Things Get a Little Worse for Montebello

Say you're a middle-class city in Los Angeles County. Say you're facing bankruptcy later this year, even though you took out a possibly-illegal $17.3 million loan from your own redevelopment agency. And say you're being audited by the state controller over severe accounting irregularities stretching back for a number of years. How could things get any worse for you? Well, how about a federal agency abruptly suspending the funding it sends your way and demanding you return money you don't have?

The LA Times reports today that the Department of Housing and Urban Development has pulled affordable-housing funds to the city of Montebello, and is demanding that the city repay $5 million in previously awarded grants. HUD apparently smacked Montebello down in a report so harsh it reduced outgoing city adminstrator Peter Cosentini to tears. Then again, when you give away $1.3 million of HUD's money without documentation, and record the project as "complete" before it's even been started, you should probably expect them to be upset. That initial irregularity led HUD to demand repayment of both the $1.3 million and an additional $898,000 related to the same project. And once they started taking a careful look at how HOME funds were being spent on other projects in Montebello, it became clear to HUD that the city couldn't account for another $2.7 million of their money.

Let's put this in perspective: even before this news, Montebello was facing severe financial difficulties in 2011. If the loan from the redevelopment agency isn't repaid by the end of June, bond default is a real possibility. And the city was already facing the real possibility of running out of cash in September. And this was all before getting the news that their budget hole just grew by $5 million.