The county’s main economic development fund has suffered a substantial decline in recent years according to a report issued last night by the Humboldt County Grand Jury, which also recommends major changes in the way the fund is managed.

The Headwaters Fund, which was established with $22 million in capital in 2002, has dropped to just over $16.5 million as of July 2014, the report states. The majority of the loss has occurred in the last five years, well after the 2007 stock market crash. The losses are even worse, the report notes, when inflation is taken into consideration.

The report states that the losses appear to come from several sources – large grants to several local infrastructure projects which will not be repaid, lower-than-expected local demand for loans from the fund, poor return on other investments.

The grand jury notes that this capital dip threatens the mission of the fund, which is to assist local economic development efforts “in perpetuity.” As a remedy, it recommends that the fund’s remaining capital should be transfered to the Humboldt Area Foundation, which already manages over $90 million in capital donated to local charitable funds, and with substantially higher returns.

Presumably the county and its agencies – including the Headwaters Fund Board – would continue to decide how local grants and loans from the fund are disbursed. But the grand jury does recommend that the county review and, if necessary, revise the fund’s mission statement every three years – a proviso that was included in the original charter of the Headwaters Fund charter, but which apparently has never been undertaken, the report says.

The Headwaters Fund, which was seeded by grants from the state and federal government, was created in the wake of Pacific Lumber’s sale of The Headwaters Forest to the public. County government and its allies successfully argued that it would need the money to bolster the local economy, given that so much productive timber land would be taken off the market.

Read the full grand jury report on Headwaters Fund management here. Press release from the Humboldt County Grand Jury below:

After a careful analysis of the Headwaters Fund Charter, the current Headwaters Fund investment portfolio and interviews with relevant community representatives, the Humboldt County Grand Jury comes to the following conclusions:

1. 1. The Headwaters Fund Charter clearly mandates that the Headwaters Fund Board draft a charter review every three years and the public will have an opportunity to have input in the drafting of that review. From the last paragraph of the Headwaters Fund Charter—“The public and participants in Fund activities will be given an opportunity to provide comment and participate in the drafting of the review.” The Humboldt County Grand Jury finds no evidence to support, that since 2002 any such public input has ever occurred or any drafting of a charter review.
2. The Headwaters Fund Charter is currently set up to support and mandate that funds work in the community “in perpetuity.” From the Headwaters Fund Charter—“Keep the funds working in the community in perpetuity.” The Humboldt County Grand Jury finds the current Headwaters Fund investment portfolio, managed and invested by the Humboldt County Treasurer to be inconsistent with the Charters mandated “in perpetuity.”
3. Volunteers and one part time staff position currently manage the Headwaters Fund. Humboldt County governance currently restricts the Headwaters Fund investment portfolio. The Humboldt Area Foundation is a local, professionally staffed, nonprofit funding/granting organization that currently manages over 100 million dollars and is not limited by the same restrictions. The Humboldt County Grand Jury recommends, for oversight, management and investment reasons, that the Board of Supervisors (BOS) amend the Headwaters Fund Charter to allow the transfer of their investment portfolio to the Humboldt Area Foundation.

The consequent increase in charter oversight, public input and less restrictive investment options would serve the citizens of Humboldt County and would truly “keep the funds working in the community in perpetuity.” The Headwaters Fund Charter Board has done an admirable job given the conditions and restrictions under which they have worked. The Humboldt County Grand Jury also recognizes the disciplined and restricted work of the Humboldt County Treasurer for his oversight of the Headwaters Fund Investment portfolio.