Auditor Warns of Payroll Problem

In a blunt memo to the Board of Supervisors, county Auditor Tom Mahon warned Wednesday that cash-poor Ventura County will have to scrape to meet its mid-December payroll and that the supervisors should look again at whether taxpayers can afford a planned $64-million juvenile hall.

Detailing the severity of the county’s budget problems for the first time, Mahon recommended that the board immediately order the county’s chief administrator to rank programs that can be cut to yield cash for short-term bills and balance the county budget for years to come.

“The county is faced with serious financial problems, from both a cash and budgetary standpoint . . . [and] immediate action is required to avoid serious financial disruptions,” Mahon wrote in a three-page draft memo faxed to supervisors Wednesday. “Meeting the Dec. 16, 1999, payroll presents a particular challenge.”

The county spends more money than it takes in, he said, “and steps have not been taken to reverse that condition.”

Mahon said in an interview that the county can pay the $10.6-million biweekly payroll, but just barely.

The county spends about $50 million to pay bills each month, and Mahon said he will have only $2 million to $3 million left in the county general fund after making the payroll.

“The point I’m trying to get across is that things are very touch-and-go,” Mahon said. “We will make the payroll, but things are in jeopardy.”

The 1999 budget adopted in June projected a Dec. 1 general fund balance of $22 million, but only $10 million was actually in that account, he said.

Mahon Says He Hoarded Funds to Meet Expenses

To pay bills on time, Mahon has hoarded $11.3 million in recent months by putting off payments to other county agencies and taking out advances on revenues intended to be spent next year, not this one, he said. That includes a $7.5-million advance on property taxes not due until Dec. 10, but paid early, he said.

Such maneuvers are proper, he said.

“But the most significant thing is that you should run a sound financial operation and when you’re robbing Peter to pay Paul, that’s not a very good financial operation,” Mahon said. “We’re very touch-and-go, but we’re going to do everything we can legally and ethically to keep running. And if we were to get a $3-million to $4-million demand for payment, I’d really have to scrimp to get it.”

He said that isn’t acceptable for a county with a $572-million general fund for basic services and an overall county budget of $950 million.

Supervisor Frank Schillo said he will propose as a stopgap measure elimination of vacant jobs that are funded in the budget so that money can be transferred to shore up the general fund. That could happen by early January, once a temporary chief administrator is hired to replace David L. Baker, who resigned abruptly over the weekend, complaining of the county’s “near financial chaos.”

“There’s money in the budget for those [jobs], and we can take it back right now,” Schillo said.

Mahon said he will make the same recommendation today when he presents a final draft of his recommendations in a letter to the board.

About 800 of the county’s 7,500 jobs are vacant. Only some of those 800 jobs are funded in the budget.

Mahon warned that the county faces a $5-million deficit for the fiscal year that ends June 30 if the board does not cut spending. That could come by either cutting programs or eliminating budgeted jobs, he said. And he said the deficit could mount because some departments are having trouble absorbing worker pay increases granted by supervisors but not funded in the budget.

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Much of the current cash-flow problem can be attributed to $7.5 million lost in this year’s mental health billing scandal, Mahon said. Apart from the mental health losses, however, he said the county is still $2 million a year in the red.

As a result, he said, supervisors should make sure that every new program they approve is paid for fully by grants or cuts in existing programs.

Mahon noted in particular that the county has no money to support construction of the new juvenile detention facility that supervisors want to build to replace aging lockups.

The state has given the county a $40.5-million grant for the project, and the county could provide its required $9-million contribution by borrowing the money on its line of credit, Mahon said.

How to repay the $9 million is the question, he said. Nor is there money to build the more ambitious $64-million facility now proposed, he said.

“So the thing is to do the project with the $50 million and make it fit,” Mahon said.

Schillo said he agreed that the county should take another look at the new juvenile hall. He said he told Cal Remington, the county Probation Agency chief, last week that he needs to find a way to pay for the project.

“If he gets a 40-acre site, like he wants, then the project should be built on 30 acres and the other 10 acres should be for buildings that could be leased out to pay down the debt,” Schillo said. “Put a Kinko’s there. Put a McDonald’s there. What is needed is to have a stream of income.

“And at this point,” he added, “if we don’t get this [budget] thing straightened out, we’re going to have to say no to this project and return the [$40.5 million]. I want to know how we’re going to afford it before we do it.”

In his memo, Mahon pointed out other budget problems on the horizon.

For example, he said county parks--paid for this year by a special fund that is being exhausted--will need money next year from the general fund.

On the plus side, Mahon said the county could get $8.9 million this fiscal year as an early payment from the state’s settlement with tobacco companies. In addition, if trends hold, the county could reap $3 million more than projected in fees from the sale of new cars.

Both Schillo and Supervisor John K. Flynn were critical of Mahon’s analysis, saying they think that it’s too gloomy.

Mahon Criticized for Not Speaking Up Sooner

Schillo said he simply does not believe that the county is running a deficit when mental health scandal losses are excluded from consideration. And he said Mahon should have sounded the alarm about budget problems louder and earlier.

“We should have been badgered by someone in [Mahon’s] position. He should have been saying, ‘You have to understand this decision is going to put us in the red.’ That’s what I expect from the auditor. His people are there at every one of our meetings. And they don’t speak up.

“When we were approving pay raises and were told by the [chief executive] that the department could absorb these increases, I didn’t hear the auditor say anything,” he added.

Flynn described Mahon’s warning of difficulty in meeting the Dec. 16 payroll as “a dangerous statement because the [bond] credit people would be right after us with a statement like that.”

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“This memo is very scary unless you start asking questions,” he said.

The county could have avoided its cash-flow problems by borrowing $85 million instead of $75 million last spring, then covered the loan when receivables, such as property taxes, were paid.

“The county counsel told me they were [originally] going to borrow $85 million,” Flynn said.

Mahon said he borrowed the maximum allowed under federal guidelines.

And Mahon said he has been cautioning supervisors about a budget deficit since September and made a formal presentation Oct. 19. At that time, supervisors agreed not to undertake new spending programs unless they were fully offset by cuts elsewhere.

Mahon said he does not recommend policy to the board as a rule, but is coming forward now because he has to.

“Probably the biggest problem we have is maintaining the county’s reputation as a sound fiscal operation,” he said. “If we lose that, obviously it’s going to be felt when we borrow. Look what happened in Orange County. They’ve recovered, but people still talk about Orange County in the negative.”