Stanislaus County Board of Supervisors Stanislaus County Management Practices Grand Jury Case No. 05-39

Formation of a special district • County places blame elsewhere for special district failures. The Grand Jury witnesses testified that if there was a problem with a special district it had to be a “LAFCO problem” or a “local problem” or concern solely of that district’s taxpayers and board members. The Local Agency Formation Committee (LAFCO) is an agency established by state law under the Cortese-Knox-Hertzberg Local Government Reorganization Act of 2000 as California Government Code §56000 (2005). The county taxpayers pay for its operations. Its board of directors are approved by the BOS. LAFCO has exclusive authority to respond to and approve of citizens' petitions to establish, annex, consolidate or disestablish the boundaries of a special district including fire, water, police, sewer, and so on. It also sets boundaries for city jurisdictions with future expansion boundaries know as “spheres of influence” for future growth as delineated by a twenty-year projection of need. LAFCO does not have the expertise, resources or authority to provide any special district with the means to manage itself. In one special district case, there was a LAFCO-sponsored consolidation of several special fire districts, including the assets, liabilities and personnel overhead. Personnel overhead included retirement benefits, workmen’s compensation and medical expenses. That district failed both financially and operationally. No testimony was given that the county administration ever attempted to create a governmental entity for providing support services to the special districts in their formation or operation phases, as is commonly found in other California counties. These services could include: (cid:131) management training (cid:131) auditing (cid:131) administrative services (purchasing and payroll)

Board of Director Selection Process • The County BOS is involved in all special district board appointments. Many, but not all, special districts require a Board of Directors. Depending upon the special district, individual city governments may recommend a member and taxpayers may have an “at large” member. There is no official written standard or area expertise required of the candidates for these offices other than residence in Stanislaus County and the special service district. The Grand Jury was told that throwing a fund-raiser barbecue for a Board of Supervisor candidate was probably enough to be seriously considered by the Board of Supervisors. The taxpayers and County Board of Supervisors expect direction for the special district management to come from the special district board of directors. The establishment of management practice is left up to the districts' incoming board and senior manager. Management policies and procedures are generated internally to the special district. This provides the spectacle of a new special district not having a complete written job description to hire a competent manager. A competent manager is necessary to create relevant policies and procedures with his appropriate accounting skills and audit knowledge. A major issue mentioned by the one board member questioned during the depositions was the issue of board member liability and the lack of an insurance policy to cover the members. There is none.

Responsibility • The BOS takes no responsibility for special district's failures. A widespread policy of neglect and a lack of personal responsibility by county policy- makers and board appointees were uncovered by the Grand Jury during its investigation. The county’s use of short-term loans based on future tax assessments to bail out financially distressed special districts makes that district a county responsibility. The inability of county policy makers to see their part in the district’s problem produced a mode of inaction on their part (some would call it a reaction). This lack of county involvement has help sustain an expensive burden on county taxpayers. There are sixty redundant special district administrations, many boards of directors, and professional sources of expertise and investments stretched far too thin to be effective. The county does not see the need to change, or even to seek change, despite being made officially aware two years ago that many special districts are in financial trouble. The actions of past special district board of directors members walking away from a district when it is in trouble shows a lack of responsibility to the welfare of that district’s taxpayers.

Planning • The current planning process is deficient. The following areas were identified: (cid:131) County General Plan updating process is faulty (cid:131) Collected demographic data is inaccurate (cid:131) The use of collected data is considered optional by both providers and users (cid:131) There is no universal sharing of planning data (cid:131) There is no county plan to efficiently manage and distribute the data. The County General Plan covers the subjects of land use, recreation, circulation or transportation, conservation, safety, housing, and agricultural use.6 The Grand Jury heard testimony that there are serious shortcomings in the County General Plan updating process. The county policy has allowed multi-year planning, along with all General Plans updating, lapse. One aspect of the County General Plan has not been updated since 1983 although major evaluations and rewrites have to occur at least every five to ten years according to the State code.7 The last evaluation and rewrite under the California Code was in 1998 with a “rubber-stamping” of the Board of Supervisor's policies from those of five to ten years before. The Director of Planning and Community Development for Stanislaus County also doubles as the Executive Director of the Stanislaus Redevelopment Agency. Correct demographic data is vital to the credibility of his agency's efforts. He stated to the Grand Jury that his agency drew its demographic and other vital statistical data inputs to do general planning from the “various county agencies including the cities, special districts, municipal advisory councils in unincorporated areas, residents of the county, the County Board of Supervisors, and even the Association of Bay Area Governments or ABAG.” He identified his primary source as being the Stanislaus County Council of Governments (StanCOG), whose board is made up of members of the Board of 6 See Section 65300 of the California Government Code, which regulates and mandates Stanislaus County general planning efforts. Ibid. Supervisors, three or four members of the City of Modesto, and then one member each from the rest of the remaining cities. The demographic information from housing starts drawn from the cities and the county is passed to StanCOG. StanCOG consolidates the demographic information and passes it onto the State of California, Department of Finance, for their online statewide reporting. The Grand Jury heard testimony that the current State of California, Department of Finance, demographic information relating to Stanislaus County, cities and counties, drawn from StanCOG, demographic input is “misleading”. Not all demographic counts have been collected or verified for accuracy. The Grand Jury checked a sample population count for one city within Stanislaus County to test this idea. The Grand Jury compared the city’s latest demographic count as reported to StanCOG and the State of California, Department of Finance. There were significant discrepancies between the two. According to witnesses StanCOG is in a state of “disarray”, and there is a new StanCOG manager “taking charge.” External to the question on whether the available information is accurate or not, its required use is often considered “optional” by the providers and users. As one county staff member told the Grand Jury when asked what he did with the demographics he collected from the county, “If they want it, they can ask for it.” When asked whether a certain special district ever used his data, a second provider answered, “Once, a year or two ago." The bigger problem is that Stanislaus County’s accelerated growth process has been underway for ten years. No new process of mandatory data integration has been put in place to deal with it. This is a policy shortcoming of the highest order. None of the witnesses including the responsible parties could tell the Grand Jury how or when this would be solved.

Budgeting • The budgeting processes in Stanislaus County are inadequate. The BOS dropped their process of “three-year budgeting.” The current practice is to have all budgeting restricted to one-year or current year “fill-in” basis. The BOS policy has an adverse effect on special districts, which tend to follow the county’s lead by also working with a year-to-year budget. This ignores budgeting for expensive capital assets that require multi-year payments and return analysis. See www. dof.ca.gov 7 The Grand Jury concluded that most taxpayers in Stanislaus County would not believe their tax dollars are being spent wisely or for correctly identifiable needs without comprehensive budgeting plans.

Accounting • County policy makers lack efficient accounting skills. Special service districts receive tax dollars levied within their district from parcel taxes. They also receive government funds to help purchase and maintain equipment and facilities.9 The Stanislaus County Auditor acts in its capacity as banker to the special district in the collection and dispersal of district tax revenue dollars. It pays special attention to dollars allocated to capital funding versus monies for operational expenditures. There are significant differences in how they are to be treated under the tax laws. This process gives the county insight into the financial affairs of each district. The county reviews cash flow and balances between the district records and the county transaction records. None of the policy-makers questioned were found to have formal hands-on education or practice in accounting or audit skills, whether financial or operational. One policy-maker was proud of that fact, “I make policy and leave the rest to the staff.” The Grand Jury asked him whether he was able to question his staff on a technical level to know if they were reporting correct information or not. His answer was “I have to believe them.”

Auditing • Auditing resources are in short supply. Specific audit and accounting experience is found at the county staff level and it is in short supply. Only one CPA is currently a full-time employee of the County Auditor’s office serving a county of five hundred thousand residents. Special districts contract directly for independent certified public auditors. In the Grand Jury review of a failing special district, it was this annual audit that prompted the special district head to doubt the independent auditor’s results, and ask the County Auditor to review the audit. There was no accounting or auditing expertise employed by the district. So, while the district head had a “good audit” in his hands, even though it reflected the misuse of capital funds, he did not personally understand it nor did he have anyone on his staff that did. The county conducts a thorough annual outside audit of county operations. There is no formal audit follow-up by any oversight agency for special districts that may have been in trouble in the past. The Grand Jury was informed that tax revenues are levied on parcel identification but the county has not verified all parcels. The Grand Jury found this information, if true, to be unconscionable in an era where every dollars counts. The policy-makers reported to the Grand Jury that they had to lay-off 256 county employees in 1998.10 Many of the discharged employees were from agencies having government oversight tasks such as Planning, Auditor, and LAFCO. This has had a direct impact on county accounting and audit resources. Policy-makers and staff blamed outside causes including the Proposition 13 in the late 1970s. Currently their complaint is that the state has appropriated too many county tax dollars from the county to allow the county to retain the necessary oversight personnel.11