By Dan Walters The Sacramento Bee
Published: Wednesday, Jul. 21, 2010 – 12:00 am | Page 3A

The state’s perpetual budget crisis makes headlines, but California’s 5,000 units of local government – counties, cities and school, fire, park and water districts – also are feeling financial pain unseen since the Great Depression.

Stagnant or declining revenues – property and sales taxes and state aid – and unsustainable, sometimes improper, spending have brought many local entities to the brink of insolvency.

The city of Vallejo is already in bankruptcy court. Tiny Modoc County is headed that way unless it gets an emergency loan from the state. Maywood, a small city in Los Angeles County, is virtually disbanding itself. Dozens of school districts have been placed on the state’s financial distress list.

Los Angeles and San Diego are facing big unfunded liabilities in their city pension funds, with no easy solutions in sight. They, like the state and many other local governments, fattened public pension benefits a decade ago on the naive assumption that their trust funds would continue to earn hefty returns.

Every week produces some new local government calamity, Maywood was last week’s poster child for fiscal distress, and Modoc County, in California’s northeastern corner, is this week’s.

Maywood and Modoc County are cultural, political and geographic opposites, but their similar plights indicate that fiscal distress knows no boundaries. It’s happening everywhere.

Modoc County supervisors voted Monday to ask the state’s Pooled Money Investment Board for a $12.5 million loan, saying it cannot otherwise meet its July payroll, and hired a bankruptcy attorney. “We’re on our last legs here,” said board chairman Dan Macsay.

While the overall economic malaise has hit Modoc County, its crisis stems mostly from a foray into hide-the-pea financing. The county-owned Modoc Medical Center has been losing money for years, and county officials covered the losses by secretly – and improperly – transferring money from special-purpose county funds, such as the road maintenance fund.

“Treasurer and past auditor were intimidated to make payments for Modoc Medical Center,” the Modoc County grand jury says tersely in a recent report.

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