California City That Outsourced Everyone Is Snared by Pay Scandal in Bell

Maywood’s City Council will discuss whether to cancel contracts to manage municipal services that it entered into with neighboring Bell in light of the pay scandal in that California municipality, Councilman Felipe Aguirre said.

Maywood, a city of 28,000 located 8 miles (13 kilometers) south of Los Angeles, drew national attention in June by deciding to replace all of its workers with contractors, including some from the city of Bell. Since then, a pay scandal has roiled Bell and led to the resignations of top officials there. Activists in Maywood have called for an end to the Bell services contracts.

“We’re going to revisit that issue,” Aguirre, a Democrat, said in a telephone interview. “We couldn’t discuss that at last night’s council meeting because it wasn’t on the agenda.”

Amid reports that Bell’s payroll included almost $800,000 a year for Robert Rizzo, the city manager, Rizzo quit last month, Mayor Oscar Hernandez said in a statement. Angela Spaccia, the assistant city manager, and Police Chief Randy Adams also left.

California Controller John Chiang said today that he will require cities to post salary information on his office’s website starting in November.

“The absence of transparency is a breeding ground for waste, fraud, and abuse of taxpayer dollars,” Chiang, a Democrat who is running for re-election, said in a statement. “A single website with accessible information will make sure that excessive pay is no longer able to escape public scrutiny and accountability.”

‘People are Upset’

Last week, Spaccia also quit as Maywood’s interim city manager, according to Magdalena Prado, a municipal spokeswoman. Spaccia didn’t respond to a request for comment.

“People are upset that we’re giving money to a city that raised taxes and gave themselves higher wages,” said Sam Pena, a Maywood city councilor and mayor from 1999 to 2007, in a telephone interview. “Is this the kind of city we want to be associated with?”

Maywood activists called for the Bell contracts to be dumped amid the uproar that followed a July 15 Los Angeles Times report that Rizzo was among the highest-paid public officials in the U.S. He ran a city with a largely Latino population of 38,000 people, where income in 2008 came to about $24,800 per person, according to a Bell annual report. U.S. Commerce Department figures this year put the national average per-capita income at $32,819.

Probes Announced

California Attorney General Jerry Brown, a Democrat running for governor, and Los Angeles County prosecutors have begun investigations into Bell since the pay reports.

“When we made an agreement with Bell, there was no knowledge of the salaries” being paid to some city officials there, Maywood Mayor Ana Rosa Rizo said last night at a City Council meeting.

Demonstrators gathered outside Maywood City Hall carrying signs calling for City Council members to resign. Some rang bells to emphasize the connection to Bell.

Maywood’s plight is a cautionary tale for municipalities looking to cut costs following the longest recession since the 1930s, said Susan Duerksen, a spokeswoman for San Diego-based In the Public Interest, which researches privatization issues.

“You could make a reasonable argument for small jurisdictions to merge and avoid duplication of efforts,” Duerksen said by telephone. “There are all kinds of consequences if it doesn’t get done well. You are giving up control.”

‘Full Contract City’

Maywood called itself “the first municipality in the country to become a full contract city” in June as the police force was dismissed and contractors were hired to run its operations.

Credit-rating company Standard & Poor’s put Maywood’s public-finance authority bonds on credit watch with negative implications, prompted by the loss of general liability coverage on July 1 and the city council’s outsourcing decisions. S&P rates long-term Maywood debt at BBB, the second-lowest level for investment-grade securities.

“The CreditWatch placement reflects our view of the recent council vote to contract out all city services to neighboring governmental entities,” Michael Taylor, an S&P analyst, said in the report. Questions remain about resolving current union contracts and tax collections, he said.

Maywood had to outsource all its employees after losing its insurance and coverage for worker’s compensation, Mayor Rizo said in a statement posted on the city’s website. “We cannot operate a traditional staff,” she said.

Council’s Decision

Maywood workers were surprised by the speed at which the City Council decided to fire them. Enrique Gonzalez, a police officer for 20 years, said that Spaccia told him in May that members of his department would still have jobs.

“The next month, we’re done,” Gonzalez said in a telephone interview.

Paul Philips, who was Maywood city manager until Spaccia replaced him in February, said city councilors negotiated contracts with Bell officials without letting him know.

“It was arranged and set up covertly,” Philips said by telephone. “They were convinced it was a good idea for Maywood and now it’s completely blown up.”

Andy Probst, a former Bell police chief, said in an interview outside City Hall there that Rizzo’s long-term goal was to consolidate municipal services with surrounding communities including Maywood and others, to boost Bell revenue.

“That was his master plan,” Probst said. He said Rizzo fired him in 2008.

Maywood city council members didn’t return calls seeking comment. Rizzo couldn’t be reached for comment.

To contact the reporter on this story: Christopher Palmeri in Los Angeles at cpalmeri1@bloomberg.net.

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