LOS ANGELES — Arne Croce, the recently appointed interim chief administrative officer of the beleaguered city of Bell, a Los Angeles-area working class community of 50,000 residents, has his work cut out for him.
Even as prosecutors move ahead with pre-trial hearings against eight former city officials accused of theft, fraud and mismanaging city funds, Croce has the task of restoring fiscal order to the city.
In less than 60 days, Croce is supposed to return to the City Council with a work-out plan that could result in Bell being able to pursue a refunding on $50 million in bond debt.
The clock started just three days into Croce’s first week as chief administrator when the council approved a “bridge budget” at its meeting on Aug. 24.
The budget included three consecutive years of tax increases, but also includes a proposal that could decrease the bond debt by 40%, according to budget reports prepared for the council.
The city’s previous, tarnished administrators issued $50 million in general obligation bonds, secured by a voter-approved property tax levy. Voters authorized $70 million in 2003, but $20 million remains unissued. Only 933 people voted in the election.
Bell has $20.6 million remaining from the bond proceeds, which were slated to fund construction of a multi-use recreational park with athletic fields, a library and other facilities.
Now it would like to use that balance to reduce its principal in the refinancing, which will allow the city to reduce the property tax levy for the debt, Croce said.
According to disclosure documents posted on the Municipal Securities Rulemaking Board’s EMMA website, $15 million of GO bonds issued in 2004 are insured by National Public Finance Guarantee Corp., and $35 million issued in 2007 carried a CIFG insurance policy that was reinsured by Assured Guaranty.
The California controller’s office, in a special audit of Bell last year, found “no plans for completing or developing the complex.”
The cost of the GO debt went unnoticed by city taxpayers for the first five years after the bonds were approved because the city didn’t impose the tax increases until August 2009.
Almost $6 million in bond proceeds were used to make debt service payments in the meantime, according to the council’s budget report.
Aside from its GO debt, the report said Bell faces a deficit of $676,000 in 2011-12, which will need to be paid from other sources.
The budget report does not mention how city officials plan to deal with $35 million in privately placed lease-revenue bonds that were supposed to fund an intermodal freight project that failed to materialize.
According to budget documents, the $35 million principal payment was due last year but was not paid. Officials at the European bank Dexia, who own the bonds, could not be reached for comment.
Bell also has about $54 million in other long-term pension, lease-revenue, certificate of participation and redevelopment debt, according to budget documents.
Last year, the state controller found that Bell had levied an illegally high tax to service its pension bonds.
Croce deferred to a trio of bond experts that have been working with the city, primarily on a pro bono basis, on the details of the bond issues.
James Bemis, a principal in the Los Angeles-office of Montague DeRose and Associates; Andy Belknap, a regional vice president for Management Partners Western office in San Jose; and William Statler, former director of finance and treasurer for San Luis Obispo, have been advising Bell’s leaders on fiscal and bond issues.
They could not be reached for comment.
Taxpayers are not likely to get a windfall through restitution from corrupt public officials indicted by the prosecutor’s office, Los Angeles County deputy district attorney Jennifer Snyder said.
She estimated a restitution amount of $8 million to $9 million after combining the totals included in all the charges lodged against the eight former Bell officials who were indicted and are now undergoing pre-trial hearings.
But the only hard asset prosecutors have linked to the expenditure of city funds is the Huntington Beach home owned by Robert Rizzo, the city’s former chief administrative officer.
“Rizzo currently has his home on the market, but it is underwater,” Snyder said. “There is no point in us seizing a home that is worth less than its mortgage. That would just result in additional losses to taxpayers.”
Snyder said prosecutors are comparing the expenditure of the stolen funds to how lottery winners often run through their winnings. It does not appear, at this point, that the money was spent to purchase anything of significance that could be seized, she said.
If a jury returns a guilty verdict and decides in favor of restitution, the officials would be allowed to schedule a payment plan to repay the amount stolen, she said.
“It is not unusual to see copious amounts of money vanish,” Snyder said. “It would be lovely if there were a panacea for this, but I do not think that will be the case.”
Although it has been nearly a year since Bell’s two top officials were forced out under allegations of mismanaging funds, Croce and the three-month-old slate of a new mayor and City Council members have a long way to go to restore order to the city’s finances.
Croce hopes that the city will not have to raise taxes further, but five out of six of Bell’s top department head positions remain unfunded and unfilled. After what the city’s voters have been through, it might be hard to obtain their approval for a tax hike.
The budget, approved by the council last Wednesday for fiscal 2011-12, is being referred to as a “bridge budget” because it does not meet state accounting standards.
The night the budget was approved, the new City Council and mayor had to tell residents that three years’ worth of tax hikes approved by the previous council to pay for the GO issues must remain in place.
The current council announced the rate increases to taxpayers because they did not want people to get a surprise when they received their tax bills, Croce said.
The revenue from the tax hikes can only be used for repaying the bonds, but Bell faces many other financial challenges.
“There is lack of organizational infrastructure,” Croce said. “Five out of six department head positions are unfilled and unfunded. A lot has to be done from an organizational standpoint — and the council has to build a city government that has the public’s trust.”
The City Council and mayor, who took office this year after the election that recalled the previous council, are all brand-new to city government, but, according to Croce, what the new civic leaders lack in experience, they make up for in enthusiasm.
“They are willing to do whatever it takes to restore the public’s faith in the city,” said Croce, who retired as San Mateo’s city manager in 2008 after 18 years at the helm of the relatively affluent city on the San Francisco peninsula. He was recruited to the one-year position in Bell to help get the city back on its feet.
Although Croce has been reading news reports about what ails Bell over the past year, he has found the extent of the damage done through the mismanagement a bit astounding.
“I have learned not to be surprised,” he said. “One of our first tasks is to get our arms around a city organizational structure and determine what we need to move forward.”