O.C. Planners' Records Show 3-Year Deficit

Times Staff Writer

The Orange County Planning and Development Services Department operated in the red for the last three years and used revenue from building fees for other purposes that under state law should be earmarked for inspections, according to a Times review of financial documents.

In total, the department spent $24.5 million in reserves and bailout money, records show, and is now trying to balance its budget through layoffs and proposed increases in inspection fees.

Officials have blamed the financial crisis on an unanticipated downturn in home building, which resulted in reduced revenues. But the documents suggest a much more systemic problem.

The department spent more than it took in for 28 of the last 30 months -- continuing this pattern even after it depleted the reserve fund.

The examination of department financial data from the last three years provides the clearest picture yet of the financial meltdown, which helped prompt the early retirement of Director Tom Mathews and the firing of county Executive Officer Michael Schumacher.

The review shows that:

* Despite clear indications of a slowdown in housing development and a corresponding decline in fees paid by developers, the department did not significantly adjust its spending to make up for the losses.

Instead, it spent its reserves to pay for a variety of items, from new vehicles to a new computer system.

* The department's estimates of revenues were wildly inaccurate. Revenues for fiscal year 2001-02 were estimated to be $11.2 million, while actual revenues were $7.7 million. For the 2002-03 budget, planners inexplicably estimated that revenues would jump to $19.5 million. Actual revenues for the first half of the fiscal year have totaled only $3.1 million.

* The department came to rely on reserves instead of revenues to pay for operations. Between July 2000 and December 2002, 43% of the money used for plan checks and inspection services came from reserves. Those reserves were accumulated from fees paid in the late 1990s by tract-home developers.

* State law says that government can charge a fee only to recover the cost of providing the service. However, the planning department used revenues from inspection fees for other purposes. For example, $255,988 went to the law firm Best, Best & Krieger, which is defending county supervisors and the department against a lawsuit filed in late 1999.

County officials are trying to sort out what went wrong at the planning department. But as more financial information becomes available, officials said a lack of oversight is one major problem.

"It's evident management had a job and they dropped the ball," Board of Supervisors Chairman Tom Wilson said this week in his State of the County speech.

"The problems were avoidable; however, decisions were made to either ignore or disguise the issues."

Auditor-Controller David Sundstrom is conducting an audit of the department back to 1999. He will begin monthly tracking of revenues and expenses for all of the county's fee-supported funds, including those in the planning department.

"When something gets out of whack, we'll notify the [county] budget office and the department head," he said. "It'll be very clear."

The financial problems come as retired Palm Springs developer Dick McCarthy and national homebuilder Barratt American Inc. are suing the county for allegedly overcharging for tract home permit fees and of misspending the reserve.

The lawsuit hinges on state law requiring fees to be based on the "reasonable" costs of providing the service. Collecting more is considered a hidden tax and the money must be credited against future fees.

County officials maintain they spent the money properly and did not overcharge for services.

Last month, Orange County Superior Court Judge C. Robert Jameson ruled that the county must comply with strict rules for what direct and indirect costs can be calculated into its permit fees.

A court-appointed special master reviewing how the fee surplus was spent has been highly critical of the county's actions.

Robert P. Mosier said in court papers that the county may have to reimburse between $7 million and $10 million to the reserve fund, questioning $7 million spent for a computer system.

County planning officials, meanwhile, have asked supervisors to revamp the inspection fee system to replenish the department's operating fund. Two proposals, however, were withdrawn after questions were raised about the fee amounts.

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