July 1.

Foremost among those strategies was a proposal directing the chief administrative officer to map out possible general fund cuts to meet head-on the growing deficit.

A specific option was to consider leasing, closing or selling county assets, including parks, that do not pay their way.

Supervisors expected Baker to lead this review in preparation for a round of cuts in January, Mahon said. But then Baker resigned in frustration.