LOS ANGELES -- Butte County, Calif., which managed to side-step a bankruptcy filing last year, still faces servere financial problems, but they have been overshadowed because so many other public entities also are in dire straits.

Bridgeport, Conn., and the Richmond Unified School District in California captured the municipal market's attention in recent months with Chapter 9 bankruptcy petitions.

At the same time, California is occupied with budget problems of its own that have temporarily tabled efforts by the state to examine whether it can come to the county's assistance again this year. A state aid package last fall enabled Butte to avoid a pending bankruptcy filing.

"We have to have some massive state help" this year, said Will Randolph, the county's chief administrative officer. Otherwise, Butte County's Board of Supervisors will have "no choice but no follow Bridgeport."

The county is facing another deficit in fiscal 1992, which began July 1. A utility users' tax under consideration would cut into the $17.7 million deficit, but Mr. Randolph said Butte still cannot balance its budget without state assistance.

California leaders this summer approved the state's largest package of tax increases ever -- combined with spending cuts -- to eliminate a $14.3 billion budget deficit. Last week, however, final budget details still were being debated. Accordingly, it seems like a difficult environment for Butte or any other county to seek aid.

"Everybody's on hold," in terms of seeing what help may be available from the state, Mr. Randolph said.

But the county official sees a silver lining.

The new administration "is much more aware of the structural problems" facing California counties, he noted. Based on signals from Gov. Pete Wilson, who took office in January, county officials believe there is a willingness to try to reform the problems causing financial stress, Mr. Randolph said.

The former governor, George Deukmejian, last summer vetoed $20 million of state funds the Legislature had designated to help financially distressed countries. Mr. Deukmejian said at the time he was not convinced a bailout would be the best approach because the problem is due to "both structural and managerial causes and requires a well thought out, long-term solution."

Gov. Wilson and state legislators tackled certain structural reforms in the new budget by approving the concept of realignment, which transfers responsibility for $2.2 billion of social service and health programs to the county level. Vehicle license fees and the state sales tax are being increased to provide funding to help the counties run the program.

Realignment is expected to provide certain benefits, such as centralizing program administration at the local level and letting counties tailor programs to address unique needs. There is some concern, though, especially if the cost of programs grow faster than allocated revenues.

It "concerns us all" if revenues fail to keep pace with caseload growth, Mr. Randolph said.

And realignment in and of itself is not a panacea for certain county problems, he noted. The changes "have not addressed the fact that poverty is carried by the counties that can least afford it."

County officials nationwide have complained in recent years that they are mandated by federal and state governments to provide many services without receiving commensurate revenues to run the programs. These expenditures have eaten into discretionary funds. In addition, local revenue-raising opportunities often are limited, a problem heightened in California because of the property tax restrictions imposed by Proposition 13.

Meanwhile, Butte's welfare assistance costs have skyrocketed in recent years. Low-income individuals migrated to Butte County because they can stretch public assistance further in an area with a ow cost of living, compared with more expensive regions of the state.

Mr. Randolph expressed concern that the new state budget -- which cuts welfare grants 4.4% -- could "exacerbate the trend" of migration when recipients receive the same funding levels whether they live "in San Francisco or Oronville."

The California Legislative Analyst's Office noted this problem earlier this year in a report on the state's Aid to Families with Dependent Children Program. During the 1980s, the report noted, a substantial portion of the program's growth occurred in rural counties or those in the San Joaquin Valley.

"These areas accounted for 41% of the total caseload increase, even though they accounted for only 14% of the state's population during this period," the report said. "Migration of [welfare] recipients from high-cost to low-cost areas of the state is likely to have occurred in order to maximize the purchasing power of the grants, which are the same dollar amount in all 58 counties."

The analyst's office suggested reform may be needed, possibly by reducing the incentive to move by varying grant levels by region.

"We don't want to be bailout junkies," Mr. Randolph said, but unless further reforms are enacted Butte will remain dependent on state financial assistance.

Pending legislation proposes restructuring previous loans made to Butte by the state, thereby providing relief by stretching payments out over 20 years. That move and imposition of a utility users' tax in unincorporated areas of the county could whittle the deficit to a $6 million gap, Mr. Randolph said, meaning additional state aid would still be necessary.

And support for imposing the tax is by no means certain. "That's a very tough political decision," Mr. Randolph said. County voters have steadfastly opposed other tax increases, partly because of concern they are picking up the tab for state-mandated costs.

Throughout its problems, Butte County has met debt service on its small amount of bonds outstanding.

State officials hope counties will give realignment a chance to work because "things may not be all that bad" once the program is in place and the bugs are ironed out, said Richard Ray, program budget manager for the California Department of Finance. To date, "we haven't heard" for pleas for emergency aid from counties other than Butte, he noted.

But Dan Wall, revenue and taxation director of the County Supervisors Association of California, said he suspects "there will be more Buttes."

"We have some very big open issues left in the budget," Mr. Wall cautioned, including concern that a trial court funding reduction by the state will harm counties. He said it is difficult to predict how much trouble counties will encounter because they are still working on their final budgets for the current fiscal year and can extend that process until early fall if necessary.

Mr. Randolph said he doubts Butte County will get to the point of a bankruptcy filing if the Wilson administration follows through on its concern for county problems.

Unlike last year, however, when threats of a bankruptcy petition evolved over several months, Mr. Randolph said a Chapter 9 filing this year would be "a fairly rapidly done deal" because the county has laid the legal groundwork.

The county also has "been in touch with Bridgeport" to learn more about the city's experience in dealing with bankruptcy, he added.

While Butte County may prefer avoiding that route, it is clear a filing is not an idle threat if structural financial problems remain unresolved.

Subscribe Now

Access to authoritative analysis and perspective and our data-driven report series.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.