Compton bonds placed on CreditWatch
COMPTON—Financial issues pushing the Hub City toward bankruptcy continued on Friday, July 13, when Standard & Poor’s placed the city’s BB-rated lease revenue bonds on CreditWatch with negative implications.
Standard & Poor’s is a division of The McGraw-Hill Companies, which publishes financial research and analysis.
The action was due to the disclaimer of opinion issued by the audit firm Mayer Hoffman McCann on the city’s financial statements for the fiscal year that ended June 30, triggering a heated debate during the Council meeting Tuesday, July 17.
The city must complete an independent audit no later than 90 days after being placed on CreditWatch. The rating agency can withdraw or suspend its bonds ratings without audited financial statements.
“The bond trustee needs the report so it can make its disclosures available to the bond holders,” Ajobiewe said.
Councilwoman Yvonne Arceneaux said the problem began when Mayor Eric J. Perrodin wrote a letter to State Controller John Chiang, alleging waste, fraud and abuse of public funds, which disqualified the city from line of credit talks with any financial institution.
“Each Council member also sent a letter to the controller’s office expressing a different opinion about the issue,” she said. “From what I hear the state has no intention of responding to the allegations.”
The audit firm suspended its work in January, but completed a preliminary single audit report in June, after coming to an agreement with interim City Manager Bryan Batiste.
“The firm could not complete their report because Mayor Perrodin made the accusations to the controller’s office,” Arceneaux said. “Even if the city found another company the same problem exists.”
The city has $275 million worth of bond debt.
“The bond company can call them in if we do not have a completed audit,” Arceneaux said. “We will not have a city any longer if that happens.”
A state investigation is the only possible way to break the deadlock, she said, and it must happen soon.
“The controller’s office sent out a request for quotation (a standard business process inviting suppliers into a bidding process on products or services) to audit companies and we only received one response,” Ajobiewe said. “They thanked us for the request, but were not interested,” he said. “The group mentioned that no company will take on this responsibility.”
Councilwoman Lillie Dobson said the audit firm should do what the city paid it for.
“The auditor is supposed to verify the city’s finances, not talk to the mayor, me or anyone else,” she said.
Sanders said the audit firm can be held liable if it signs off on the report.
“They can be sued by the bond holders,” he said. “The federal and state government has a stake in this because of grant money. This is one of the worst types of audit findings because the company cannot quantify its findings.”
Perrodin says the city cannot receive a line of credit.
“If you run a household, have no money, and do not pay your bills on time, a bank will not lend you money,” he said. “When General Motors got in trouble, the banks would not help them. They had to get a line of credit from the government.”
Line of credit efforts seemed like just talk, Perrodin said, and nothing was imminent.
“Mr. Ewell met and conferred with the bank, and we were laying down the groundwork for the loan, which included the audit and financial statements,” Sanders said.
The Council took no action on the matter and it remains unresolved.
The next City Council meeting is on Tuesday, Sept. 4.