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State Auditors Say Montebello Misspent Millions, Should Pay It Back

State auditors say Montebello improperly handled $31 million, including instances when officials used funds meant to improve blighted neighborhoods on fancy dinners in Las Vegas, golf, embroidered polo shirts and other “frivolous” items.

Two audits released Sept. 22 by the office of State Controller John Chiang — one dealing with the city’s handling of redevelopment agency (RDA) funds and the other on the city’s Gas Tax Fund  — are the latest in a long line of documents exposing Montebello’s questionable handling of city finances going back several years.

The state controller’s audits come at the same time Montebello it looking to secure a short-term loan from outside sources to deal with a rapidly approaching funding shortfall that could leave the city short on cash to pay its bills as early as November.

City officials have said the onslaught of unfounded or old allegations pertaining to their financial situation has made getting a loan difficult. The two audits are the first in a series of reviews the controller ordered of the city after Montebello repeatedly failed to comply with financial reporting requirements, according the controller’s office.

“At the expense of local job development, street repair, and schools, Montebello has made it a habit to tap legally-restricted funds to cover its budget and cash shortfalls,” said Chiang in a written statement. “It appears that the City moved money wherever it wanted, whenever it wanted, regardless of the law or the intended purpose of those taxpayer dollars.”

The city is also reported to be the subject of an FBI investigation into whether it misused federal housing money. The controller’s audit found that Montebello “inappropriately used RDA funds to pay for some of the city’s general administrative costs, for audits of sales tax revenues unrelated to redevelopment, and for association dues.”

The report also notes that the city failed to make $2 million in required payments to local agencies, which increased the State’s required payments to those educational agencies.

Particularly concerning was the city’s handling of the Low and Moderate Income Housing Fund, which according to Chiang’s calculations resulted in Montebello shortchanging the account by $12.1 million, and inappropriately charging administrative costs to the fund without any documentation to explain the charges.
“While the city manager reportedly picked up dinner tabs with redevelopment funds, he also gobbled up money for jobs, affordable housing, streets, schools and the development of blighted areas,” said Sen. Ron Calderon, (D-Montebello) responding to the release of the audits.

The city manager in question is Richard Torres, who retired in November of 2009 following two decades with the city.

State auditors spent months going over the city’s finances dating back to 2005. Concerns over how Montebello has spent its money, including how it awards city contracts and pays for development deals are nothing new in the city where many residents claim elected officials and city staff have failed to live up to their fiduciary duties for more than a decade.

According to this latest round of financial audits, Montebello officials regularly moved money between city funds and accounts to paper over deficits. And while the report fell just short of calling some of the city’s financial dealings illegal, it did say the city has a “history of authorizing forgivable loans to individuals who are political contributors.”

Chiang called on Montebello to reimburse its redevelopment agency nearly $3.6 million for “ineligible expenditures,” including $3.4 million in transfers to the general fund, as well as golf games and travel for city officials. Among the charges questioned was a “business lunch” at Chuck E. Cheese’s.

If the city has to repay the money, its financial picture could worsen since it is low on cash and has been called on to repay the federal government for misspent housing funds.

A separate audit of Montebello’s Gas Tax Fund found that the city unlawfully used up to $2.18 million to pay for general operating costs. As a result, the city’s ability to use those funds derived from taxes generated at the gas pump as state law requires for street or road maintenance, reconstruction, and storm damage repair, was impaired. Chiang ordered the city to set up a separate cash account for its gas tax funds so that they can no longer be commingled with other city cash accounts.

The audit further said Montebello officials used its gas tax revenues to make an unlawful $500,000 loan to a different city fund with no documentation showing the transfer was related to street and road work.  That loan was later reimbursed.

Montebello officials responded to the draft audit dated Aug, 24, 2011, and agreed to 10 of the 15 findings but disagreed with the other five, as well as three observations. The state controller however “found no validity in any of the city’s responses,” except for one pertaining to how tickets and parking passes to Dodger games were paid. The audit was revised to note the tickets were paid for using money from the General Fund.

Montebello officials, both elected and on staff have pointed to past financial errors as the sloppy work of their predecessors that have now been cleaned up. The city is now on the right path, according to the interim City Manager Larry Kosmont.