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California's Bell Used as `Cash Drawer,' State Controller Says After Audit

Bell, California, the Los Angeles suburb that paid its city manager almost $800,000 a year, illegally raised taxes, mismanaged bond funds and entered into improper contracts and land purchases, according to an audit by state Controller John Chiang.

The city used $93,000 to repay two personal loans extended to its former manager, Robert Rizzo, and approved $1.5 million in other loans to city employees without legal authorization, the controller’s office said today.

“The city had almost no accounting controls, no checks or balances, and the general fund was run like a petty-cash drawer,” Chiang, a Democrat who is running for re-election in November, said in a statement. “The city’s purse-strings were tied to only one individual, resulting in a perfect breeding ground for fraudulent, wasteful spending.”

Rizzo, 56, was among eight current and former city officials arrested yesterday, according to Los Angeles County District Attorney Steve Cooley. Rizzo was charged with 53 counts of misappropriating public funds and conflict of interest. He is scheduled to appear in court today.

In addition to the criminal charges, Rizzo and seven others face a civil complaint filed by the state attorney general’s office Sept. 15.

The prosecution is politically motivated, Rizzo’s lawyer, James Spertus, said in a telephone interview. The district attorney, a Republican, is running for state attorney general in November, and Attorney General Jerry Brown, a Democrat, is running for governor.

‘City Approval’

“Mr. Rizzo was paying off his own loans with his own money, he was not using public funds,” the Los Angeles Times quoted Spertus as saying. “I do know, and I confirmed with Mr. Rizzo, the loans were paid with salary and declared as income on his taxes, and it was done with city approval.”

The audit said Bell’s City Council increased the tax assessment for the Sanitation and Sewerage System District without voter approval, an improper tax increase amounting to $621,737 from the fiscal year starting in 2007 through 2010.

The city issued $50 million of a $70 million voter-approved bond measure without a documented plan to use the proceeds, then lost $1.7 million in potential interest earnings because most of the money was deposited in a non-interest-bearing account, according to the audit.

Tax Receipts

Property-tax receipts that were supposed to pay back the bonds were deposited into the city’s general fund, its main account, rather than to a restricted debt-service fund, the audit found. Rizzo’s salary raises were contingent on a positive cash balance in the general fund, the audit said.

Bell paid $4.8 million to purchase land from a former mayor without documenting the purpose, the audit said. In addition, $10.4 million was paid to two companies owned by the city’s then-director of planning services.

A city of 38,000 where nearly one in six residents lives below the poverty line, Bell made national headlines in July when the Times disclosed Rizzo’s salary.

The audit’s findings “are shocking and detail actions that are reprehensible beyond words,” the city’s interim administrator, Pedro Carrillo, said in a statement. “This audit is an invaluable tool in our crusade to correct the many wrongs from the past.”

In the 17 years that Rizzo served as Bell’s manager, his annual salary rose to $787,000, or 11 times the starting figure, the controller’s office said.

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

To contact the editor responsible for this story: Mark Tannenbaum at mtannen@bloomberg.net

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