County taking steps to limit tax increase, assure accountability

As the November 4 vote on the proposed $11 million bond issue to bail out the Washington County budget nears, county officials have been explaining the steps being taken to limit any county tax increase, to ensure accountability for past accounting mistakes and to find ways to cover the county's budget shortfall if the bond is not approved.

David Burns, the chair of the county commissioners, points out that the original proposal for an $11 million bond included the approximately $2.5 million deficit in the county budget, and the commissioners have since decided to use bond funds only to retire the county's current tax anticipation note (TAN) from Machias Savings Bank, so the amount of the bond could be less. The action was taken at the commissioners' October 9 meeting, when they approved a motion to commit to use only the amount of the proposed $11 million bond necessary to pay the existing TAN, currently estimated to be about $8 million. Also, if the TAN principal is reduced by funds paid by municipalities for their county tax prior to the TAN due date of December 31, the bond funds will be used to pay only the remainder of the TAN and interest.

In another effort to reduce the amount of money needed from a bond issue, the commissioners have been looking into whether the county can obtain any funds from bond insurance, since the county treasurer and the three commissioners are all bonded. Burns says that the insurance company's risk management department and the commissioners have a difference of interpretation over what the bond insurance may cover. "We've turned that over to our attorneys," he notes. "We'll ask for what we think we're covered for."

Burns stresses that the possible 40% increase in the county budget is only a proposal that has not been approved by the budget advisory committee or the commissioners. The increase includes funds for the first payment on an $11 million bond, while the county may use only $8 million of the bond in order to pay back the TAN. Any tax payments made by municipalities will also reduce the amount. And the budget advisory committee may be making some cuts in the budget proposal, as their work continues before the next fiscal year's budget is adopted in December. "I hope the 40% will be diminished," Burns says.

Also, the chair of the budget advisory committee, Brian Schuth, the Eastport city manager, has explained that even if next year's county budget does end up calling for a 40% increase, one's property taxes will not be increasing 40%. For many towns in the county, the county tax is between 8% and 12% of a municipality's budget. In Eastport, the county tax currently accounts for 10.4% of one's property tax bill. For a property valued at $100,000, one's property tax in Eastport would be $3,039, with $316 being for the county tax. If the county tax goes up 40%, that property tax in the city would increase by $126. The amount of the increase to pay for the bond issue would be $45, as the county tax hike to cover the bond is only 35.6% of the proposed 40% increase. As Eastport has a high tax rate of 30 mills, for many other municipalities the amount of the tax increase for property owners would be less.

In a release, Schuth says the budget committee recently voted to support the proposed bond, noting that it "offers the only responsible method for addressing the county's financial crisis." If the bond issue does not pass, the budget committee's "ability to do their work on the 2026 county budget will be severely compromised, as the county will be in the unprecedented position of running out of money to provide county services unless some other mechanism is found to raise the $8 million needed by the end of 2025 to set aside the current tax anticipation note," the release states. "Most of the county's services are related to public safety: about three quarters of county expenses go to maintaining the jail, 911 dispatch, emergency management and the sheriff's office. The committee regrets the need for the bond but cannot see any other responsible solution."

Accountability sought

Concerning accountability for the mismanagement of the county budget in recent years, Burns notes that after the county's auditor alerted the commissioners that the former county treasurer, Jill Holmes, transferred $400,000 in unorganized territory funds to the general fund, which is a misappropriation of funds that have since been paid back, he contacted District Attorney (DA) Robert Granger about investigating for any other misappropriations. Because he would have a conflict of interest, Granger forwarded the information to the Maine Office of the Attorney General (AG). Burns believes that, since federal ARPA funds might also be involved in any misappropriation of monies, the AG's office then contacted the U.S. Attorney's Office for Maine. The county had been the recipient of $6.1 million in federal ARPA funds, which were transferred to the general fund to be used for cash flow. The ARPA funds were eventually designated for paying for the new sheriff's office.

As for any possible criminal activity with the county budget, Burns comments, "I don't suspect there was any."

Some have asked that a forensic audit be conducted of the county budgets, but Burns says he has been informed that it would be a lengthy and expensive process. Noting that both the AG's office and the U.S. Attorney's office would have the resources to conduct one, he assumes that "if they found it necessary, they would do that." He adds, "There would need to be red flags that it was needed. Up to now, there's no indication of any misappropriation of funds, but there were accounting errors."

Options if bond issue fails

If the bond issue is rejected by voters on Tuesday, November 4, Burns says the county will need to cut back on services where it is able to do so responsibly. "There are some things we have to provide," he says, noting that the commissioners and the budget committee have been looking into areas to make cuts. "There are some tough decisions we'd have to make. We have to run the jail," he says, adding that the county also is mandated to provide the sheriff's patrol, DA's office, probate court and more. "A lot depends on what the budget committee comes to a consensus on."

He adds that there is no expectation that the state would step in to take over the management of some of those duties. The commissioners have reached out to the governor's office, the state auditor and legislators, and "so far there is little promise of much help."

As for what will happen if the county defaults on the current TAN, Burns notes that it has never happened before in the state, as far as he knows. "I don't know what the results would be." He stresses, though, "We are committed to pay that back. I'm not willing to allow that loan to default. We have to find a way through this." He notes that the county would ruin its credit rating if it defaults, so any further borrowing would be difficult. "It's unfathomable what that would do to us," he says. "It's a mountain to climb, and we're trying to climb it."

Legislative efforts outlined

County legislators also have been involved in working on helping the county out of its fiscal woes. State Senator Marianne Moore of Calais has submitted a bill request for one-time state funding of $8 million to cover the tax anticipation note of $7.6 million plus interest that is due December 31. "If the governor can bail us out, we won't need the bill," she notes. She says the bill could provide an option for the county if the bond issue fails. "It's such uncharted territory," she notes.

Moore also has submitted a bill request to allow the county to declare bankruptcy. She notes that Maine is one of 22 states that does not allow municipalities or counties to file for bankruptcy. "It would allow for Chapter 9 debt reorganization," she says of the bill, noting that a bankruptcy filing would only be done "if the county it totally broke."

The Legislative Council was scheduled to vote on October 23 on the bills it will allow to be submitted in the upcoming legislative session that begins in January, as the second session is generally for emergency bills and those involving budgetary matters or carried over from the first session. The earliest that the bills could be approved in the legislature would be March or April, so it's not clear that they could be passed in time to help the county.

While Moore says she feels comfortable that the Legislative Council may approve the bankruptcy bill, she's not optimistic about the $8 million funding bill. She notes that people are asking why the state should bail out Washington County and that "everyone will want bailouts" if that were to happen. The Washington County delegation will be asking the council to strongly consider the bankruptcy bill.

Concerning Moore's bill for $8 million in state funding, Burns believes it will be "an uphill struggle," but "we had an obligation" to try to get the bill submitted. As for Governor Janet Mills submitting a stand-alone bill for funding or placing funds for the county in the state's supplemental budget, Burns says she has not been inclined to do so.

In addition to Moore's bills, Rep. Will Tuell of East Machias has submitted a bill request to require that county budgets be approved by a county-wide referendum. "There are mixed feelings on it," Moore says. She notes that Commissioner Courtney Hammond has pointed out that voters may not realize the process, which is outlined in statute, that the county budget proposal has to follow, which includes approval by the county budget advisory committee and then consideration by the commissioners. "It's a long process already," Moore notes.

If the Legislative Council does not allow the bills to be submitted in the upcoming session, Moore plans to appeal the decision. The council will then act on appeals about two weeks later.