Other Long-Term Debt

Mendocino County Debt - 6/09

About 85% to 90% of the County's long-term debt is related to its retirement benefits. Only about 10% to 15% comes from other sources. Of that about half is related to real-estate financing.

Real Estate (Certificates of Participation - COPs)

Certificates of Participation are a means of financing real estate acquisition and improvement. The County has engaged in what a complex series of financings and re-financings of real estate through the use of COPs, with later COPs re-financing earlier COPs. The County owes about $25 million in this form of financing as of June 2009.

Teeter Plan

The County’s Debt related to the Teeter Plan has received quite a bit of attention in the Press lately. However, this form of Debt represents only 2% - 3% of the County’s Total Long Term Debt. This has received far more attention than it deserves relative to retirement benefits debt.

The Teeter Plan is a State-approved system for collecting and disbursing property taxes. Counties collect all property taxes. Then they distribute most of them to cities, school and special districts. Under the Teeter Plan the County pays all taxes dues to these entities even though a certain number of taxpayers always default on paying those taxes. Counties usually borrow money to bridge the gap between the initiation of these delinquencies and their ultimate collection. They are almost always collected, even if the underlying property has to be sold at auction. The County takes the collection risk and receives the delinquent tax payments and the penalties and interest for the tax-defaulted properties when the taxes are paid.

Unfortunately, the County appears to have used about $11 million to finance operations that it has not yet collected from delinquent taxes. This creation of net long-term debt through the management of a Teeter Plan appears to be very unusual in California. Under normal circumstances the balance of Teeter-related debt due is less than the delinquent taxes receivable.

Frankly, we don’t know whether the “Teeter Debt” is somehow reflected on the Balance Sheet or not. What we do know is that it is not a significant part of the County's debt.

Fund Balances

There is an issue about the “Mental Health Fund”, but we're not sure what it is. Apparently the County received State funds for specific Mental Health program. But some amount of those funds were spent for other purposes. The State is now demanding several million dollars back. There is also an issue about receivables the County shows from the State that will probably never be collected - again for millions of dollars.

There's something to all this. But we haven't pursued it because the other causes of the County's debt - especially retireement benefits - has occupied our time.