Fraud Case Threatens County’s Credit Rating

Ventura County’s long-planned Juvenile Justice Center is among several projects that could be affected by the county’s multimillion-dollar Medicare fraud case.

Forced to repay at least $15.3 million in federal reimbursements, the county very likely will see its top credit rating for long-term loans downgraded, county and financial analysts say. This would drive up costs and potentially delay some major capital projects.

Three projects that could be affected:

* The planned $63.5-million juvenile facility. Recently awarded a $40.5-million state and federal grant for the project, the county is responsible for financing the remaining $23 million.

* A $15-million cafeteria and laboratory at the Ventura County Medical Center. Underground utilities have already been installed for the project.

* A $5-million social services and employment center in Santa Paula.

County officials are scrambling to devise a plan to pay off all financial penalties and reimbursements stemming from the Medicare case without jeopardizing the county’s financial future.

“This has become a double-edged sword,” Supervisor Frank Schillo said. “As soon as we pay off the feds, we’re hit with a higher interest rate.”

County Auditor-Controller Thomas O. Mahon said he is preparing a comprehensive plan giving supervisors options on how to cover the costs. One option is to use part or all of the county’s $25 million in reserve funds.

“It’s all about how we address this issue so that we are sound financially,” Mahon said. “There are a number of ways it can be done.”

Another alternative might include using part of the $12 million the county expects to receive from the national tobacco settlement over the next two years to cover some of the Medicare repayments, Mahon said. The federal reimbursement money would most likely have to be paid over three years.

To meet the county’s financial obligations, officials could decide to cut programs or services, Mahon said. He also worries the financial strain may affect the county’s long-term bond rating.

In fall 2001, the county will prepare to sell its bond-like certificates on the new Juvenile Hall--planned for a 40-acre site in Saticoy--as well as other major projects.

Recently the county received top rating for its short-term loan credit worthiness. However, officials now fear the county’s long-term credit rating may drop.

Despite the prospect of astronomical interest rates, the county would find a way to come up with the money for the juvenile center, said Terry Dryer, chief deputy administrative officer.

“Of course we’re worried about the interest rates, but the juvenile center is such a priority,” Dryer said. “The [Board of Supervisors] has always stated that. I believe we’re going to have to manage it. We probably will never have an opportunity to get that kind of money again.”

Perry Young, director of public finance rating for Standard & Poor’s Corp. in New York, said his company typically awards Ventura County top marks for short- and long-term loans because of its history of maintaining healthy reserves. An excellent mark means the county can borrow money at a lower interest rate, saving taxpayers money.

Young said an empty reserve fund would almost certainly have a negative impact on the credit rating for the county’s long-term loans.

Mahon emphasized the importance of the county’s reserves.

“To whatever extent we use the reserves, I’m going to recommend that we immediately take steps to replenish them,” Mahon said. “That could mean using revenues coming in, or using tobacco settlement money.”

Jack Kyser, chief economist at the Los Angeles County Economic Development Corp., said despite the state’s healthy economy, Ventura County officials have reason to be concerned.

“The credit-rating agencies will say, ‘These people have had this problem, their reserve funds have been depleted, what other problems might they have down the road?’ ” Kyser said.

Agencies have been extremely cautious when rating counties in California since the 1994 Orange County bankruptcy, Kyser said. He said the agencies would also consider the slow-growth Save Open Space and Agricultural Resources measure approved by county voters last year.

“They’ll wonder about a slowdown in development,” Kyser said. “So even though the economy is very good, there is a certain amount of stress.”

The financial worries began last year after the county’s disastrous attempt to merge its mental health and social services departments. Supervisors dismantled the 9-month-old superagency in December after federal officials warned the reorganization violated federal billing rules.

The failed superagency sparked several federal and state investigations into the county’s mental health system.

In one probe, the U.S. attorney’s office said the county fraudulently overcharged for Medicare reimbursements from 1990 to 1998. Federal officials requested repayments of $17 million, but county attorneys negotiated a $15.3-million settlement.

Federal officials allege the county used doctors’ names on insurance claim forms for services provided by social workers, psychologists and nurses. In many cases, the doctors never had contact with the patient. A doctor’s name allows for a higher reimbursement.

Supervisors are set Tuesday to continue their debate on whether to approve the $15.3-million settlement. But many officials say after all investigations are concluded, the county will be forced to pay millions of dollars more for other federal and state violations.

Another U.S. attorney probe could cost the county an additional $12 million, officials said. In that case, the county stands to lose all federal money awarded to the mental health department during the nine months the merged agency existed.

“We’ll have to cobble together money from different sources,” said Schillo, who along with Supervisor Judy Mikels voted against combining the two agencies. “We can’t afford to have a lower reserve than we already have. This is a terrible place to be in.”