City Council debates bankruptcy as September payroll default looms
COMPTON—City Treasurer Douglas Sanders warned City Council members that bankruptcy is a real possibility during the meeting on Tuesday, July 17.
The current crisis centers on cash flow problems, which have dogged the city for at least five years because revenue falls off considerably after July 1.
“The city receives property taxes in December and January,” he said. “A line of credit was crucial for the city. That is why former City Manager Lamont Ewell made it his number one priority.”
Sanders said City Controller Stephen Ajobiewe sent him two demands on Monday, July 16, that places the city treasury in a weakened financial condition.
“He wants $4.5 million for the Community Redevelopment Agency and water bonds,” he said. “I have just below $3 million in the bank, but more than $5 million in warrants that need to be paid.”
The Council needs to make a decision about the city’s financial future, Sanders said, and he needs a direction in the next 10 days.
“We can either pay the bonds, which chews up as much as 50 percent of the city’s cash, preserve the cash and default on the bonds, or have a serious discussion about declaring bankruptcy,” he said. “I cannot pay this stuff.”
Additional bills on the radar include $600,000 and $1.1 million for employee insurance and legal services.
“I do not know where that money is coming from,” he said. “Pacific Coast Waste has a bill that is due next week. Where the heck is the money for that?”
Sanders said the city will pay the price for the actions taken by former controllers.
“They used little tricks and balanced things out by moving money,” he said. “Some of that was probably done illegally, but it was not my thing.”
The city has built-in controls prohibiting the city from spending beyond its budget, Sanders said, and Willie Norfleet removed the controls when he was city controller.
“We exceeded our budgeted legal limit by $17.6 million,” he said. “The city manager’s office spent $14 million too much. Somebody has to do some explaining.”
Perrodin said the conversation confirmed his suspicions.
“The city controller is supposed to tell the Council if the city manager does something wrong,” he said. “There should be a financial plan, and the city has nothing that puts the financial house in order.”
The audit firm is the same company that signed off on the financial conditions in Bell, Perrodin said, and the state fined the group $300,000 for its actions.
“Before I met with the state auditors Los Angeles County asked if its auditors could also attend the meeting,” Perrodin said. “Mayer Hoffman McCann could have contacted the controller’s office or the county auditors and found out what my concerns were. They did not take any action.”
Perrodin asked Ajobiewe and Sanders if the city should file for bankruptcy, and both avoided giving an answer.
“That is not my call,” Sanders said.
City Controller Stephen Ajobiewe passed on the question, but said the city needs a balanced budget.
“We need a cash management program that keeps spending down during the first half-year, so we meet our expenses between January and June,” he said. “The controller’s office is the back end of the finances, and the control must come from the department heads and city manager.”
The Council must come together, Sanders said, and focus on the problem.
“Everyone needs to get in an office, put your differences aside, and make some decisions,” he said. “This must happen sooner rather than later.”
The city receives utility user fees on Friday, July 20, Sanders said, and he will pay the bonds.
The city has enough money to meet its payroll obligations through August, Ajobiewe said, but he cannot pay the bill in September.
“I am more than willing to set my difference aside,” Perrodin said. “The city comes first, and personal differences do not matter.”
Losing CRA money hurt the city, he said, and infrastructure shortcomings spoil economic development efforts.
“The Gateway Center added tax revenue and jobs to the city,” he said. “When major streets have potholes, it discourages new business.”
City employees and residents should form a commission, Perrodin said, and solve the shortfall.
“Our deficit is $18 million,” he said. “We can deal with that. The city can raise money in many different ways.”
Perrodin said the city still controls its own destiny. “Bankruptcy is not in my vocabulary,” he said. “I will not vote for it, and we can get through this situation. I know we can get out of this.”
Batiste scheduled a presentation from the audit firm on its findings for Tuesday, July 24.
“I have some concerns that he will not show up,” he said. “The contract requires an oral presentation to the Council.”
The next City Council meeting is on Tuesday, Sept. 4, after the stated payroll deadline.