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Montebello, Calif., in Dire Straits

SAN FRANCISCO — The city of Montebello in Los Angeles County, with more than $100 million in debt, may go bankrupt if it is unable to get a bridge loan in the next six months, according to a city official.

Montebello’s interim city administrator, Peter Cosentini, said in a memo to council members last week the city will go bankrupt if it is unable to get a loan by this fall and make massive cuts, according to local news reports.

“If the city cannot get a loan by September, we will be technically and practically bankrupt,” Cosentini said in a memo to the City Council last week reported by the Whittier Daily News. 

Cosentini told the council that the city will run out of cash by October and will be unable to pay its debts, including payroll, without a financial fix.

City officials have been consulting bankruptcy attorneys, the newspaper quoted the memo as saying.

Neither Cosentini nor Montebello spokesman Kevin McClure, the city’s police chief, returned calls for comment.

Cosentini was hired in August. Earlier this month, he said he would be resigning in May because of disagreements with the City Council. Montebello, which has $126 million of outstanding bond debt, has seen its financial problems intensify this year, including a rare audit by the California controller announced last week, as well as questions about its use of federal housing dollars.

A major concern, according to Cosentini’s memo, is a $17 million loan to the city from its redevelopment agency that must be paid back by the end of the fiscal year or else potentially trigger a default on its bonds.

Montebello had a general fund budget of $47 million in fiscal 2010 and ended the year with a $6.6 million deficit. City management said in its certified audited financial 2010 report, released last week, that it expects a general fund deficit of $2.1 million this fiscal year.

Last year, the city, which has a population of 66,000, laid off 30 employees in an effort to cut the deficit.

Its general fund reserve has an unreserved $1.2 million deficit, according to its audited financials.

Montebello has $67 million of tax allocation bonds, $15.8 million of revenue bonds, and $20.4 million of COPs outstanding, as of the end of June. It also has $5 million of outstanding COPs tied to its golf course.

State Controller John Chiang sent a letter to city officials last Thursday notifying them his office will audit Montebello’s finances because it has reason to believe that its annual reports are “false, incomplete, or incorrect.”

Last year, the controller audited the scandal-plagued city of Bell after press reports broke that it was paying former city manager Robert Rizzo about $800,000 a year.

Chiang’s letter cited concerns about two “off-the-books” bank accounts that have been open for more than 10 years, the use of $15 million of redevelopment funds used to pay restricted fund loans, and Montebello’s use of U.S. Department of Housing and Urban Development funding.

The City Council is set this week to consider issuing a subpoena to find the name of the owner of one of the concealed bank accounts.

The city is hoping to discover whether it paid $2 million instead of $1 million through that account as part of a deal by its redevelopment agency to subsidize the building of an Applebee’s restaurant.

Officials are also looking into whether bond proceeds may also been part of the deal.

HUD has also ordered the city to repay $2.1 million out of $6.5 million borrowed in 2005 after the federal agency could not find documentation for the use of the money.

The city said it has demanded $1.3 million from a developer who failed to provide the correct documents to support the cost.

Montebello owes another $889,000 to HUD for failing to provide documentation for buying another property.

Moody’s Investors Service said in a recent report that Montebello’s finances have deteriorated to “unprecedented levels.”

Largely because of political turmoil, including the recall election of two council members in February 2010, the city did not adopt a final fiscal 2010 budget until April 2010, two months before the fiscal year ended, Moody’s noted.

“The city continued to increase expenditures while the revenues were declining throughout much of the 2010 fiscal year,” Moody’s analyst Kevork Khrimian said in the December report on a downgrade of the city’s debt.

“While the city’s creditworthiness is already under considerable pressure, without a balanced budget for 2012, this pressure is likely to increase,” Khrimian said.

Moody’s downgraded Montebello’s issuer rating to A3 from A1 and its fixed asset-supported certificates of participation to Baa2 from A3.

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