Monday, July 11, 2011

More of Montebello's Corruption Comes to Light

Since the middle of April, we've been following the growing municipal-corruption scandal threatening to send the Los Angeles County city of Montebello into insolvency. The story began with the abrupt resignation of city manager Peter Cosentini and the announcement that state controller John Chiang was launching an audit of the city's finances. Since then, new revelations of accounting irregularities and other questionable decisions by the City Council have led to fears that the city is out of money, triggered a debt downgrade by Moody's, and spawned new investigations by Los Angeles County, the FBI and the Department of Housing and Urban Development. HUD, of course, made news in late April by demanding that the city repay $5 million in improperly spent affordable-housing funds, suspending further funding to the city in the process. And on Friday, the plot thickened with HUD sending a letter to Montebello that detailed dozens of regulatory violations identified through its probe.

So what did Montebello do with HUD funds that was so bad? Read it and weep, taxpayers:

1. The city disbursed affordable housing grants to individuals directly rather than through approved agencies. As a result, some recipients were hardly "needy." One homeowner who applied for funds intended to help low-income residents repair their houses turned out to own four properties in Hawaii.

2. Officials failed to keep records of how the city spent federal money, and failed to assess whether these funds were spent legally.

3. Montebello has documentation for only $175,000 of $700,000 in home rehabilitation funds already spent.

4. In addition to the $1.3 million deal with developer Danny Ku, which led directly to the FBI investigation, another developer was given $1.3 million in HUD funds. When these funds were returned to the city before construction began, Montebello chose not to report this to HUD, and did not give the money back.

5. Montebello officials lied to HUD investigators about the city's dealings with a company called Rehab Financial. Despite having no written agreement with the company, the city was doing business with them. This is especially interesting since Rehab's former president has since pled guilty to federal charges of embezzling money from a number of cities.

City officials were quick to blame much of this on a consultant, since fired, who was in charge of their HUD programs. But the real issue is that of documentation: if Montebello can't prove that HUD funds were spent properly, it may have to give back much more than $5 million.

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