LOS ANGELES — Montebello officials claim that what they call an ill-timed report released by the California controller’s office is impeding the city’s ability to get short-term financing.
City officials had been conducting due diligence and meeting with investors with the aim of issuing $3.9 million of short-term notes in late September to help with cash flow. The controller’s report has pushed the sale out a month to the end of October — if the city is able to sell notes at all, at this point.
“The report’s ill-timed release has jeopardized the city’s plan to attract investors to provide a city loan at low interest rates,” said Larry Kosmont, Montebello’s interim chief administrative officer.
State Controller John Chiang’s office released two audits that called into question $31 million in spending, loans and fund transfers. The city also misspent $3.5 million of bond proceeds over the five-year period, according to the audit.
Kosmont contended the report is incorrect because $30 million of the amount included in the audit relates to redevelopment spending, not money from the city’s general fund, as the report indicates.
“They discounted every response we sent them,” Kosmont said. “Not only is the timing unfortunate, but the conclusions aren’t appropriate. The controller’s office didn’t find the criminal activity that occurred in Bell and the rest is a set of conclusions the city can’t explain and neither can the consultants and experts employed by the city.”
Bell is another Los Angeles-area city plagued by mismanagement.
The audits also fail to account for the steps that Kosmont said he and advisors such as First Southwest Co., which was hired this summer, are taking to put the city back in good financial standing. The city passed a balanced budget in June that includes $1 million in reserves, he noted.
“I wasn’t here when the issues of fiscal mismanagement were taking place,” said Kosmont, who is president of Kosmont Cos., a real estate and public finance consultancy. “This is a middle class-working class city and I would like to see them get back in good financial standing.”
Jacob Roper, a spokesman in the controller’s office, said state officials stand by the audit’s conclusions.
“We offered Montebello a chance to comment on and disprove each finding. For instance, the city objects to our finding that ineligible costs were charged to the bond proceeds fund,” Roper said. “Our staff reviewed their comments, but found the city still could not provide documentation supporting the charges.”
Before the release of the controller’s report, Kosmont had been estimating the sale, a private placement, would bring rates in the range of 2.25% to 3.50%. Now, city officials, who hired De La Rosa & Co. in July to sell the notes, will be forced to reevaluate. “I’m not sure what rates we can expect at this point,” he said.
Officials already faced an uphill battle in selling the notes as the city has been the subject of investigations by the Los Angeles County district attorney’s office and the federal government.
In April, Montebello’s former interim chief administrative officer said the city was facing potential bankruptcy. The following month, Moody’s Investors Service downgraded the city’s $126 million of outstanding bonds to Baa2 from A3, citing weak cash flow, depleted reserves and ongoing budget problems.
If the note sale is unsuccessful, the city will have to concentrate on cash-flow management until it receives property and sales tax disbursements in December or January. It had planned to use the proceeds from the note sales to move forward on redevelopment plans that include developing a Costco and other projects to bolster the city’s retail center, Kosmont said.
Despite the setback, Montebello plans to continue efforts to achieve fiscal stability.
“While the city has experienced a setback in its original plan to issue short-term notes, we have three solid alternative plans to meet general fund cash-flow needs,” said Vice Mayor Frank Gomez.