California finance officials on Friday will consider whether to loan between $4 million and $12.5 million to rural Modoc County, which may be unable to pay its bills.
The trouble stems from the county's practice of funding its hospital using money that was intended for other purposes, such as education and transportation projects. Dan Macsay, chairman of the Modoc County Board of Supervisors, said the county in California's far northeastern corner has hired a bankruptcy attorney in case it needs to declare itself insolvent.
"We don't want to go bankrupt," Macsay said Thursday. "It does nothing for us — it doesn't help the state, it doesn't help anybody. But what we're doing is preparing for the worst."
He said it's unclear whether the county, which had a population of 9,777 in January, will have enough money to pay expenses for the next fiscal year, considering it must repay millions in debt.
On Friday, the state treasurer, controller and others will discuss proposals to help Modoc County stay afloat. The state has its own financial troubles and is facing a $19 billion deficit.
The county has requested a loan from the state's Pooled Money Investment Board, which oversees a portfolio that was worth $69.4 billion as of June. State officials also want Modoc County to avoid bankruptcy.
"When a local entity files for bankruptcy protection, it has a ripple effect on the reputation of the state," said Tom Dresslar, spokesman for state treasurer Bill Lockyer. "It creates headlines that do not serve the state well when it, for example, tries to sell bonds."
Municipal bankruptcies are rare in California. The most high-profile one was Orange County's bankruptcy filing in 1994. The eastern San Francisco Bay area city of Vallejo filed for bankruptcy protection in 2008 amid a revenue and spending crisis.
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