Bell, CA, In Huge Financial Hole

An alert reader of this blog sent me the following article, which updates what is going on in Bell, CA. As regular visitors to this blog will note, there have been occasional entries about this small southern California town. Bell's claim to fame (or infamy), is the scandalous salaries received by the top City managers and most of the Town's Councilors (see "Arrest of Bell, CA, Officials", "Update on Bell", and "Bell City - Just the Absurd Apex of Business As Usual").

Jeff Gottlieb and Ruben Vibes, wrote the following for yesterday's LA 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.

As the Town tries to right its ship, extra bills are piling up:

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.

And, they are left wondering what bond proceeds have actually been spent on:

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.

It appears that any path to fixing the finances will be rocky:

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.

Steve Whitmore, a spokesman for the Los Angeles County Sheriff's Department, said Bell officials had informally contacted the agency about replacing the Police Department before the scandal broke. He said that the Sheriff's Department would be cheaper than a hometown police force because much of the infrastructure already is in place.

Gilbert Jara, president of the Bell Police Officers Assn., said the city could disband the department fairly quickly because officers' contract with the city expired in June. The police association has been unable to meet with Carrillo to negotiate a new pact, he said.

Neighboring Maywood disbanded its Police Department this summer in favor of sheriff's deputies. The city, which is slightly larger than Bell, pays the county $3.8 million. In 2009, Bell spent roughly $6 million on its police.

Closing the department would require approval from the Bell City Council and would probably generate intense controversy. One of Bell's largest activist groups, BASTA, is funded in part by the Bell Police Officers Assn.

"It's devastating. You just handed me a gut bomb," Bell Police Capt. Anthony Miranda said when told about the auditor's finding. "I hope that through this turmoil, we can maintain the Police Department and find a way to keep that ship afloat."