(San Mateo) Report asserts county has been fabricating deficit

By Rob Franklin, Half Moon Bay Review -

San Mateo County’s Board of Supervisors has been fabricating a “structural deficit” for the past decade to maintain a budgetary surplus, according to the civil grand jury’s report released last Monday. The report asserts that the county has neglected to recognize all sources of revenue when outlining the annual budget, habitually omitting what is called Excess ERAF.”

“The structural deficit only seems to exist because the county chooses not to recognize Excess ERAF,” said the 2012-2013 grand jury foreman Timothy Johnson in a phone interview.

The term Excess ERAF refers to the surplus left when Educational Revenue Augmentation Funds exceed school funding requirements. In 1992, the State of California created ERAF as a means to address the state deficit’s toll on the education budget. The mandate stipulates that individual counties are partially responsible for funding education and must reallocate specified portions of property tax revenue to ERAF.

San Mateo County is one of just three counties with an excess of ERAF along with Napa and Marin, due primarily to high property values. With Excess ERAF included, there has not been an actual deficit “since at least 2003,” according to the grand jury’s report.

The county says that the excess money should not be incorporated into the annual budget as revenue, considering it as “one-time” amounts because the state can cut the program at any time.

In a biting op-ed for the Daily Journal that responds to the grand jury’s report, San Mateo County Manager John Maltbie criticized the grand jury for both its secrecy and their perceived “abysmal lack of understanding of the principles and practices of budgeting and financial management.” Maltbie echoes the rationale that the county board does not incorporate Excess ERAF because it takes a “conservative approach to budgeting uncertain funding sources.”

“They say it’s one time, but they don’t treat it as such,” said Johnson in response. In the past, the excess money has been used for ongoing operations, for various county projects such as new jail properties, and to balance the budget for the past five fiscal years, according to the report.

The dubious deficit has also been used to sway legislation, according to the grand jury. The report accuses the county of hiding the true nature of its finances in order to deceive voters into supporting tax increase measures T, U, X, and A in 2012.

In the June 5, 2012 election, the ballot arguments in favor of these measures cited that the county was dipping into reserves each year to balance the budget, making San Mateo’s finances appear strained.

For T and X, the official statement included, “next year, San Mateo County will face another $28 million budget deficit, an amount that could exceed $50 million by 2017, even while utilizing reserves.” While the Board reported a $28 million deficit, it actually had a $26 million surplus with everything accounted for, according to Johnson.

Based upon its findings, the grand jury offers various recommendations for the Board of Supervisors including: that they begin listing Excess ERAF in the budget, that they cease stating that the county has a deficit unless all revenue streams are accounted for, and, lastly, that the Board adopt a procedure in which they provide a financial report of all anticipated revenue and expenses when tax measures come to public vote.

These provisions reflect a desire for more transparency in government, especially when it comes to county finances. Though not legally bound by the recommendations, the county board must respond officially within 90 days by holding an open session to address the findings.

The Board maintains that the structural deficit is not only very real but also critical, according to Board of Supervisors President Don Horsley.

“Talk to the person who runs our county hospital about the cuts they’ve been forced to make. Talk to the employees and unions who haven’t had a raise in five years,” said Horsley. “If you just look at budget books, you may come to one conclusion, but talk to the people who have been affected directly.