Once at $21 million, county’s estimated post-fire deficit now at $2.2 million

The outlook for the county’s general fund has brightened, but a projected $14 million shortfall is on the horizon as recovery costs from the state’s worst fires soar.|

The latest financial forecast for Sonoma County government anticipates a $2.2 million budget shortfall at the end of the current fiscal year in June because of the October wildfires, a giant improvement from the $21 million gap officials estimated three months ago.

The smaller shortfall comes in part from a $9.5 million advance payment expected from the Federal Emergency Management Agency and $5 million in funds set aside by the Board of Supervisors, county staff members said Tuesday. Also alleviating some of the disaster costs this year are dollars from the state to compensate for lost property tax revenue and millions more in savings achieved through belt tightening from various county departments, officials said.

But while the outlook for the county’s general fund this year has brightened, officials expect a $14.2 million shortfall next fiscal year as recovery costs from the most destructive fires in state history soar.

The county’s financial future is further clouded by lingering uncertainty over its share of the debris removal cost, which current estimates place between $9.4 million and $18.8 million, depending on the size of the total government cleanup bill.

County officials do expect more reimbursement from FEMA for disaster-related expenses, but those funds - whenever they come - may face an audit that could require the county to return some of the money.

“This is a very sobering reality,” said Supervisor Lynda Hopkins. “The amount of uncertainty is tremendous ... We need to be very careful.”

Tuesday’s wide-ranging budget workshop also provided supervisors their most detailed public view to date into the ongoing financial troubles of the county’s embattled Behavioral Health division, which oversees mental health and substance abuse services. It narrowly avoided proposed layoffs after securing a one-time infusion of state funds, but deep and controversial cuts to various nonprofit service providers remain on the table.

“The challenges the department faces are substantial, and they’re not a result of an economic downturn: They are the result of poor fiscal forecasting, the lack of internal controls and operational inefficiencies,” said Barbie Robinson, the county’s Health Services director. “The changes that must be made are both necessary and terribly painful. They will impact our dedicated and professional staff, they will impact our contract providers and, most importantly, they will impact our clients.”

Rod Stroud, the health department’s assistant director, told supervisors Tuesday the Behavioral Health division had consistently overprojected the amount of federal funds it would receive, particularly in the last two fiscal years, when officials forecast increases in federal financial participation but funding actually remained essentially flat. Since the 2014-15 fiscal year, the division’s deficits have totaled more than $30 million, Stroud said.

Supervisor Shirlee Zane, a longtime advocate for mental health funding, said she poured over the materials provided by county staff members for this year’s adopted budget and was troubled to find nothing indicating the serious extent of the challenges faced by the Behavioral Health division.

“There were no huge red flags,” Zane said. “You’re telling me there’s five years of deficits there? That’s really discouraging. I’ve approved five of those budgets, and they were always presented to me as balanced budgets. ... We’re faced with some really horrific and painful choices over the deficits in mental health.”

Other supervisors echoed their dismay over the division’s budget problems. Hopkins said the poor fiscal forecasting suggested “dereliction of duty and potentially malfeasance.” But no board member said who, exactly, they faulted. Neither the supervisors nor Robinson or Stroud ever named Michael Kennedy, the division’s director, who went on paid leave earlier this month and does not appear to be returning. Dr. Michael Kozart, the county Health Services medical director and lead psychiatrist, is filling in for Kennedy until an interim director of the division is found.

Zane, meanwhile, is pushing county officials to stave off the proposed cuts to community nonprofits this fiscal year. Supervisors are expected to consider a plan to do so as soon as next Tuesday.

Another key area affecting the county’s budget is lower-than-expected revenue from the county’s fledgling program to regulate the cannabis industry.

Revenue from the program - including taxes, fees and fines - is now expected at $3.4 million instead of the $5.2 million previously budgeted, according to program manager Tim Ricard. But since expenses are coming in far below budget as well, the cannabis fund is expected to end the year with a balance above $1  million, Ricard said.

The county’s cannabis program has received 151 applications, of which just five have been approved so far, according to Ricard, who is expected to appear before the board for a more detailed discussion of the program April 10.

Supervisor David Rabbitt said the cannabis industry needs to “step up,” and called for more pot farmers to participate in the regulated trade. Rabbitt’s district includes the Petaluma area, where recent cannabis-related home invasions rattled rural residents. He indicated a desire for more code enforcement and revisions to county land-use rules around pot farming.

“We need to really figure out what we’re going to do in this county, because you have people that are living afraid in the rural areas, and that’s not OK,” Rabbitt said.

As the county moves toward its next round of budget hearings in three months, officials are also negotiating with organized labor groups whose contracts are expiring this year. A previous effort from a coalition of unions to extend their current contracts by one year fell apart over a proposed 2  percent pay increase the county said it can’t accept in light of its fire-fueled budget challenges.

Numerous workers wearing purple and holding labor-supportive signs from SEIU Local 1021 - the county’s largest union - filled the board chambers Tuesday afternoon and tried to cast doubt on the county’s claim it can’t provide raises, pointing to several positive economic indicators, including optimistic forecasts about the region’s recovery from the fires.

“Please don’t leave us out of the picture - we want to live here, too,” said Paul Foster, an employee in the clerk-recorder-assessor’s office. “Staying even means going backwards for us when we are counting every last dollar to pay our family bills.”

The recommended 2018-19 budget from the County Administrator’s Office is due out in mid-May. Budget hearings are scheduled to begin June 11.

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