Duffey refutes bankruptcy threats
COMPTON—Compton City Manager Harold Duffey vigorously denied that the city plans to file for bankruptcy, attempting to end the talk and speculation that has been rampant in the Hub City. Duffey, City Treasurer Douglas Sanders and City Controller Stephen Ajobiewe told reporters during a press conference Tuesday, July 24, that the city has more money now than it did last year when it laid off more than 70 employees due to a budget shortfall.
Sanders warned the Council on Tuesday, July 17, that it must take action by August 1, and give him feedback about whether to pay upcoming bond expenses, save cash and not pay the bonds or have a serious discussion about bankruptcy.
Sanders and City Controller Stephen Ajobiewe had different opinions about when the city would default on its payroll, with Sanders saying August and Ajobiewe saying September.
A presentation pegged city revenues at $3.9 million, and expenses at $4 million on Aug. 1, contradicting comments made by Sanders during the meeting on July 17, when he told Council members about the $5 million in outstanding warrants with only $3 million in the bank.
“There is an additional $2 million in Redevelopment Property Tax Trust Fund that is coming to the city on Friday, July 27,” Duffey said. “Sanders did not know about that money.”
He said the media took the comments made during the meeting out of context.
“The city is experiencing a cash flow shortage, but does not meet the state criteria for bankruptcy,” Duffey said. “My understanding was that Ajobiewe and Sanders answered questions about how much money was in the bank, and how long it would last. The money will last until September, but the city will receive additional money.”
He said the cash flow shortage comes from inconsistent revenue streams that can create feast or famine, depending on the time of year.
“The treasurer holds checks because we do not have the money,” Duffey said. “This is why the city has a reputation for paying its bills slowly.”
The majority of the city’s $41.9 million deficit is internal, he said, and caused by improper accounting techniques.
“We used city enterprise funds as a line of credit, and we did not pay it back,” Duffey said. “The city has an outdated cost allocation plan and identifies revenue that will be allocated to the general fund but that has not been received. Once resolved, that will negate a portion of the general fund deficit.”
The majority of the issues facing the city revolve around the stalled line of credit efforts stemming from a letter sent by Mayor Eric J. Perrodin to State Controller John Chiang, alleging fraud, waste and abuse of public funds at City Hall, and the incomplete audit report presented by Mayer Hoffman McCann, putting the city on credit watch for its outstanding bonds, and the potential loss of grant money because of the incomplete report.
Sanders acknowledged some of the concerns Perrodin expressed to the state controller’s office in a memo to city employees July 12 stating that he would enforce the city charter regarding warrants, which prohibits taking invoices to the treasurer’s office for payment on the same day. “All warrants released from the treasurer's office will be done in the order of the warrant register, as per the City Charter,” Sanders wrote. “Warrants coming into the treasurer's office for issuance will go to the bottom of the stack. As money or funds become available they will go out by the warrant number and date, no exceptions.”
A former City Hall employee defined walking a warrant through the treasurer’s office on the same day as bypassing the approved protocol for payables, which is presenting bills to the city manager first.
The Council received a disclaimer of opinion, issued when the auditor will not present an opinion on financial statements because of missing information, from the audit firm Mayer Hoffman McCann. Unless the issue is resolved by Oct. 11 Standard and Poor’s can withdraw or suspend the city’s bond rating.
“The city will engage a forensic auditor within the next 60 days,” Duffey said. “That is the only way to break the stalemate.”
Further issues arose when the Council defeated a budget amendment reallocating 2008 revenue bonds pegged for improvements to the Compton Station dispatch center, the Martin Luther King Transit Center and the debt service for the bond.
The plan, originally approved on Nov. 8, 2011, offered significant relief to the general fund during the current budget year by eliminating the bond’s cost this year and next.
The city will reconsider the issue during an upcoming special meeting, and address objections raised by Perrodin, who would not support the action without detailed financial information about the resolution.
Perrodin applauded the press conference.
“I appreciate your efforts to corral the b-word (bankruptcy) in the city,” he said. “I saw a picture of you with the city treasurer addressing this issue and it spoke volumes. Hopefully the media attending the meeting tonight will write the story appropriately.”
The next City Council meeting is on Tuesday, Sept. 4.