A TV cameraman shoots footage in Montebello. Some fear the city will go bankrupt. (Anne Cusack, Los Angeles…)
Millions in Montebello city funds have been mismanaged or drained from off-the-books accounts, leaving officials scrambling for explanations and prompting fears about the city's solvency.
Fiscal troubles abound in the city of about 65,000 in southeastern Los Angeles County: Federal officials say Montebello misused $1.3 million in federal housing money and want it back; a city official discovered $5 million in debt a few weeks ago; and the city has been sued by a businessman who alleges it illegally borrowed up to $19 million from its redevelopment agency last fall.
The matter of the unofficial bank accounts came to a head this week, when officials disclosed that about $900,000 from an off-the-books Union Bank investment account could not be immediately accounted for. There's now $5,000 left in the account, which came to light when an employee in the Montebello finance department discovered a bank statement and alerted the city finance director.
That follows the discovery a few weeks ago of a second off-the-books account at Banco Popular containing $240,000, which showed withdrawals in 2004 and a deposit in 2007. City officials said they learned of the account after Banco Popular contacted the city because there had been no recent activity.
Neither of those institutions is the city's official banker, and it is highly unusual for cities to maintain bank accounts that are not reflected in municipal financial records. It was not immediately clear Friday whether such accounts were illegal.
Officials in Montebello, which has a $45-million general fund budget and a projected $2-million deficit, say they don't know why the accounts were created, why they weren't on the city's books or who received the money that appears to have been transferred out over the years.
Interim City Manager Peter Cosentini, who was hired less than six months ago, said officials were "vigorously pursuing" answers. He noted that just because the accounts were set up in an unusual manner doesn't mean the money was used inappropriately.
"We will get to the bottom of it and find out what occurred here," he said.
It is unclear whether the city's troubles — which one councilwoman and one union leader think could lead to bankruptcy — are a result of mismanagement or corruption or a combination of the two.
"This is crazy, this is just entirely crazy," said Councilwoman Christina Cortez, summing up both Montebello's financial state and her attempt to get city staff to explain it to her. She complained that when she has asked officials for information, they has stonewalled her, handing her Excel spreadsheets instead of actual financial statements.
Cortez, who gained office in a recall election last year and has been raising a ruckus about the city's financial dealings ever since, said she has asked the state controller's office to send auditors to "come in here and open the books and try to figure out what we can't."
"I truly believe this is the tip of the iceberg," she said. "There could be more accounts. We will never know."
The controller's office is reviewing the issue and seeking more information, a spokesman said Friday.
Like many cities in southeastern L.A. County, Montebello has been racked for years by political instability and allegations of corruption. A total of three council members were recalled in bitter campaigns in 2007 and 2010.
The district attorney has two active inquiries into Montebello activities. One is a 2010 bribery allegation against former Councilwoman Rosie Vasquez, and the other is a 2009 allegation of election violations involving a developer.
As for the latest imbroglio over off-the-books accounts, David Demerjian, the head of the D.A.'s Public Integrity Division, said, "I don't have a complaint yet, but I'm expecting one."
A new council majority took office after a 2009 election and a 2010 recall of two council members. They immediately began dealing with a severe budget crisis, as well as waves of questionable financial dealings.
In July, the inspector general of the U.S. Department of Housing and Urban Development issued a scathing audit, finding that the city had improperly drawn the $1.3 million in federal affordable housing funds. Then, the auditors found, the city recorded the project as finished in a federal database even though construction had not yet begun — and still has not. The money went to a developer.
HUD now wants its money back, saying in a statement that "we'll continue to look very closely at how the city manages its taxpayer-funded affordable housing programs."
