The Impact of the Debt

Loss of Local Control Over Budget

About half the County's funding comes from the Federal and State governments and the other half comes from "independent-local" sources. The Federal-State funds have significant restrictions about how the money can be spent. They also often require some amount of "matching funds" from the County; these funds are also restricted as to how they can be used.

We estimate the truly discretionary part of the budget is somewhere between $30 to $45 million. The County must pay its debts out of this part of its budget; the Federal and State governments are not interested in providing funds to pay our debts. The more debt - the less local control over the County's resources.

We estimate the amount of the County's discretionary fundging consumed by debt payments grew from about 20% in 2000 to 40% in 2007. Given the likely increased debt payments in the next couple of years, it should be more than 50% soon.

Reduced Public Services

Nearly$500 million will be extracted out of Mendocino County's discretionary local funding over the next 2 to 3 decades to pay debt. It will produce not one minute of public services or one dime of improved County infrastructure.

Increased Fees and Other Taxes

Pressure will increase within the County to increase discretionary revenues. This can only come from County controlled taxes - primarily the "bed tax" - and fees-licenses-fines-etc. Together these are a little less than 20% of the County's total revenue. The County may evaluate selling fixed assets as well.

Pressure on the County Workforce

Most of the County’s budget is spent on its staff. The more debt payments are, the less can be paid for staff. The growth of the County’s debt is going to bring pressure to reduce the amount (or at least the growth of the amount) the County spends on its current and future staff. This can’t be avoided.

Cuts in Retiree Healthcare

The County Board of Supervisors since 1996 has needlessly forced an extremely difficult and painful decision on their successors - whether to substantially reduce and change the retiree healthcare benefit. They have consistently denied that the County has a legal obligation to provide this benefit. If so, then the County would have a unilateral right to cut or even eliminate it. We expect to see this theory tested within the next few years.

Could Mendocino County Go Bankrupt? - The City of Vallejo

We have no "position" directly on the issue of whether or not the County of Mendocino will or should enter bankruptcy. But if the County keeps digging the debt hole deeper it will go bankrupt.

The City of Vallejo filed for bankruptcy in May 2008. Its major goal is to reduce the amount of pensions and other benefits it already owes. On March 13, 2009, in the first ruling of its kind, the bankruptcy judge held the City has the authority to void its existing union contracts unilaterally. The City is still negotiating with its unions and hasn't voided the contracts - yet. If it does there will no doubt be further legal and political action. But local and state governments all over the nation are watching with great interest. Like it or not, if this ruling stands many more governments will file bankruptcy with the same goal.