June 27 (Bloomberg) -- Curry County, with heavily wooded tracts along the rugged Oregon coast, is verging on insolvency after U.S. officials designated the northern spotted owl as a threatened species, drying up area timber revenue and making the region reliant on federal subsidies that have ended.
About $7 million in annual payments the county had received from the U.S. government expired in October. That left it with $2.1 million in new discretionary revenue for fiscal 2014, said David Brock Smith, the county Board of Commissioners chairman.
“Curry County is past the brink of insolvency,” Smith said by telephone. “When we have to cannibalize our very unemployment reserves and working capital just to build one last budget, that is insolvent.”
The county of about 22,200 residents bordering northern California is one of 18 in western Oregon that in 1937 began relying on their share of timber sales from federal lands to fund budgets. That changed starting in 1990, when the owl was listed as threatened, slowing logging and leading Congress to offer subsidies to affected areas.
“We used to have all kinds of loggers out here, but now you’re down to about four loggers working,” Joe Gastonguay, the president of Harbor Logging Supply in Brookings, Curry County’s biggest city, said by telephone. “All they’re logging is private timber.”
The federal Bureau of Land Management controls about 2.5 million acres in western Oregon, according to the Interior Department’s website. The U.S. government owns 67 percent of Curry County land, Smith said. He said less than 5 percent of property in the the county is fully taxable.
“Counties like Curry County are teetering on the brink of insolvency because the combination of the loss of safety-net payments and the inability to manage the federal forest lands,” Doug Robertson, a Douglas County commissioner, said by telephone.
Residents are well aware of the bind they’re in.
“Our land is owned by the federal government and so we don’t have any tax monies coming off that land,” said Brent Hodges, 40, of Brookings and the owner of Rivers End Construction, a general contractor.
“If they could loosen their restrictions and allow us to make money off that land and use that as our tax base, we can make ends meet,” Hodges said by telephone. “The way it is now, we’re not.”
Smith said he expects the county to be insolvent by July of next year, the start of fiscal 2015, when it will have $550,000 in working capital left. The county has cut its workforce in half since 2007, to 99 employees from 201, he said. There are just four deputy sheriffs compared with 16 in the mid-2000s.
“We are not able to respond to all of our calls for assistance,” Smith said.
Residents in May rejected a property-tax increase that would have generated $4.5 million a year and helped pay for more deputies. County commissioners are weighing alternatives to put before voters, Smith said.
Pensions being paid to retirees or owed to current and former workers wouldn’t be threatened if the county became insolvent, said David Crosley, an Oregon Public Employees Retirement System spokesman. County workers are covered by the state’s plan, and it would use reserves to cover any shortfalls if the municipality stopped paying into the fund, Crosley said.
Curry County’s revenue decline puts it among U.S. municipalities struggling to pay their bills. In California’s Stockton and San Bernardino, the lingering effects of the property bust and the longest recession since the 1930s led both to file for Chapter 9 bankruptcy protection last year. Detroit is on the brink.
In Oregon, bankruptcy isn’t an option for insolvent communities as the state hasn’t enacted a law to permit it, according to the League of Oregon Cities.
“No Oregon cities have gone bankrupt that we are aware of, and if a city was to go bankrupt, it would need permission from the state,” according to Kevin Toon, a league spokesman.
Debts incurred by local school districts wouldn’t be affected by the county becoming insolvent, so long as there’s a working mechanism to assess and collect taxes, James Sinks, a state treasury spokesman, said by e-mail. Curry County has less than $400,000 in long-term liabilities, mostly owed to the state for a loan to remodel a courthouse and jail.
In Brookings, some businesses are seeing improving economic conditions after the recession, according to Tim Patterson, a co-owner of the Redwood Theater, a movie house in the coastal city at the southwest tip of Curry County. He said new taxes being considered could have a detrimental effect.
“We’re not a large community and drawing $5 million out of it is going to reduce spendable income,” said Patterson, 72, who lives just outside of Brookings, population 6,300.
Yet with logging in the area “almost nonexistent now,” Hodges said, “we’ve seen business decline 50 percent since about 2004.”
The 2.5 million acres of Oregon and California Railroad Revested Lands, known as O&C Lands, are located in the 18 Oregon counties and are run by the U.S. land-management agency.
A 1937 law put the property under federal control and steered half of the revenue from timber sales on the land to those counties, which used the funds to pay for police and other local services. When the spotted owl went on the threatened species list, logging rapidly declined on public lands, cutting the revenue to the counties. Subsidies that began in 1993 to make up for some of the loss ended last year.
State Representative Bruce Hanna, a Roseburg Republican, this year offered legislation that would let local governments seek bankruptcy court protection. The bill failed, he said.
“Some way or another they have to get out from underneath where they are,” Hanna said by telephone. “You’re going to see beginning with the fiscal year July 1 several counties with incredibly diminished public-safety resources.”
In Congress, U.S. Representative Peter DeFazio, an Oregon Democrat, has proposed transferring management of about half the federal lands to a public trust, so timber sales could resume and restore the revenue flow to the counties. The remaining property would be handed to the U.S. Forest Service and be set aside for conservation.
Governor John Kitzhaber, a Democrat, has also asked state lawmakers to help the counties under two bills. One measure would give him the authority to declare a public-safety fiscal emergency in a county and impose an income tax on its residents for 18 months.
Kitzhaber’s other bill would let the secretary of state assume a county’s election-related duties and give the state revenue department local tax-related tasks once the governor has declared a public-safety services emergency because of fiscal distress.
“While we struggle with a long-term solution, we can’t sit idly by and watch these counties and the citizens in those counties slip into potentially grave situations,” Kitzhaber told the Rules Committee of the House of Representatives this month.
“If these counties reach a point where life and property are truly in danger, the tools that I have now are pretty much mobilizing the National Guard,” Kitzhaber said.
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