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Bell nearly broke, faces drastic cuts, audit finds

Scandal-racked city, with a deficit of several million, may have to eliminate police and contract with the Sheriff's Department due to high salaries and pensions.

December 18, 2010|By Jeff Gottlieb and Ruben Vives, Los Angeles Times

Scandal-plagued Bell is hovering on the brink of insolvency and drastic cuts in city services — including disbanding the Police Department — probably will be necessary to fix its finances, according to a review of the city's books that Los Angeles County officials plan to release next month.

The report by the Los Angeles County auditor-controller paints the most dire financial picture yet of the southeast Los Angeles County city, where eight current and former city officials have been charged in a sweeping public corruption case. The findings were discussed with The Times by officials familiar with its contents who spoke on condition of anonymity because the document remains under wraps.

The review found that Bell has been running a deficit totaling several million dollars over at least the last three years under former Chief Administrative Officer Robert Rizzo. The red ink is the result of hefty salaries and pensions for top Bell officials and extensive city-run programs, the review found. To cover part of the deficit, city officials took money raised by the sale of bonds for specific projects and diverted it to the general fund, a likely violation of the law, according to experts on municipal finance.

When cities issue bonds, they must spell out in legal documents how the proceeds will be spent. Diverting the proceeds to other purposes would be "definitely against the law," said Erik R. Schleicher, a trader and fixed income analyst with M&I investment Management Corp. in Milwaukee, who has followed the Bell scandal closely.

"There are certain provisions that say bond proceeds need to be used for the designated project, and that only a small percentage can be used for costs of issuance and things like that," he said.

The budget shortfall described in the audit may explain the city's relentless drive for money under Rizzo. The Times has reported that Bell had aggressive — and legally uncertain — programs to tow cars, enforce questionable city codes and charge arbitrary business fees to merchants. Some of these programs are the subject of a federal civil rights investigation.

The finances of Bell, a city of roughly 40,000 people with a general fund of $13.5 million, have been deteriorating for several reasons.

During the three years covered in the audit, salaries of top city officials grew rapidly, accounting for an increasingly large portion of the city's budget. Until they were forced to resign in July, Rizzo was in line to earn more than $1.5 million, with $846,000 for Assistant City Manager Angela Spaccia and $770,000 for Police Chief Randy Adams. All but one member of the council was earning close to $100,000 annually for their part-time jobs.

Other city officials also received high salaries, with Lourdes Garcia, the city's director of administrative services, and Eric Eggena, the director of general services, paid more than $400,000 annually. Eggena has since been fired and Garcia agreed to a pay cut.

The city has been forced to refund more than $5 million in illegal taxes levied during the Rizzo era and faces hefty legal bills because of the scandal. In addition, it has racked up $600,000 in fees from interim City Atty. Jamie Casso and his law firm since they were hired last summer. And, like virtually all municipal governments in California, Bell has been hurt by the poor economy.

The county's review of Bell's finances is expected to be finalized in January, said Wendy Watanabe, the county auditor-controller. The audit was requested by Pedro Carrillo, the city's interim chief administrative officer. Top city officials and Los Angeles County Supervisor Gloria Molina received briefings on the audit findings this week.

It's unclear which bond revenues the city used to help close its operating deficit. In 2003, voters approved a measure allowing the city to issue $70 million in general obligation bonds. The bonds were to be used to build a gym, expand the Bell Community Center and build a library, civic center and theater.

An audit by state Controller John Chiang found that little had been done with the money and that a promised sports park consisted of a dirt lot encircled by a fence.

The $70-million bond was issued in two phases. Chiang's audit found "no rationale" for the city's decision to issue the second $35-million phase. About $23.5 million of that money was moved into a city bank account that did not earn interest.

According to Rizzo's contract, the city needed to run in the black for him to receive raises.

The county review concluded that Bell will have to make deep cuts in services, including possibly closing the Police Department and contracting with the Los Angeles County Sheriff's Department.

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