News - Local News

POSTED: Friday, Nov. 20, 2009

State auditors reprimand county for diverting interest money to general fund

For more than a year, the state's accountability watchdog has warned Whatcom County officials that the county is not following state law when it spends interest income. Now the State Auditor's Office has made it official.

Whatcom County has been issued a finding - the most severe reprimand by state auditors - that officials are violating the law by diverting certain interest income to the county's general fund.

The finding is part of an audit of the county's books for 2008, when interest income from the seven funds in question topped $900,000.

Interest earnings are the third largest source of income for the county's all-purpose general fund, and the money is frequently used to bolster other programs that need a cash boost.

State auditors could forward information about the county's conduct to the state Attorney General's Office, but have signaled they likely won't do that.

Auditor spokeswoman Mindy Chambers has said in the past that the issue is one of accountability, and that the county could open itself up to lawsuits if people are concerned.

County Executive Pete Kremen's administration has been none too pleased about the State Auditor's Office opinion on the subject, even before the Nov. 9 finding was issued.

The issue became so weighty that in January, County Treasurer Steve Oliver warned County Council members about potential consequences from the state and sought further guidance. Not a lot came.

Councilman Carl Weimer also raised concerns, and persuaded the council to begin sending interest income from Flood Control Zone District funds back to the flood fund, instead of the general fund. Other interest funds, however, remain diverted to the general fund.

Dan Gibson, the county's assistant chief deputy prosecutor, said he tried to engage the state in a detailed discussion about what law requires, but was rebuffed.

"I think in effect they were really saying, 'We don't want to engage the argument. We've reached our decision, and that's just where we're going to stay,'" Gibson said.

That's pretty much the case, Chambers said.

"At some point we just have to say, we understand you disagree with us, we believe it's the correct finding, and we give them the chance to disagree," she said.

Oliver said the county's interpretation of the law is likely more accurate than the state's.

"The County Council doesn't need Olympia to tell them how best to invest the county's funds," he said.

Councilman Sam Crawford said having the flexibility to use interest income to bolster the general fund was crucial, especially during the recession.

Weimer noted that voters approved certain taxes - such as for the Conservation Futures Fund and the Flood Control Zone District Fund - for specific projects, so voters likely want the interest income from those taxes to be used for the same purposes.

"Everybody has acknowledged that if we don't fix the problem at some point, it can affect our bond rating if we try to go out and borrow money," he said.