A Humboldt
County grand jury report released Wednesday found the multi-million dollar
Headwaters Fund isn’t being managed well enough by the county to fulfill its
long-term purpose, hasn’t undergone reviews mandated by its charter, and should
be turned over to a nonprofit to prevent further erosion.
Both the
fund and its charter were created by the Humboldt Board of Supervisors in 2002,
after Humboldt County was given $22 million dollars by the state and federal
government as compensation for the sale to the Bureau of Land Management of
what would become the 7,500-acre Headwaters Forest Reserve. Supervisors voted to
sock away $18 million of that payment in what would become the Headwaters Fund.
“I
represent a district that lost a tremendous amount of jobs with the loss of
PALCO (Pacific Lumber Company),” county 2nd District Supervisor and board
Chairwoman Estelle Fennell told the Times-Standard on Thursday. “I have copy of
the original check for $12 million from the state that says in the description,
‘For jobs and job training for displaced workers.’ I think that’s what most
people saw the purpose of the fund to be. It was to really make up for the loss
of jobs for handing over this large tract of old growth forest to the Bureau of
Land Management.”
But
according to the grand jury report, the fund’s investment portfolio isn’t
living up its charter, which pledges to “keep the funds working in the
community in perpetuity.”
FUND
‘EROSION’
The grand
jury report states that the fund’s balance has dropped 20 percent from its 2009
peak of about $20,790,000 to its 2013-2014 fiscal year ending balance of about
$16,540,000.
“The
Humboldt County Grand Jury finds the current Headwaters Fund investment
portfolio, managed and invested by the Humboldt County Treasurer to be
inconsistent with the charter’s mandated ‘in perpetuity,’” the report states.
The report
states that this is partially due to the Board of Supervisors’ decision to
amend the fund’s charter in February 2014 to allow the county treasurer to
invest up to $10 million of the fund outside the county’s investment pool — the
amount of revenue collected by the county’s various agencies.
Fennell
said that this was done as returns from Headwaters Fund investments into the
county’s investment pool were poor.
“When you
hand it over to the treasurer, he can then put it in through outside investment
streams that might bring back a greater return,” she said. “... The strategy
was, let’s try to get something more from this money, but not to gamble off
it.”
The grand
jury argues that this safe investment approach only protects the fixed dollar
amount of the fund, but does not allow the fund’s balance to keep pace with
inflation and increases in the cost of living.
“The
consequence will be over time an erosion of the funds ability to serve its
original purpose,” the report states.
County
Treasurer John Bartholomew said he was advised by the County Counsel’s Office
not to speak about the report until he files the required formal response.
Another
investment the report criticizes is $2 million being used for large
infrastructure projects over an eight-year period with no mechanism for replenishing
the invested funds.
Because of
these reasons, the report recommends that the board transfer management of the
fund’s investment portfolio from the county treasurer to the nonprofit Humboldt
Area Foundation.
“Humboldt
Area Foundation, even with the economic downturn of 2008-2009, has over the
last ten years been able to achieve a 6.7 percent return on over $90 million in
investments,” the report states.
Fennell
said that should the board consider this change, it would be a more risky
approach.
“It may
bring you greater dividends, but it also entails more risk,” she said. “That’s
why we went with the idea of giving it to the treasurer.”
The report
argues that as the fund manager, the treasurer “must take a reasonable amount
of risk” in order to be able to make future investments and acquire the money
needed to do so.
A call to
the Humboldt Area Foundation was not returned.
CHARTER
REVIEWS
Though the
Headwaters Fund charter mandates that the charter undergo review every three
years and that the public be given a chance to input in the drafting of that
review, the grand jury found that such reviews have not taken place since the
charter’s creation in 2002.
“Representatives of the Headwaters Fund Board
verified that no such written documents existed,” the report states.
Fennell
said that is a “key issue” brought up in the report.
“I’d
definitely welcome a charter review,” she said.
A call to
the Headwaters Fund Board was not returned.
April
29, 2015
Eureka
Times-Standard
By Will Huston
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