LOS ANGELES — Bell, Calif., became famous for the wrong reasons in 2010 after the public learned that it was paying exorbitant salaries to its administrators and elected officials.
As those former officials deal with the ensuing corruption charges, Bell’s current leaders say it’s a new day for the Los Angeles-area working-class city of 50,000, which has since elected an entirely new slate of City Council members and a mayor in early 2011.
Their next order of business is to adopt a workout plan for outstanding bond debt issued under the previous, tarnished city management.
Bell began working on many of its financial issues when well-regarded retired San Mateo city manager Arne Croce agreed to come on board as interim city manager for a year. Croce was replaced on Tuesday by Doug Willmore, whose three-year contract was approved by the City Council on May 22.
As Bell’s new leaders work on fixing the mess, their predecessors prepare for court dates. A pretrial conference is scheduled for the corrupt council members on May 31, according to Sandi Gibbons, a spokeswoman for the Los Angeles County district attorney’s office. The trials of Robert Rizzo and Angela Spaccia, the former city manager and assistant city manager, are on hold pending the appellate review of court rulings. Motions are scheduled for July 17 and Aug. 28.
Willmore, most recently El Segundo’s city manager, was hired at an annual salary of $175,000 — a bargain compared to the almost $800,000 Rizzo was pulling in.
Bell’s financial advisors are scheduled to report to the City Council June 6 on their progress on a work-out plan for the city’s general obligation bonds.
The council will vote on whether to approve documents implementing the plan, William Statler, a San Luis Obispo, Calif.-based financial consultant, said in an email.
Bell’s previous administrators issued $50 million of GOs, secured by a property tax levy approved by voters in a 2003 election in which only 933 people voted.
Little was accomplished with the bond proceeds, but the city still had more than $23 million remaining in 2010, according to an audit published by the state controller’s office.
Statler said Bell’s goal is to reduce the amount of outstanding debt by about 40% by directly purchasing outstanding bonds from current bondholders through a tender offer, and then redeeming any amounts that advisors were not able to reduce via the tender offer through an escrow account.
“We had initially planned to return to the council sooner than this,” Statler said. “However, identifying current bondholders has been more difficult and time-consuming then we thought it would be. But even so, we still have ample time to complete the work-out plan and reflect the savings on the 2012-13 property bill.”
The council in December approved having Statler design a workout plan, instead of an earlier idea to refund the bonds.
“The former council left you a tax time bomb,” Croce told council members during the December meeting. “The City Council realized in August with no action, the city faced a steep increase in property taxes. One of the goals of the council is to avoid increasing taxes.”
If Bell chooses not to take corrective action on the bonds, the City Council would have to increase property taxes by 70%, to $259 from $152 on the current assessed value per $100,000, to make the bond payments, according to a presentation made by Statler at the December meeting.
Bell has one of the highest tax rates in Los Angeles County, according to city officials.
KNN Public Finance, hired in September as financial advisor on the workout plan, determined a refunding would not be the best move, because it could end up with higher interest rates on the debt because of its widely publicized fiscal problems, said Statler, former finance director and treasurer for San Luis Obispo.
The city plans to use $20 million in unused bond proceeds to purchase outstanding bonds directly from current bondholders through a tender offer. To the degree the tender offer falls short of $20 million, Bell would place the remaining amount in an escrow account and pay back that portion of the bonds early. For instance, if the city is able to purchase $15 million of the bonds through the tender, it would defease $5 million.
A direct purchase would result in a higher level of savings for the city, but given market conditions, Bell might not be able to buy back the entire amount, Statler said.
The council hired a team of financial advisors, including bond counsel, and the Bond Communications Group to facilitate tracking down the bondholders at a cost of $115,000, also to be deducted from the $20 million in bond proceeds.
The cost of the GO debt went unnoticed by 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.
Working with advisors, Bell started its budget process in January, which included public hearings involving residents to make decisions on what city services residents would like officials to fund.
Croce said in April that city officials continue to be in negotiations on Bell’s other bond debt, which includes $35 million of privately placed lease-revenue bonds issued to fund an intermodal freight project that failed to materialize.