Balancing Act

PIMA COUNTY IS stumbling toward the end of the 1998-99 fiscal year weighted down under a $49 million debt. And that's the good news. County Administrator Chuck Huckelberry is preparing to recommend a new budget of around $800 million, a 7 percent increase over the current budget, that he hopes will include enough new revenue through higher property taxes or--still a long shot--a half-cent sales tax.

Feature Huckelberry is essentially going it alone. The Board of Supervisors, except for a few attempts by Republican Ray Carroll, has shown little interest in the county's fiscal crisis. The Board has consistently put off decisions on the current overspending, refused to cut largesse to pet non-profit agencies and pet projects, and, in clear testimony to its insouciance, has delayed hearings on Huckelberry's new budget proposal until next month--the latest start in memory.

In addition to the continuing costs that have stretched the county's bank accounts past their limits, the county will have to come up with $21 million a year to operate and maintain the new juvenile detention center and new jail.

Sheriff Clarence Dupnik, a Democrat in office since 1980, says he will need another $14.5 million for equipment, including cars, computers and radio communication systems, in the next couple of years. Another $8.9 million will be needed for additional personnel--including about $5.3 million for new deputies.

In addition, Kino Community Hospital continues to drain the healthcare budget. Even if Kino can reverse its spiral, perhaps with the help of new patients if the state lifts the freeze on the county's HMO and allows it to enroll new indigent patients, Kino still owes about $40 million to the county general fund and to a pooled account that includes restricted school and fire district dollars.

It's not as if the county was forced into austerity. Through the 1990s Pima County taxpayers have given their Boards of Supervisors record amounts of cash and permission to borrow a record amount of more money.

Pima County's levy--the amount that could be taken from taxpayers--rose from $164 million for the 1990-91 fiscal year to $194 million for the 1998-99 fiscal year. That 18 percent jump in the amount that could be collected came despite a 6 percent drop in the overall tax rate that meant, in gross terms, a roughly $30 cut in the tax bill for the owner of a $100,000 home. But even as the tax rate dropped, property values climbed, so few if any property owners saw any savings.

Local property taxes account for less than a quarter of the county's budget, but nearly half of the general fund budget. Other revenues come from the county's share of state sales taxes and auto licenses, federal and state healthcare programs, grants, development and other fees, and fines.

Spending by the county through the decade, including consecutive dips in the first three years, has risen 35 percent from $594 million to the anticipated $800 million for the 1999-2000 fiscal year that begins July 1.

Voters had enough confidence in 1997 to give the county permission to borrow even more--$712 million--for a long list of improvement and construction projects that will be repaid by property taxes, gas taxes and sewer fees.

And the county has had more people to get the job done. Twenty percent more, in fact, from 6,354 employees in 1990 to 7,648 now.

Budgets show more money from more people. But more importantly, they show more money for more people. Between 1990 and mid-1998 the county's population rose 24 percent, from 666,880 to 823,900.

In unincorporated Pima County, population jumped 26 percent, from 247,540 to 311,310. With that many people, unincorporated Pima County would be the fourth largest city in the state.

Counties, always extensions of state government, were never designed to provide urban-level services.

It is particularly troubling not only because of the burden cities can take off all county residents by providing much of their own services, but because state revenue schemes greatly favor cities.

In addition to having their own authority to levy taxes and fees, cities receive $190 a year in state revenue for every one of their residents. With 250,000 people--an estimate that easily leaves out anti-incorporation forces in Green Valley--put in cities or towns, another $47.5 million in shared revenue would be distributed annually in Pima County.

In 1990, the county issued 1,191 permits for new homes. Through the end of this year, the 10-year figure is estimated to reach 22,163. Countywide, for all residential construction including single-family homes, townhomes, apartment complexes and mobile homes, the total from 1990 through 1998 is 71,771.

AS A RESULT of this frenzied growth, the Board of Supervisors is now facing a host of social and financial problems.

Take a look at the criminal justice stats. As Sheriff Clarence Dupnik will tell you, more people means more crime. And Tucson's crime rate has soared, with 7,914 incidents of crime per 100,000 people--higher than those of New York, Washington, D.C., Philadelphia, Los Angeles, Dallas, Detroit and Phoenix, according to the Uniform Crime Report.

The number of calls to the Sheriff's Department for service has jumped 67 percent in the '90s. The number of arrests has tripled and is expected to reach 22,216 this year. The sheriff's patrol divisions are chronically understaffed at 1.27 officers per 1,000 population. (The national average is 2.2 per 1,000.) And the jail inmate population has climbed 60 percent. The jail, expanded under pressure of a federal court order and opened in 1987, is now at more than double its 731-person capacity.

More cops and more arrests create more criminal cases: in 1993, Superior Court judges on the criminal bench averaged 343 new cases, adjudicated 350 cases and had a backlog of 279 cases. That rose last year to an average of 427 new filings, adjudication of 420 cases and a backlog of 392 cases, according to Presiding Judge Gordon T. Alley. Of that, there has been a 62 percent increase in assault cases, a 27 percent increase in homicides, a 20 percent increase in drug cases and an 11 percent increase in DUIs.

With more court cases, the county needs more money for indigent defendants. Spending, at $15 million this year, is difficult to control and dependent on the cases prosecutors take to trial. Indigent defense is more than $2 million over its budget, largely due to bills from appointed counsel.

Pima County prosecutors keep the system bursting. Thirteen criminal judges in Pima County presided over 608 trials (or nearly 47 per judge) two years ago. Compare that to Maricopa County, where 21 criminal judges heard 721 trials (or 35 per judge). Pima County judges heard roughly 34 percent more criminal cases than their Maricopa colleagues. Long a concern of county officials, the trial-rate issue is dismissed by Democratic County Attorney Barbara LaWall, just as it was by her Democratic predecessor and mentor Stephen D. Neely. Says LaWall: "I wasn't elected county plea bargainer."

In all, taxpayers in the last 10 years have increased their annual payments for the county's entire law enforcement and justice system from $75 million to $129 million--a 71 percent increase.

And those are just law-and-order costs. Other budget busters include:

• Wild, uncontained costs at Kino Community Hospital and the overarching county health system have created a debt bumping up against $50 million. Kino, a small hospital by Tucson standards, is buried under $40 million in debt. And the health system lost $14 million in the last 12 months under the direction of Dr. Richard Carmona, a former Tucson Medical Center trauma surgeon who earlier chaired the county commission that recommended against spinning off Kino and the health system.

• There are lingering effects of property tax cuts ordered by the Republican majority--Ed Moore, Mike Boyd and Paul Marsh--that controlled the Board of Supervisors from 1993 through 1996. Only Boyd, from central and foothills District 1, won re-election in 1996. (And he's trying to land a spot on the Arizona Corporation Commission.) The maximum cut for the owner of a $100,000 house was $52 (or $1 a week). Because of the breaks state law gives homeowners, those in the high-tax Tucson Unified School District saved pennies--or nothing--in some years, with the balance made up by the state. However, the county could have earned $77 million in the last five years had the tax rate stayed at the 1992-93 level of $5.64 per $100 of assessed value, according to an analysis released earlier this year by the county administrator.

• As a result of those Republican tax cuts, the county's reserve fund is dwindling. The reserve fund balance should be 5 percent of the general fund spending, or roughly $10 million. The drop resulted in the county's general obligation bonds being downgraded last year by Moody's Investor Service, which has cost taxpayers through slightly higher interest rates.

• The Stadium District remains mired in debt. The district includes Tucson Electric Park, practice fields and clubhouses that serve the major league spring training home of Chicago White Sox and Arizona Diamondbacks, as well as being home to the Diamondback's AAA affiliate, the Tucson Sidewinders. It had a $5.9 million deficit at the close of the last fiscal year, according to a report by the state Auditor General's Office. Construction costs reached $38 million, up $3 million from the county's projection and about $13 million more than what local promoters estimated the complex would cost in 1995. Huckelberry has taken steps to resolve most of this debt through application of capital funds and restructuring of the complex's debt.

• Operating deficits and debt continue at the Rillito Race Track, a once-prominent quarter horse track south of the Rillito River on North First Avenue. The overall debt ranges from $500,000 to $1 million. Threatened with closure in the early 1980s, the race track was one of Moore's populist springboards to office in 1984, the same year voters approved a measure that said the track must be used for horse racing for 25 years. The referendum remains in dispute and a county legal opinion says it can be overturned by the Board of Supervisors. Some county officials would like to sell Rillito's prime 80-plus acres for $9 million.

• The county's Engineering and Geographic Information System, which got its start with a successful bond vote in 1986, has a nearly $2 million debt.

• The county-supported Southwest Fair Commission, which operates the county fairgrounds southeast of Tucson, has a half-million dollar debt. Pushed by Moore and Boyd, the Board of Supervisors surprisingly granted the Fair Commission, whose members are appointed by the supervisors, an interest-free $500,000 loan for development of a motor-sports park. Much like the pitch from baseball promoters, this venture was billed as one that would pay for itself. The loan came directly out of the county general fund--the same property tax-supported fund that has been too low to beef up thin sheriff patrols. So far only $25,000 has been repaid. The agreement called for annual $50,000 payments.

IN THE FACE of this partial list, the Board of Supervisors has been stunningly detached. Four of its members, Democrats Sharon Bronson, Dan Eckstrom and Raul Grijalva, and Republican Mike Boyd, hoped to enact the first sales tax in county history, which would have raised around $48 million in its first year. But Republican Ray Carroll refused to go along with the plan, which required a unanimous vote of the Board.

Aside from nodding to freezes that come even in the county's flush years, the Board has done virtually nothing to curtail, rearrange or fix spending. And supervisors have not formally taken action to approve the operating debt taxpayers will be forced to repay.

Grijalva, in his third term, contributed by ordering Huckelberry to prepare three budgets: one with a sales tax, one with a property tax increase and one without any tax increase.

With the sales tax dead, property taxes may have to be increased by anywhere from 80 cents per $100 to more than $1 per $100. Homeowners outside TUSD and a few other school districts will see the full effect--at least $80 a year.

Still, supervisors have the latest start in memory to get to work on the budget. Partly to accommodate vacation schedules of Grijalva and Carroll, supervisors won't even sit down to begin hearings until July 6--five days after the start of the fiscal year. Given the county's fiscal condition, which Huckelberry has described as a "crisis," hearings were to begin in May with tentative adoption--setting a spending limit--coming in June. By state law, the final budget must be set no later than the second Monday in August.

Based on their performances in recent years, supervisors are unlikely to get into the details. In the 1980s, in contrast, supervisors would follow line items and vote on department budgets as they were presented in hearings with the understanding that changes could be made before or during final adoption. In 1989, for example, Eckstrom won approval to cut an advertising budget of about $200,000 from Kino Hospital's budget because he and others had grown weary of seeing the hospital's administrator at the time, Art Gonzalez, in every newspaper and television ad.

KINO WILL AGAIN be in the spotlight, whenever it shines, but not over minor line items. Indeed, the lack of budget proposals from Kino and the health system is the cause for the delay in the total county budget proposal that is expected to be released sometime this week.

Besides the $56-million-a-year Kino Hospital, the health system includes the county's struggling HMO, the Pima Health Plan (down from a high of 15,000 patients to 5,000), the Posada del Sol nursing home and home-health services in a total budget that is around $200 million, or a fourth of the projected county budget.

The hold-up is the result of the nearly two-year-old decision by the Board of Supervisors to make management further diffuse and have the health system administration report to an appointed commission. That has been complicated by negotiations that have degenerated into petty political squabbles.

Kino and the rest of Carmona's system have been spun off from their former direct line under the Board of Supervisors, although they remain firm liabilities of Pima County. In response to the years of threats by Moore, Grijalva won approval to ostensibly insulate Kino from political interference in 1997. Although supervisors retain ultimate financial control, they ceded oversight to the offshoot of the commission Carmona once chaired. It is led by Grijalva's longtime friend and political ally Sylvia Campoy, head of the City of Tucson Affirmative Action and Equal Opportunity Office and, like Grijalva, a former member of the Tucson Unified School District Board.

Grijalva got support for the move from Boyd and Carroll, the Republicans who have been strong Carmona supporters. Eckstrom and Bronson voted against that delegation of power.

While Carmona once enjoyed Campoy's strong defense during confrontations with the supervisors, the honeymoon is over. Carmona and Campoy have clashed in meetings, and Campoy and a majority of the commission have complained about Carmona's peripatetic schedule.

The infighting escalated over disclosures of accusations of a time-card kickback scheme involving Kino employees and an investigation of a popular Kino doctor, Charles Blanck, for questions about prescriptions. Blanck had already turned himself into the state Board of Medical Examiners for alcohol abuse.

Campoy has refused to forward Carmona's recommended budgets, saying they are incomplete. Differences came to a head during the commission's June 7 meeting, when Carmona appeared to be waving sheets of paper at Campoy.

Carmona has blamed Campoy and has not been shy about telling her what she should do. In a May 21 memo, he said he was "extremely concerned that the budgets that we have submitted to the commission, in a timely fashion, have not been acted upon by you. Recent press reports as well as assertions by some elected and appointed officials have improperly stated that no budget has been forthcoming. In fact, the budgets have been submitted.... I would suggest that this is an issue of the highest priority."

Campoy was not amused.

In her page-long response, she accused Carmona of making "improper and misleading" claims.

On the budget submittals and review, she told Carmona, "You seem to be deflecting your responsibility.... Moreover, your spin on this matter indicates that you believe that, somehow, I am accountable for the budget situation relative to the problems you have noted. Please cease your efforts along these lines.

"As chairperson of the commission, I am offended by your behavior and simply don't have the time or tolerance to continue dealing with your most recent flurry of memoranda that seem to consistently suggest that I need to account to you or which attempt to quickly divorce your responsibility in various matters."

Carroll, who once visited Carmona last summer at the doctor's home on Coronado Island and says he "trusts" Carmona, entered the fray when he took offense at one of Campoy's comments at the commission's June 7 meeting.

"It's selective response," Campoy told Carmona. "If Ray Carroll asks for something, in a heartbeat, staff is not too busy to respond. If Sharon Bronson or Sylvia Campoy ask for something, you don't have the time."

Carroll took the time to demand a "written and public apology to me and all of the other participants of the June 7 meeting.... I have no intention of accepting your unfounded and unprincipled accusations against me or Pima County staff."

Whether the players will be able to move off this skirmish won't be known until some form of budget hearings begin next month.

Like many public hospitals across the country, Kino has had money problems for much of its 22-year history. Despite the operating deficits and longterm debt, Kino's bills get paid, but only with help from other county funds. Much of Kino's chronic problem is the inability--through mistakes and improper management and training--to collect from payers, either health plans or the federal government. Recent studies have shown that Kino officials consistently fail to file timely claims and that the claims have been fouled by improper medical codes that, in some cases, have not been updated in 10 years.

The key study begun last year by national management consulting firm Arthur Andersen said "the decrease in the ability to collect on receivables has led to a 57 percent increase in debt to the county in 20 months to a current level of $35.5 million."

The same problem was discovered, for a lot less than Arthur Andersen's $140,000 contract, by investigator Bill Heuisler in early 1985. A political figure with close ties then to Moore, Heuisler's discovery of boxes of Kino bills never sent was too sensitive for some county officials, and his work was terminated.

Uncompensated care at Kino two years ago amounted to $5.6 million of the $60 million in gross patient revenues, or 9.3 percent--the highest of all hospitals in Tucson, according to county reports.

Huckelberry says he wants to pay off Kino's and the health system's debt with three annual payments of $15.4 million. The money would come either from the sales tax or property tax increase.

If he fails to gain support for the increased taxes, Huckelberry wants to use the portions of the health system that are projected to have cash balances at the end of the year. The county's units with state indigent care contracts will have a combined $24.7 million in cash reserves at the close of the fiscal year at the end of June.

The county's HMO is one of the health plans under contract by the state's indigent care plan and Medicare alternative, the Arizona Health Care Cost Containment System. Nursing home patients managed by the county at Posada del Sol and through contracts with nursing homes around the county are under the Arizona Long Term Care System (ALTCS).

Carmona, critics complain, has deliberately driven up the balances by refusing to allow those programs to pay Kino for services at the hospital. He is resisting the transfer.

In a June 3 memo to Huckelberry, Carmona said: "Although a seemingly simple solution, as you know, this approach has many potential pitfalls including, but not limited to, the potential threat to the financial viability of our plan at a time when we are preparing for the ALTCS bid process and the fact that although we are an integrated system, ALTCS is not concerned with Kino or the Health System's debt and therefore is unlikely to support such a transfer of funds."

The Pima Health Plan, for the first time, was restricted by state officials during the last round of bids in 1997. The county HMO was not allowed to accept any new patients. That cap may be lifted. But for Kino, it may already be too late.

The Borrowers

The County's Money Problems Have A Lot Of People Pointing Fingers.

PIMA COUNTY SUPERVISOR Mike Boyd was in a comfortable setting. A former television talking head now in his seventh year in the District 1 seat, Boyd was on the set on KUAT-TV's weekly reporters roundtable on May 21, fielding questions about the county's budget crisis.

Asked about Pima County's practice of tapping school districts' money to keep Kino Community Hospital afloat, Boyd admitted the maneuver was a mistake.

"We're going to have to pay interest on it," Boyd said, his tone a mix of apology and surety. "We're not doing it anymore."

But a couple of weeks later, Carol Bonchalk, the county's director of financial and information services, said at a meeting of the Pima Association of Taxpayers that the county was still using commingled funds.

Aside from Boyd's lack of awareness, the quiet borrowing by Pima County to cover portions of Kino's now $40 million debt has spawned mystery and a blame game that could develop only in the sprawling operation that is county government. The mystery is further cloaked in the arcane laws of government finance and government accounting principles that must somehow catalog activities in the daily crush of managing several hundred million dollars in the multiple accounts of the county, school districts, fire districts and improvement districts.

The revelation came without fanfare in a February 3 letter from the state Auditor General, that stated as of June 30, 1998, "Deficit cash balances of county activities are being covered by restricted school district cash balances because unrestricted (county) cash balances are not sufficient to do so."

Explosive enough: Money for school kids being siphoned to cover losses at the county's chronic money-loser, Kino Hospital.

In the sometimes vicious and always petty sport that is Pima County politics, the quick draw was on Treasurer James Lee Kirk, the 72-year-old Republican who has occupied the southeast corner of the Old County Courthouse since winning election to the first of his eight terms in 1968.

It is the treasurer who manages and distributes tax revenues.

Kirk's office has had its own problems. As early as 1974, thousands of dollars in interest owed to the Tucson Unified School District was diverted into the county's general fund. Twenty years later, Kirk's office botched the interest allocations to 60 accounts. Repeated reports by the Auditor General said Kirk needed to address problems in interest allocation. And finally, Kirk was hit by scathing management audit reports that faulted him for archaic practices that led to a combined $4 million loss for the county and school, fire and special districts and for an "overt personal relationship" with his chief deputy, Barbara Lynn Chadwick. The audit came just as the campaign season kicked off in early 1996. He won easily anyway.

ONCE AGAIN, KIRK has been thrust into a defensive posture. This time, the defense is somewhat muted. Though the county's borrowing from the pooled accounts has been the subject of a few articles in the dailies, no reporter had contacted Kirk until The Weekly interviewed him earlier this month.

The denial was ready. Kirk is being made to be a scapegoat, he says in a statement that, oddly, was a request for a retraction that he sought from no one in particular and never sent.

Kirk says Finance Director Carol Bonchalk "chose to show in Pima County's fiscal year 1997-98 Comprehensive Annual Financial Report that the negative balances of Kino Hospital, the Stadium District (including Tucson Electric Park) and certain other county entities were covered by 'investment trusts,' which led the Auditor General to make the statement that 'deficit cash balances of County activities are being covered by the restricted school district cash balances.'

"In truth and in fact, the treasurer did not borrow or transfer any monies from any school district to cover deficit balances in some county funds," Kirk says.

Rather, he explains, Bonchalk and her staff paid Kino bills with warrants that were covered by other county funds.

And he says Bonchalk and County Administrator Chuck Huckelberry made the financial reporting choice to protect the county's bond ratings, which suffered a slip in one case last year.

NOTHING IS SIMPLE in county government. In fact the semi-annual payments property owners make each year may be the easiest thing about it. There are some 70 basic taxing entities in Pima County, including the county, state and five municipal governments, Pima Community College, 16 school districts, 19 fire districts, 22 improvements districts, four water districts and a health district. Some, like the county with five, have distinct tax categories to push the number of separate levies to almost 90.

Still, the taxpayer makes only one check. It is paid to the treasurer's office and deposited. The treasurer acts as a sort of central bank or clearinghouse. Money is kept in two big pools. One is the Local Government Investment Pool, managed not by Kirk but by the state treasurer. Money from the pool can be accessed generally overnight.

Amounts in the pools vary. But on June 9 there was $194 million in the Local Government Investment Pool and another $300 million in the other Treasurer's pool.

The other pool is managed by the county treasurer in other investments. Kino's deficits were covered from this second pool.

There are options when Kino (which lost $14 million in the last 12 months) or other accounts are in deficit. The county can make payments for the negative account out of the combined other funds. Or Kirk could use the county's line of credit with Bank of America, which can easily be increased from its current $30 million limit. Kirk also could utilize registered warrants, a sort of overdraft protection that logs amounts for accounts with insufficient funds that are later repaid with interest.

Faced with more deficits in March, Kirk--as he was asked by county officials to do in 1996--used the bank line of credit. But borrowing from the pooled funds also has recurred. A line of credit should be adequate. State law allows the county to have a line of credit of more than $100 million.

While the finances of each government and the pool fluctuate, the June 30 report--the end of the fiscal year--is a snapshot that freezes the otherwise constant action. It is then that Kino showed its deficit and then that its bills for everything from doctors and medicine to food were covered with pooled money.

Kirk says he knew enough that on June 30, there was $53 million in county accounts, meaning Kino theoretically didn't touch any school money.

Bonchalk doesn't argue that there was that amount of county cash. But how much of it was available is the next dispute.

Even within the county, some funds are restricted. For instance, the county could not use proceeds from bond sales that are awaiting expenditure on one of the many projects voters approved two years ago. The county also could not use federal or state grants or the account filled with fees paid by developers and builders. Use of that money in the 1980s prompted a lawsuit by builders against the county. In the suit, settled just before going to trial, developers complained their fees built a surplus that was diverted to cover deficits at Kino and other county departments.

"The Treasurer can't really say whose money is whose," says Dennis Mattheisen, financial audit director for the state Auditor General. "But if you look at the whole of that pool, most of it is made up of school district money."

The school districts suffered no losses, Mattheisen and other auditors say.

SUPERVISOR RAY CARROLL, a Republican from eastside and Green Valley District 4, said during an April 6 Board of Supervisors discussion of the borrowing that he would rather take money from the development community than "from the kids."

No one from the school districts is howling.

An engineer by training, the old-school Kirk, sometimes in a favorite suede lavender jacket, is at work these days by 5:30 a.m.

Kirk's political life, which includes seven years on the City Council, has far outlasted those of friends and foes. He lived through the three terms of Supervisor Ed Moore, a Democrat-Republican-Independent. While Moore successfully targeted two other elected officials--Democratic Recorder Dick Kennedy in 1988 and Democratic Assessor Alan Lang in 1994--he didn't faze Kirk.

Moore is shooting again. With information from Moore, Carroll is asking the county attorney if Kirk has violated provisions in six laws governing the management of public monies.

Carroll's final question is vintage Moore. "Do you believe that any of the aforementioned issues constitute a defalcation or neglect of duty as stipulated in" the Arizona Revised Statutes?

Kirk is far from riled.

"Politicians," he says of those lining up against him, "oft times fail to see the light. Rather, they feel the heat." TW

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