Humboldt County Auditor-Controller Karen Paz Dominguez at a March 15 re-election campaign kickoff speech. | File photo by Isabella Vanderheiden.


Late last month, shortly after receiving a final demand letter from the California Attorney General’s Office for a long-overdue fiscal report, the county’s auditor-controller, Karen Paz Dominguez, issued a message to taxpayers. She alleged, among other things, that by decentralizing financial operations, the county had paved the way for decades of financial mismanagement, leading to “confirmed cases of error and fraud.”

A few days later, at the March 1 Board of Supervisors meeting, she elaborated in an oral report, leveling a series of allegations — or “findings” — against several county departments. 

The Outpost is investigating some of those allegations, and today we’re looking into arguably the most serious charge — namely, that the County Administrative Office (CAO) forged a report and submitted it to the State Controller’s Office.

Like many of Paz Dominguez’s recent accusations, this one involves some jargon and acronyms that won’t be familiar to most folks. We’ll explain the relevant terms below, but for now, let’s revisit what she said at the March 1 meeting.

About 11 minutes into her report, Paz Dominguez told the board that when representatives from the State Controller’s Office were in town auditing the county’s cost allocation plan, they had some questions about the county’s PARS account. She said the agency later required the county to submit an actuarial report to justify charges it had been levying on individual departments.

If you’re not a government accountant, that’s likely a confusing glut of information. You may not have heard of cost allocation plans, PARS accounts or actuarial reports.

A cost allocation plan, in this context, is a report that calculates indirect costs to the various county departments for services from other departments. Specifically, here, county departments were being charged for contributions to a type of pension account known as a PARS fund.

PARS, or Public Agency Retirement Services, is an organization that serves a variety of California government agencies, such as school districts, community colleges, cities, counties and other special districts. As a financial service firm, it offers a variety of retirement-related services, including a Pension Rate Stabilization Program, which the county has participated in since 2015. The idea is to reduce the county’s ballooning unfunded pension liability.

Each county department was chipping in state and federal grant dollars, contributing two percent of its payroll costs every two weeks. The money went into something called a Section 115 Trust, a federally authorized type of account that allows governments to set aside funds to be invested. Such accounts typically yield higher returns than the money that sits in the county treasury.

The incidents Paz Dominguez was describing to the board occurred in late 2019. In September of that year, the State Controller’s Office requested an actuarial report to justify those PARS charges — an actuarial report being an analysis of the fund’s assets and liabilities, prepared by a licensed actuary.

“The CAO’s Office confirmed to the State Controller’s Office that there was an actuarial report,” Paz Dominguez said at the March 1 meeting. “The State Controller’s Office requested a copy of that report.”

After a dramatic pause she added, “There was no actuarial report. And the CAO’s Office purchased the software and forged one and submitted it to the State Controller’s Office.”

At that point, Supervisor Virginia Bass interjected. “Excuse me,” she said. “I’m hearing threats in there, so do you have proof that there was [a] forged [report]?” 

Paz Dominguez assured Bass that she did indeed have proof. However, two subsequent opportunities for Paz Dominguez to present her evidence at a public meeting were canceled after she failed to meet the county’s agenda-scheduling deadlines.

Instead, during her March 15 re-election campaign announcement, Paz Dominguez encouraged the public to search for the evidence in a large trove of documents (mostly internal county email communications) that a supporter had posted online. And in a speech from the courthouse steps, she elaborated on her accusations.

“Retirement is not as secure as it should be,” she told the group who’d gathered. “You’ve heard our county has an unfunded pension liability nearing $500 million. What you might not have known is that in 2015, per the County Administrative Office’s recommendations, the board authorized the creation of an external investment account referred to as PARS that, according to the County Administrative Office, would be used to offset the county’s unfunded pension liability.” 

She glanced up at the audience and continued. “Well,” she said, “I’m sorry to be the one to tell you that that is not what is happening. That external investment account was set up outside the county’s treasury and outside of the county’s books. Departments were charged, and that money was wired to an external bank account where it is being used to purchase and sell investments.”

None of the more than $6 million that’s accumulated in the county’s PARS account has been used to pay down the unfunded pension liability, she said, and she repeated her accusation about the “forged” actuarial report, saying that in the absence of a real one, “the County Administrative Office made one up and sent it.”

Paz Dominguez makes this same allegation in some of the emails from the online document dump early this month. In an Oct. 3, 2019, email to all five county supervisors, for example, she said she believed the county was in danger of losing significant federal and state funding due to its investments with PARS. She objected to the county’s use of this firm in part because it’s a corporation, not an agency of the state. She also argued in emails that taxpayers’ money is safer when placed directly with the California Public Employees’ Retirement System (CalPERS) because the latter backed by the state.

This is the document she alleges is a forgery. It’s a pension analysis report produced with proprietary software from a company called GovInvest. In her Oct. 3 email Paz Dominguez characterized it as “obviously a last-minute attempt to forge a report using a purchased software program.”

‘Political stunt’

County Administrative Officer Elishia Hayes disputed this interpretation of events and suggested that Paz Dominguez’s recent accusations were designed to distract from her failure to submit the overdue Financial Transactions Report. (That report was finally turned in late on March 16, just ahead of the Attorney General’s deadline to avoid legal repercussions and a $5,000 fine.)

“Dropping headline-grabbing accusations without proof and without action is an obvious political stunt and our employees do not deserve to be put in the middle of that,” Hayes said in an emailed statement.

She offered a different account of what occurred back in 2019: Paz Dominguez, she said, had given the CAO’s Office very short notice about the state’s request for an actuarial report. “[E]ven back then,” Hayes said, “[Paz Dominguez] was either unavailable or would not communicate with the CAO’s Office.”

The consequences for missing the state’s deadline were “characterized in terms that made failure seem unacceptable,” Hayes continued.

So she and her staff rushed to produce the above-linked report using GovInvest, a company that was working with 48 of the state’s 58 counties at the time. “That report was itself not a certified actuarial report,” Hayes acknowledged, “but it was reviewed by a certified actuary on their staff, and it stated so.”

Hayes emailed the GovInvest report to the State Controller’s Office on Sept. 18, 2019. On Dec. 2, a supervisor from the State Controller’s Office wrote back, informing county staff that they would need to produce a full actuarial report to show that the county’s PARS contribution methods complied with the Actuarial Standards of Practice.

A lot was at stake here. If the state and feds concluded that the county’s PARS charges were not supported by accepted actuarial standards, it would mean returning all those payments — nearly $2.5 million — to the individual county departments that contributed them.

‘A positive step’

Hayes, unlike Paz Dominguez, believes that the county’s contributions to a PARS-managed Section 115 Trust were a wise fiscal investment, one with advantages the county wouldn’t realize by making direct contributions to CalPERS or by leaving that money in the county coffers.

“Long-term is the key here,” she said. “These funds are intended to grow over not just years but decades.”

Investing in a PARS-managed Section 115 Trust “basically allows us to invest our money in more aggressive money market accounts so that we put those dollars to better use than if they were in our own treasury,” Hayes said. By law, the money placed into 115 trusts can only be used to pay down pension liability, but because they remain in the trust for years or decades, it allows the investments to grow and be used on a rainy day.

“We stick that money aside so that when our [pension] costs hit a mark where we’re like, ‘Whoa, we can’t afford these increases anymore,’ then we have those dollars that we can pull over [to] help to stabilize our pension accounts,” Hayes said.

As Paz Dominguez said at her campaign event, the Board of Supervisors decided to invest with PARS back in 2015 based on a recommendation from then-County Administrative Officer Phillip Smith-Hanes.

About a year later, the Humboldt County Civil Grand Jury [HCCGJ] set out to investigate the county’s unfunded pension liability, which was then estimated to be about $232 million. The Grand Jury’s ensuing report, titled “Will Unfunded Pension Liability Un-fund Our Future?” commended the county on its decision.

“The HCCGJ supports the [board’s] September 2015 decision to create the PARS Trust fund,” the report says. “We see this as a positive step to provide more local control of our pension liability. The true value of the PARS Trust lies in securing funding today in order to offset future variations in the County’s contribution to CalPERS during times of poor market performance.”

Hayes said the investment has indeed paid dividends well above what they’d have earned in the county treasury. 

“As of March 2022, we have contributed $5.4M to this fund, and earnings on that investment total more than $1.4M … ,” she said. “This represents a rate of return of 5.8 percent.” The county treasury, by comparison, averages a return rate of 0.89 percent, according to Treasurer-Tax Collector John Bartholomew.


When the CAO’s Office staff learned in December 2019 that the state was still requiring a full actuarial report, they went back to the most recent one they’d commissioned, a 2016 report prepared by Bartel Associates, LLC, a firm that specializes in providing actuarial services to public agencies. 

They submitted that report, along with a letter signed by a certified actuary, to the state and waited to hear back. On Jan. 7, an analyst with State Controller’s Office emailed Paz Dominguez, cc’ing other county personnel, with the verdict. 

“Based on our analysis, the previous charges for the PARS Section 115 Trust are substantiated,” the email said. “The County was able to provide a letter signed by a certified actuary that the report was prepared using generally accepted actuarial principles and practices.” 

Amy Nilsen, the county administrative officer at the time, was ecstatic. In an email to office colleagues she said, “The SCO has substantiated our PARS charges. … Today is a great day!!!!!”

The Outpost recently contacted the State Controller’s Office to ask about this situation. We asked whether the agency considered the GovInvest report to be a forgery, as Paz Dominguez alleges.

Jennifer Hanson, press secretary for the State Controller’s Office, replied via email, saying her agency’s staff and their federal counterparts reviewed the GovInvest document and together determined that it did not meet federal requirements to substantiate the county’s PARS Section 115 Trust charges.

“Subsequently,” she continued, “the county CAO provided an actuarial report prepared by Bartel Associates and an actuarial certification that the report was prepared in accordance with the appropriate standards. SCO [the State Controller’s Office] and our federal counterparts determined this report was sufficient to substantiate the charges.”

We wrote back. Given the gravity of the accusation, we asked for clarification: Did the the State Controller’s Office consider the GovInvest report a forgery?

Hanson declined to elaborate. “The first response provided accurately reflects SCO’s position on the report submitted,” she wrote.

The Outpost emailed Paz Dominguez on March 17 to request any further evidence she may have to support the forgery allegation, and in a follow-up email we asked whether she believes a crime was committed. She has yet to respond.

The county’s unfunded pension liability remains a serious concern. It had grown to $331 million as of the the county’s latest budget brief, this past June. Deputy County Administrative Officer Sean Quincey said that when Paz Dominguez began questioning the validity of the county’s PARS contributions, those contributions were paused to allow time for investigation and reconsideration.

Since then, the State Controller’s Office informed the county that it would need to submit yet another actuarial valuation before resuming those charges. The county has now done that, according to Hayes.

Last April, the Board of Supervisors adopted an updated pension funding policy. Hayes said the county plans to resume its PARS contributions in the 2022-23 fiscal year.