Washington County is scrambling to save itself from financial ruin

Washington County is on track to default on millions in debt after voters on Tuesday refused to allow officials to issue a bond of up to $11 million to cover a massive budget shortfall.

The county is reeling from years of budget mismanagement and poor bookkeeping that drained cash reserves almost entirely this summer, forcing officials to take on extra short-term debt. It now lacks the money to repay an $8 million debt to Machias Savings Bank due by statute at the end of the year. If the loan is not repaid by February, the county will default.

Defaulting on that loan could result in expensive legal trouble for the county and would tank its credit rating, making future loans difficult. That’s a major problem for the county, which operates on a January-December fiscal year and takes out short-term loans annually to cover its expenditures until towns begin collecting property taxes in the summer.

Budget officials say defaulting is not an option, but no clear alternative exists. An advisory committee could recommend commissioners to pay off the current loan with another short-term loan, according to committee member and Machias select board member Ben Edwards.

To do that, the county would violate a statutory requirement to pay off the short-term loan in December and instead wait to take out a new short-term loan in January to repay their 2025 debts by February, according to Edwards. It would strap a massive debt to the county but kick the default to the end of 2026.

That strategy would bring its own set of questions. It’s unclear what penalties the county could face for violating state law, which requires that the county repay its debt within the fiscal year that it was taken on. It’s also not clear if a bank would authorize one short-term loan to pay off another, or how the terms of such a loan would shake out given the county’s current crisis.

“[It’s] certainly a very unappealing option, but at the moment, it appears to be the only one we have,” Edwards said.

That strategy could still require steep cuts to offset the pain of adding $8 million to the county’s roughly $14 million proposed budget. The county is required by law to keep the sheriff’s office, the jail, and public safety services running. Edwards said just about everything beyond the bare minimum could be cut.

“We’re in a very difficult position here,” Edwards said shortly after a meeting with commissioners Wednesday afternoon. “Everything is on the table.”

Another option would be to declare bankruptcy, which would require permission from the Maine Legislature. Sen. Marianne Moore, R-Calais, submitted a bill in October that would allow towns and counties to declare Chapter 9 bankruptcy, as they can in other states. The Legislature, however, won’t be able to consider the proposal until they reconvene in January, after Washington County’s debt comes due.

Rep. Will Tuell, R-East Machias, who voted against the bond, said he’s in favor of Moore’s bill.

“The important thing is that the bankruptcy legislation is there, and certainly I would hope that the legislature would take it up in a very timely manner,” he said before Tuesday’s vote.

County officials pitched the failed $11 million bond as the clearest path out of the crisis. To some voters, it seemed to be an expensive bailout of the government that misused tax dollars, though all three members of the commission inherited the problem when they took office this year.

During Tuesday’s election, some voters expressed concern that failing to pass the bond referendum would be costly in the long run. After voting at Cherryfield’s town office, Jean Mathews said she voted yes to avoid service cuts.

“I think the county has already lost enough stuff, and [if] we have to shut down the sheriff’s department, the jail and all of that stuff it’s not going to bode well for the residents,” she said.

Daniel O’Connor is a Report for America corps member who covers rural government as part of the partnership between the Bangor Daily News and The Maine Monitor, with additional support from BDN and Monitor readers.