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Fiscal review provides details on revenue decrease

People sitting at desks with wooden and plexiglass partitions at the front of a room with rows of seats.
The Board of Supervisors chambers was open for in-person meetings for the first time in two years.

From the health plan deficit to the decrease in cannabis tax income, costs are up and revenues are down.

April 21, 2022 — The Board of Supervisors went over budget priorities in a preliminary fiscal review this week, where they learned details about the projected deficit and discussed belt-tightening measures. Interim CEO Darcie Antle summarized the most significant projected shortfalls, saying non-departmental revenue had had to be cut three percent, or $4.3 million, to meet the revenue projections for 2022-23. The health plan deficit is $5.7 million, not including the $2.5 million that have been incurred but not reported. “And as you know, there has been a decrease in cannabis tax revenue,” Antle remarked.

The county got a significant cushion last year from ARPA, the American Rescue Plan Act, a nearly $17 million grant intended to aid those most hard-hit by the pandemic.

Instead, the board agreed last year to consider using ten million dollars of the grant to provide county core services and infrastructure, with $1.7 million of it to hire new staff, in the hopes of increasing staff to pre-covid levels. Almost one and a half million has already been allocated to vaguely defined support for public health covid response, and another $1.1 million to address negative economic impacts. The fiscal team suggested using further ARPA funds to alleviate the health plan deficit.

Supervisor John Haschak expressed some misgivings, saying, “The original intent of the ARPA money was to have real community input into the process. And it doesn’t sit well with me that we haven’t done any community outreach with the ARPA funds and how they're going to be spent. Obviously we’re in a time when we need to fix our budget. But I think we should have been doing community outreach and seeing how the community wanted to use this. Because it was meant for covid relief.”

Deputy CEO Tim Hallman painted an overall picture that was not encouraging. Actual year-over-year revenues are down, he said. “From last year to this year, just in the budgeting alone, we’re looking at a $1.4 million decrease, which does not include cost of living increases… So even though our costs have gone up, our revenues have gone down,” he concluded.

And Deputy CEO Cherie Johnson spoke about the projected $5.7 million deficit in the health plan. “We are researching plan changes and potential increases to premiums,” she told the board. The projected $5.7 shortfall is based on end-of-year claims that will be coming in, and it does include last year’s $1.1 million deficit.

Hallman elaborated on the projected shortfall in cannabis tax. “It is showing close to a $4.5 million dollar decrease over what was collected in the 20-21 fiscal year,” he reported. “This of course is going to have a huge impact to the net county cost and its allocations.”

Michael Katz, the Executive Director of the Mendocino Cannabis Alliance, took the opportunity to highlight the contributions of the cannabis industry to the local economy. “I’m drawn to the information provided in the budget document that shows that in fact the cannabis tax for the year 2020-21 wound up coming in at about $6.4 million, which is about $800,000 more than was previously projected,” he said. “It just goes to show that if you look at the trajectory of the consistent increase in cannabis tax revenue up until this point, that despite the challenges that we’ve had, our community continues to contribute more and more to this county, in the tiniest footprint imaginable, only 290 acres of licensed cannabis cultivation. And so when you’re talking about the budget and how can we identify items that are revenue generating, it’s pretty clear that doing everything in our power to save the existing licensed operators in the cannabis program…is the best immediate chance that this county has to maintain the revenues that it has come to expect from this community.”

Patrick Hickey spoke on behalf of SEIU 1021, which represents most of the unionized county workers, to request a big-picture view of the budget. “From the presentation, we can’t determine if we have a structural deficit, or are just experiencing a routine shortfall,” he declared. “There is no mention of the county’s general fund reserve. The reserve is specifically for these sorts of situations. How much is currently in the general fund reserve? These funds are supposed to smooth out the dips and bumps along the way. The ARPA monies are not the only funds the county can access. The Board has identified a number of promising sources of ongoing revenue for beefing up property tax and TOT (transient occupancy tax) enforcement. The county has a number of unfilled positions that are revenue generators. Filling these should be a top priority. We need to remember that a large part of the county’s budget is not covered by the general fund, but comes from other sources.”

Antle provided more detail on the county’s reserve funds, informing the public that the general fund reserve is at $12 million, while monthly expenses are $18 million. “And then the overall reserve is close to $20 million,” she added, which includes the HHSA and other restricted uses.

The budget workshop and the third quarter report will be on May third, with the budget hearings taking place over two days on June seventh and eighth.

Local News
Sarah Reith is the lead reporter for KZYX News. She joined the KZYX News team in 2017, and covers local politics, water, law enforcement and the arts in Mendocino County.