California's Scandal-Plagued City of Bell May Repay $22 Million in Bonds

The Los Angeles suburb of Bell, California, where eight current and former officials are charged with misappropriating public funds, may pay $22 million to bondholders, according to the interim chief administrative officer, Pedro Carrillo.

The money would come from $50 million raised through general-obligation bonds to build an athletic facility that’s never been finished. After six years, all the city of 38,000 has to show for the project is “a dirt lot with a masonry wall,” a state audit found in September.

“We’re preparing a report which we’ll deliver to City Council which will include several options” including repaying bondholders, Carrillo said in an interview yesterday.

Bell, which paid its former city manager almost $800,000 a year, illegally raised taxes, mismanaged bond funds and entered into improper contracts, auditors said. While the bonds for the Bell Sports Complex were sold in 2004 and 2007, Carrillo said the project is only 20 percent completed.

“No plans for completing or developing the complex were found during the course of the audit,” state Controller John Chiang said in a statement Sept. 22. The city lost $1.7 million in potential interest earnings on the bond proceeds because most of the money was deposited in a non-interest-bearing account, according to the audit.

Returning $22 million to investors would be unusual, according to Ernesto Lanza, general counsel of the Municipal Securities Rulemaking Board, an industry self-regulator.

‘Extremely Uncommon’

“It’s extremely uncommon,” Lanza said in a telephone interview from Arlington, Virginia. “Sometimes a project that was budgeted at $50 million will come in at $48 million and they’ll use the $2 million to pay off the bonds. Here they’re giving a whole pot back.”

The city is also negotiating with Paris- and Brussels-based Dexia SA after missing a $35 million payment due Nov. 1 on lease-revenue bonds sold to develop a railroad facility that was never built, Carrillo said.

“Although Dexia has served formal notice of default on the city, discussions to resolve this issue are continuing,” a Dexia spokesman, Thierry Martiny, said by e-mail.

Bell’s former city manager, Robert Rizzo, and two other officials resigned July 22, a week after the Los Angeles Times reported that they were paid a combined $1.6 million annually. One-in-four Bell residents lives below the poverty line, according the website City-Data.com. The city’s annual report listed per-capita income at $24,800 in 2008. Statewide, the figure was almost $42,700 that year, Bloomberg data show.

Rizzo, Mayor Oscar Hernandez and six other current and former city officials were arrested Sept. 21 on charges they misappropriated $5.5 million of city money, paying themselves through phantom committee meetings and illegal personal loans, according to a press release from Los Angeles County District Attorney Steve Cooley. They all pleaded not guilty, according to Jane Robison, a spokeswoman for Cooley.

To contact the reporters on this story: Christopher Palmeri in Bell, California, at cpalmeri1@bloomberg.net.

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

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