Montebello may go into survival mode after hitting snags in securing a loan to keep the city running.
City officials originally intended to secure a $3.9 million short-term loan by the end of September, but have been unable to do so after exhausting its entire list of “preferred investors,” according the city’s financial advisors.
At its Sept. 28 meeting, the city council approved a backup plan that includes borrowing $1.7 million from unrestricted internal funds in case continued efforts to secure a loan go south, and the city ends up with no money to pay for city services, such as police, fire, and park maintenance and recreational programs, during dry cash flow months.
Officials claim they came close to securing a loan, but last week’s release of audit reports by the state controller jettisoned any hope of closing those deals for the time being.
According to Interim City Administrator Larry Kosmont, one deal he thought had been a sure thing fell through the day after State Controller John Chiang’s audits of the city’s redevelopment agency and gas tax funds were released.
Chiang claimed the city misspent $31 million “at the expense of local job development, street repair, and schools.”
City officials claim most of Chiang’s findings were based on “fundamental errors” and lack “proper legal authority.”
As the city and the controller’s office sort out the claims, several more audits that examine the city’s internal controls and the city’s use of state and federal funds are expected to come out of Chiang’s office in the coming weeks.
Under the backup plan, if officials fail to obtain a loan in the next month, they will borrow $1.1 million from its water fund, $250,000 from its self-insurance fund, and work to speed up $325,000 in grant reimbursements.
Kosmont said the transfer of these funds are “entirely legitimate” and will be documented by the city attorney.
Without an external loan, the city would be less able to respond to unforeseen circumstances, and they will not be able to pursue revenue-generating projects as planned.
The city administrator and finance staff will also spend more time watching ledgers to ensure compliance with spending limits. Officials say the backup plan will keep employee jobs intact.
Mayor Pro Tem Frank Gomez said in a city press release that while the backup plan – also called “Plan C” – would mean “belt-tightening,” the city council does not “anticipate it will impact the city’s ability to continue to provide quality public services.”
Kosmont said at the Sept. 28 meeting that cash will likely be tight between November and January, and in early April, as the city awaits reimbursements of its share of tax revenue from the state and county.
He also confirmed the city continues its search for a permanent city administrator. “The cash flow management issue is going to be a longer-term issue. The sooner that the city really gets a permanent leadership in place that’s technically qualified, the better for them,” said Kosmont, who was hired in May when the city could not find a qualified city administrator to serve permanently.