The Calaveras County Board of Supervisors must reimburse the Marijuana Urgency Ordinance regulatory fund for misspent expenditures by the Calaveras County Sheriff’s Office or the county faces being sued by marijuana cultivators, Calaveras County Auditor-Controller Rebecca Callen said Thursday.

Callen did not have a firm number about how much must be repaid, but said the $6.8 million in Measure C tax dollars would provide “adequate funds to pay for all of this.”

The last opportunity for the supervisors to reimburse the fund from the General Fund before the final submission of the 2016-17 budget, she said, will be during the next meeting on Aug. 22.

“All we are asking is that they use the restricted funding in the manner that it was meant to be used,” she said. “Ultimately it would be the county who would be responsible for paying back any money that would have been used with discretionary funds, which hurts the whole county.”

In 2016, Calaveras County took in about $3.7 million from 737 marijuana cultivators seeking permits to operate in the county.

The money was designated for administrative costs related to the ordinance, such as regulatory inspections, background checks for the applicants or other payments associated with the registration process.

According to an Auditor’s Office urgency ordinance expenditure document, the Calaveras County Sheriff’s Office spent $1,024,068.21 from May 1, 2016 through June 30, 2017 on salaries, uniforms, equipment, dispatch and jail staff.

And though the itemized figures don’t indicate where urgency ordinance funds were spent on criminal investigation enforcement, the evidence is in the “details,” Callen said.

“There are some costs that stem from salary costs that do not stem from the regulation. They stem from law enforcement purposes but not from cannabis and the regulatory ordinance,” she said.

Callen referred to some of the law enforcement operations as “peripheral crimes,” or crime that was uncovered as a result of the urgency ordinance operations but did not fall under the purview of the designated ordinance funds.

In a press release made public on Thursday, Sheriff Rick DiBasilio said that the “Sheriff’s Office is dedicated to following the law regarding the use of funds,” and had been made “aware of the concerns” about the “use of certain funds for eradication activities.”

After “useful negotiations to resolve differences in the interpretation of applicable law,” the issue had been “addressed and resolved” in anticipation of the Calaveras County Board of Supervisors meeting on Aug. 22, he said.

DiBasilio could not be reached for comment on the press release.

The claims of the misspent funds followed in the wake of Operation Terminus, a cooperative effort with the Calaveras County Sheriff’s Office and other state agencies to stamp out illegal marijuana cultivation operations in violation of state environmental codes.

As of last week, Operation Terminus had resulted in the arrest of 35 people across the county and the seizure of 28,650 pot plants, over 30 tons of unprocessed marijuana, cash, firearms and opium pods.

Calaveras County Administrator Tim Lutz said he believed the Sheriff’s Office was “operating within the parameters of the urgency ordinance” but acknowledged the “gray area” of the Sheriff’s enforcement operations as it pertained to the peripheral crimes.

“We need to identify, draw the line, when is this truly regulatory and when is this enforcement of our local laws and going against the problematic growers,” he said.

The fiscal year, from July 1, 2016 to June 30, 2017, was Calaveras County’s first year operating under the urgency ordinance, he said, but they still lacked “firm direction” from the Calaveras County Board of Supervisors about which Sheriff’s Office operations were to be funded by the restricted urgency ordinance fund, and discretionary dollars acquired from the Measure C cannabis farming tax.

“I think the challenge has been a lack of defined policy from the board of here's the line in the sand,” he said.

An additional $1,261,002.44 was spent over the fiscal year by a variety of county agencies tasked with evaluating the permit applications from marijuana cultivators, including the County Administrator’s Office, the Building Department and the Planning Department, an Auditor’s Office document said.

A typical regulatory operation for a grow site, Lutz said, involved the Planning Department determining if a site met the conditions set by the urgency ordinance, the Building Department checking the area for structure, generator and electrical system code compliance and the Sheriff’s Office conducting background checks on applicants, Lutz said.

“The challenge with this ordinance is it really transcends so many departments, you have a lot of different departments that are doing pieces of this,” Lutz said.

If the permits are denied and the grow must be “abated,” Lutz said, the role of the Sheriff’s Office becomes ambiguous and circumstantial based on the context of a specific operation. The Sheriff’s Office provides “support and security” for county staff at an abatement operation, but if other criminal factors are identified on the site such as illegal weapons, domestic violence or human trafficking, it is unclear whether Sheriff’s resources responding to the crimes should be funded by the ordinance or the Sheriff’s budget.

Callen said after conferencing with the County Counsel the answer was really not so ambiguous at all: anything paid for with regulatory dollars that had to do with “investigations, jail costs, dispatch costs and anything that didn't really have anything to do with the regulatory program,” must be repaid with General Fund money into the ordinance fund.

Both Callen and Lutz agreed that the risk of potential litigation against the county was immense if the board did not determine a budgetary solution during the Aug. 22 meeting.

“They will have a legal basis to do so unless the corrective action is taken,” Callen said.

Lutz said that potential litigation was focused on the concept of an illegal, or “hidden” tax outlined in California Proposition 26 (2010).

“As the county and the board continues to grapple with the reality of the fallout of the implementation the emergency ordinance, it now comes down to making sure that everything that is spent is justified,” he said.

The Aug. 8 board agenda said a closed session concerned a “conference with legal counsel” and acknowledged both “anticipated litigation” and “significant exposure to litigation.”

Callen said that after reading DiBasilio’s press release, she believed the board would pursue corrective action.

Callen added that the sheriff would not be subject to any consequences if litigation did happen. It was the responsibility of the Board of Supervisors to “fund accordingly” an ordinance they approved, she said.

But another issue would have to be addressed with the adoption of the 2017-18 budget, Callen said.

Budgeted for 2017-2018 was $3 million for the regulatory ordinance, when about $1.4 million dollars of the original $3.7 million acquired from the permit applications.

“At this point if we were going to continue the cannabis urgency ordinance the general fund would have to pay for the bulk of the program because there is not enough fee dollars remaining to pay for the program,” she said.

Contact Giuseppe Ricapito at (209) 588-4526 or . Follow him on Twitter @gsepinsonora.