What Went Wrong?

Repeat - The Core Problem that Created Most of Mendocino County's Debt

It was easy for past County Officials to make promises about retirement benefits to employees that they didn’t have to fulfill. It was easy for Union Officials to get praise from their members by saying “See, we brought home the bacon,” when a big chunk of the bacon doesn’t have to show up for decades. Their agreements were words on a piece of paper; hundreds of millions of dollars didn't show up to fulfill those promises. It is now our problem decades later as the bills are coming due.

Failure of County Officials to Do Their Duty

The immediate and heaviest responsibility for this debt lies with the officials responsible for financial planning and management. Most responsible is the County Board of Supervisors since around 1994. But elected County financial officers and Chief Administrative/Executive Officers share in that responsibility.

There were two main failures of duty:

• Failure to protect the financial health of the County
• Failure to inform and involve the people

Failure to Protect the Financial Health of the County

	1995	2008
Total Long Term Debt Reported	$74 million	$315 million
Total Yearly Payments on Debt	$2 million	$15 million
Percent Yearly Debt Payments Are of Annual County Property Tax Income	~15%	~50%

It isn’t necessary to repeat the analysis made in this report. While one may dispute this or that, the overwhelming evidence is that the County of Mendocino’s Long Term Debt has hugely increased, and has increased far more than it's peers.

The first Supplemental Information Sheet presents a chronology of actions by the Board of Supervisors that step by step led this County into deeper and deeper debt without informing the people.

The second tells more of the story about two of those actions.

	Supplemental Information: Click for List of Board of Supervisors Actions re Debt ( pdf file - 333KB)
	Supplemental Information: Two Stories That Show Board of Supervisors Approach to County Debt (webpage in new window).

Failure of Official Duty to Inform and Involve the People

County officials have a duty to make sure citizens know about issues as fundamental as the very significant growth of the County’s debt, regardless of how it affects their political or career futures. For the most part County officials simply remained silent. They may not have "lied", but they didn’t "tell the truth". And, in several ways they hid this growing debt from the people.

Proceedures that Obscured the Growing Debt from the People

Both Pension Obligation Bonds and Certificates of Participation (a method of financing real estate assets) were specifically designed to avoid a vote of the people in order to enter into that level of debt. The County choose these mechanisms to create most of its "formal debt" reported on its Balance Sheet in large part because they allowed the Officials to avoid involving or even informing the people.

The major source of the County's Debt arises from "Collective Bargaining Agreements" between the County and employee associations, chief of which are the employee unions. The negotiations that created $300 million of unfunded retiree benefit debt were held behind closed doors. Unlike some local governments in California, the County can promise retirement benefits to employees without obtaining the approval of the people in a vote. County Officials used this unfunded and unreported promise to make payments in the future as a way to deceive the people into believing the County had a "balanced budget".

County officials created this huge debt without ever submitting their actions to review or involvement of the people.

Failure of the "Political Class"

As a wild guess, perhaps 3000 to 4000 people are active in local politics at some level. This "political class" is the major influence on local politics. They fall all across the political landscape - liberals, conservatives, greens, libertarians, old yippies, Obamites, and on and on.

The political class did not pay attention to the County's increasing debt. They didn't make it an issue, and they didn't hold "their" elected officials accountable. Their attention was directed a dozens of other "hot button" issues. Now, they don’t get to be liberals/left wingers or conservatives/right wingers with the nearly $1/2 Billion Dollars it’s going to take to pay this debt. We're all now just simply debtors.