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Campaigning City Treasurer Seeks to Explain $4.4-Million Loss

October 29, 1987|RICHARD HOLGUIN | Times Staff Writer

MONTEBELLO — City Treasurer Thomas C. Wong has devoted an overwhelming portion of his reelection campaign arguing that it was not his fault the city lost $4.4 million in bad investments in 1984.

Wong is engaged in a tough reelection battle against Phillip M. Ramos, who was on the City Council when Montebello suffered the financial loss. A third candidate, Nick Valdez Jr., says he supports Wong but entered the race as an alternative to Ramos in case voters reject the incumbent.

"I didn't lose the money," Wong said at a recent candidates forum. "The council decided that they wanted to sell those bonds and they incurred the loss, $4 million."

Ramos sees it differently.

"Tom Wong through his investments caused the city to lose ($4.4) million in tax money," Ramos said recently. "Then he turns around and blames the council and city employees for the losses."

Wong, 39, who took office in 1982, is seeking reelection to his second term. He is a certified public accountant with a Los Angeles firm. Ramos, 63, is a division president for a Los Angeles-based manufacturer of aviation and electronics products. Valdez, 50, is a plumbing contractor.

Invested in Securities

The groundwork for the financial disaster was laid when Wong invested part of the city's $20-million portfolio in high-risk securities that were not to mature for 20 years.

Initially, things went well and Wong's investments earned the city $1.6 million. But the value of the long-term securities would increase only as long as interest rates declined. In 1984, interest began rising, setting off a sharp decline in the value of the city's investments.

Wong revealed in June, 1984, that he had lost $300,000 of public money when he sold securities below their purchase price to stabilize the city's cash flow. Wong acknowledged that too much of Montebello's money was tied up in the long-term bonds when the city needed money to meet expenses such as payrolls and utility bills.

The next month, the City Council voted unanimously to sell the remaining long-term securities after an auditor reported that the losses already totalled about $4 million. The council accepted a loss of more than $300,000 on the sale, bringing the total loss to about $4.4 million.

Wong said that he made what he thought were aggressive, sound investments, and that city officials and council members failed to provide proper direction.

"The investment policy was delegated to the city treasurer by the City Council because I guess they were either too busy or because they just didn't want to do it," Wong said. "My investments were all authorized."

Wong blames the City Council for the loss because he said the value of the bonds would have increased if the city hadn't moved so quickly to sell.

The loss triggered a fierce political battle between Wong and the City Council, which accused him of misleading council members by not promptly reporting the losses.

Wong said he deferred the losses by using what he described as a standard accounting procedure for pension fund managers--a procedure Peat, Marwick, Mitchell & Co. of Los Angeles, the city's auditing firm at the time, later said was "simply not acceptable" for a city government. Using that procedure, Wong included some losses as part of the purchase price of new securities.

But Wong's purchases of the long-term bonds also violated Montebello's bond covenants or regulations, requiring that the maturity date of city investments coincide with the date the city estimates the money will be needed.

City officials generally agree that Wong is not the only one to blame. Wong submitted monthly reports to City Administrator Joseph M. Goeden and the City Council, listing the securities he was buying and their maturity dates. But the reports were routinely accepted with little or no discussion.

The loss forced no layoffs or other drastic cutbacks in services to this city of about 57,000, but a municipal official said it was a factor in delaying the construction of a new fire station in south Montebello.

The City Council stripped Wong of his investment authority and demanded his resignation. Instead, Wong challenged the council to seek criminal charges. The Los Angeles County district attorney investigated at the bidding of city officials, but decided not to file charges.

In July, 1984, the city adopted its first investment policy and increased council control over investments.

In June, 1985, the city also sued Peat, Marwick, accusing the firm of failing to question Wong's investments. The litigation is pending.

Ramos had raised more than twice as much money as Wong, according to latest spending statements filed Oct. 17.

Ramos received $10,985 in contributions, while Wong received $5,470. Ramos has spent $6,299 compared to $9,301 for Wong, who has $3,868 in unpaid bills. Valdez said he raised and spent less than $500 on the election.

After three terms on the council, Ramos lost his seat in 1985.

The city treasurer receives a stipend of $395 a month plus $95 for expenses.

The race for city clerk has generated a few sparks of its own, as incumbent Andrew T. Lambo denied rumors that he is in poor health and physically unfit for office. Lambo, 67, is a retired inventory control specialist.

Lambo is seeking his third term against Ted C. Valdez--the 32-year-old brother of Nick Valdez and manager of the family plumbing business--and Sixto Navarrete Jr., a loan service specialist.

Lambo, who said he does not accept contributions, has paid $906 for campaign expenses, while Ted Valdez has received $1,700 in contributions and spent $1,362. Navarrete said he planned to raise and spend less than $500 on the election.

The clerk's job pays $295 plus $150 for expenses. After the election, the clerk's stipend will be raised to $495 a month plus $150 for expenses.

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