ALAMEDA, Calif. — The Securities and Exchange Commission is investigating bonds issued by the city of Bell.
The SEC is the latest agency to scrutinize the freewheeling financial policies of the blue-collar city of 40,000 residents. Bell spent much of the summer in the public spotlight after a newspaper reported that then-city administrator Robert Rizzo was being paid about $800,000 a year.
The SEC last week issued subpoenas for documents and information related to several bond sales the city conducted under Rizzo’s leadership, the Los Angeles Times reported.
The deals include an unrated, privately placed lease-revenue bond with a $35 million bullet maturity due Nov. 1, which has provoked questions about the city’s ability to avoid default. Bell’s general fund only generates about $14 million a year.
The bonds were issued to finance a land deal supporting an intermodal freight project that failed to materialize. The European bank Dexia confirmed that it owns the bonds.
“The city has failed to make the last two payments, and has informed Dexia that due to budget constraints it cannot comply with its obligations,” the bank said in an e-mail statement from its press office in Brussels.
The city agreed to negotiate with Dexia in June, the statement said. That was before Rizzo resigned under pressure. Dexia said it remains interested in negotiating with the city.
Bell hasn’t conducted a City Council meeting since four of the five council members were arrested in September on state criminal charges. The suspects included Rizzo and three other non-elected city officials. California Attorney General Jerry Brown has filed a civil suit against Bell and the eight arrested officials, and plans to ask a judge to put the city into receivership.
In a September report, the state controller’s office noted several irregularities in the city’s bond financings. Despite the issuance of $50 million in general obligation bonds to finance a sports complex, there is no visible progress on the project, Controller John Chiang reported.
The report said property taxes collected for the bonds were inappropriately deposited in the city’s general fund, in a manner that appeared to benefit Rizzo because his annual raises were triggered by positive general fund cash balances.
The controller also found the city had set an illegally high property-tax rate to finance pension benefits, undercutting the tax-rate assumptions used to sell more than $9 million of pension obligation bonds in 2005.
Bell sold $15 million in GO bonds in 2003, in a competitive sale won by Stone & Youngberg. Bell’s 2007 sale of $35 million in GOs was also conducted competitively, and won by Citi.
A Citi spokesman said the bank is cooperating with the SEC’s document requests.
The Times named Wedbush Securities and law firm Nixon Peabody as subpoena targets. The firms did not return phone calls Monday morning.
Wedbush underwrote the 2005 pension bond deal, and the 2007 lease-revenue bonds, according to Thomson Reuters. Nixon Peabody was the city’s bond counsel on the GO and pension bond deals, according to the offering documents.
The SEC subpoenas also reportedly named several current and former city officials, including Rizzo.