ALAMEDA, Calif. — California's Assembly speaker has introduced a bill to disincorporate the Los Angeles County city of Vernon, which has a tiny population but more than $500 million of outstanding bond debt.

The city was created to serve business and industry. It has fewer than 100 residents and found itself in the media spotlight in the wake of the salary scandal last summer in the neighboring city of Bell.

"The city operates something close to a racket," Assembly Speaker John Perez, D-Los Angeles, said of Vernon. "That is unacceptable."

According to Vernon's most recently published certified financial statements, as of June 30, 2009, it had $463 million of outstanding electric system revenue bonds, and $49.4 million outstanding of redevelopment bonds backed by property tax increment.

In October, the office of Attorney General Jerry Brown subpoenaed Vernon, seeking information about the salaries paid to top city executives.

The attorney general's office noted that the city had paid its former administrator and attorney Eric Fresch more than $1.6 million in 2008, and that in 2009 Vernon paid two other city executives more than $785,000 each. Former city administrator Bruce Malkenhorst Sr., who retired in 2005, receives an annual pension of more than $500,000.

The city's miniscule housing stock is almost entirely owned by its government. That leaves the tiny population almost entirely beholden to city officials who can gorge themselves on public dollars without scrutiny, according to critics.

The five-square-mile city says it is home to about 1,800 businesses with 50,000 employees. The city government has an annual budget of about $65 million, according to its financial statements, not including revenue from its electric utility, which grosses more than $100 million annually.

Gloria Molina, the Los Angeles County supervisor whose district includes Vernon, sponsored a successful county resolution in November, directing county staff to seek a state constitutional amendment limiting a charter city's ability to rent housing units it owns to city employees or their relatives.

Perez went further Monday, on the first day of the new legislative session, by sponsoring a bill to disincorporate Vernon. Assembly Bill 46 would accomplish that goal by disincorporating any city with fewer than 150 residents, a provision believed to affect only Vernon. The bill's co-sponsor is Cameron Smyth, a Republican who chairs the Assembly Local Government Committee.

"For years, the entrenched leaders of that city have operated with impunity and without any shred of accountability," Perez said Monday, during a speech accepting a new term as speaker. Vernon is in Perez's district.

Vernon's city administrator, Mark Whitworth, said in a statement that the city will vigorously fight any attempt to disincorporate.

"These actions may well result in billions of dollars of liability to the state," Whitworth said. "We are equally concerned that the proposed actions could threaten the existence of any city in California. This bill sets a dangerous precedent. If the state can deny rights to cities with 150 residents, any city could be legislated out of existence."

Any attempt to disincorporate Vernon would have to address the city's outstanding debt obligations. The initial working of the bill is silent on the matter.

Subscribe Now

Independent and authoritative analysis and perspective for the bond buying industry.

14-Day Free Trial

No credit card required. Complete access to articles, breaking news and industry data.