COMPTON, Calif. — The Compton, Calif., mayor’s allegations of fraud at city hall have at least temporarily halted the city’s ability to get a line of credit to pay bills, according to officials.
Mayor Eric Perrodin sent a letter to California Controller John Chiang in December requesting that he conduct a forensic audit of the city and suggesting that the general fund deficit was caused by “possible fraud, waste, and-or abuse of city monies.”
The mayor said he was concerned because the city has gone from a multimillion-dollar reserve to a $39 million deficit over the past few years.
Compton had been trying to obtain a $15 million line of credit to help plug a $41 million deficit, interim city manager Lamont Ewell said in an interview at the City Council’s meeting Tuesday night.
Compton has $281.7 million of bond debt as of June 30, 2010, including redevelopment debt, according to its annual report posted on the Municipal Securities Rulemaking Board’s EMMA site.
Auditor Mayer Hoffman McCann PC signed off on the report, but noted there was “substantial doubt about the city’s ability to continue as a going concern.”
The suggestion of possible fraud squashed any interest investors might have had, according to Ewell, who ended the city’s efforts to get a line of credit after Perrodin requested the audit.
Ewell resigned last Wednesday, saying it will be several weeks before the city can lay the mayor’s claims to rest and move ahead. He added that after spending two months poring through the books, he doesn’t believe actual fraud occurred.
Outside auditors hired by Compton were close to completing their review of city finances, but Ewell said they will likely wait to hear if the controller plans to conduct an audit before signing off on their own audit.
“I don’t think it’s appropriate for me to sit on the city’s payroll knowing they are struggling, when this could take several weeks or months,” Ewell said. “I don’t think it is fair for me to draw a salary when I can’t take them to the next place.”
Ewell, the former city manager of San Diego, was hired two months ago to help turn Compton around after the previous city manager resigned.
“I’m not needed here now,” Ewell said. “What they need is a good underwriter.”
In addition to helping the city pay its bills, the line of credit would have helped it repurchase $12 million to $15 million of bonds, saving $2 million to $3 million in interest payments, Ewell said.
Over the past several years, Compton has been months behind on its payments to Los Angeles County for police services. It accrued $369,000 in late fees last year.
In December, the county threatened to seize part of the city’s property taxes to pay down $7 million the city owed, but backed off after Compton made a partial payment.Ewell said the city has been able to narrow the lateness of its payments to the county from seven to eight months behind to four to five months.
The city’s inability to get the line of credit means it will have to continue to count on the patience of the county and others it owes money to, Ewell said.
Jacob Roper, the state controller’s spokesman, said Chiang has not made a decision about whether he will review Compton’s finances. But based on the volume of requests his office has received since it audited the now-notorious city of Bell more than a year ago, it seems unlikely.
Roper said the controller’s office has received requests from around 200 residents and city officials throughout the state requesting audits of their municipality’s finances.
“We just do not have those kind of resources,” Roper said. “The controller introduced legislation last year that would have given the office those powers and provided funding, but it didn’t pass.”
The cities the controller has audited, which include Bell, Montebello and Vernon, have had several years of questionable audits, Roper said.
The mayor didn’t return to Tuesday night’s council meeting from a closed session to discuss candidates to replace Ewell. The four council members unanimously approved a two-year contract with all the city unions that will save the city roughly $1 million over the next two years — without the mayor’s vote.
Before the closed session, residents lambasted the mayor for harming Compton’s efforts to move forward on the three-year recovery plan drafted by Ewell. One woman even suggested she would support an effort to recall Perrodin if he didn’t start working with the council to fix the city’s fiscal problems.
