SAN FRANCISCO — California Controller John Chiang released two audits of the city of Montebello Thursday that found $31 million in questionable spending, loans and fund transfers.
The controller said between 2005 and 2010, city redevelopment money was used to pay for “frivolous or questionable expenses,” such as dinners in Las Vegas for the city manager, golf tournament fees for City Council members, and a home outside of the redevelopment area.
The city also misspent $3.5 million of bond proceeds over the five-year period, according to the audit.
“Montebello has made it a habit to tap legally restricted funds to cover its budget and cash shortfalls,” Chiang said in a statement. “It appears that the city moved money wherever it wanted, whenever it wanted, regardless of the law or the intended purpose of those taxpayer dollars.”
Interim city administrator Larry Kosmont said during an interview earlier this month that the controller’s office had provided draft findings of the audits to the city that indicated “no surprises.”
The audit results are the most recent trouble for the city, which has also faced probes from the U.S. Department of Housing and Urban Development and the Federal Bureau of Investigation.
The audit also said City Council members, who also serve as board of the Montebello Redevelopment Agency, have a “history of authorizing forgivable loans to individuals who are political contributors.”
Chiang said the audits also found the Redevelopment Agency inappropriately paid for some of the city’s general administrative costs, for sales tax revenue audits unrelated to redevelopment, and for association dues. He said the RDA failed to make $2 million in required payments to local agencies.
Under state law, the agency is required to earmark 20% of all its tax-increment revenue for affordable housing, but the controller said the city “shortchanged” the agency’s low- and moderate-income housing fund by more than $12 million and inappropriately charged administrative costs to the fund without documentation.
An audit by the controller of the city’s gas tax fund, which is exclusively for road maintenance, determined the city illegally used $2.18 million from the fund for general operating costs and made another $500,000 loan to a different fund with no documentation that was later reimbursed.
The city recently claimed a legal victory that allowed it to sell notes to buffer its troubled finances.
A Superior Court ruling earlier this month dismissed a lawsuit against Montebello and its RDA filed by local businessman Ara Sevacherian stemming from $16.8 million of tax and revenue anticipation notes issued by the city in 2010 and sold to the agency.
Montebello is planning to issue $3.9 million of short-term notes this month to help manage cash flow. Moody’s Investors Service downgraded Montebello to Baa2 from A3 in May because of weak cash flow, depleted reserves, and ongoing budget problems. The rating agency also downgraded $14.5 million of certificates of participation to Ba1 from Baa2.
The two audits released Thursday are only the first part of the review, the controller said.
Montebello has $126 million of outstanding bond debt.
