Friday, August 26, 2011

Today's Reminder that Montebello is Still Screwed

We haven't heard much from the troubled Los Angeles County town of Montebello recently. When its financial problems and shady dealings first came to light back in April, we initially expected things to move quickly. Since then, however, we've had little news apart from a series of damning reports pertaining to misuse of federal housing funds. Yet today we have another reminder of how much trouble Montebello is in, from the Whittier Daily News.

Back in the spring, former city manager Peter Cosentini warned that Montebello would run out of cash in October unless it was able to secure a private loan of roughly $3.8 million. In order to offset the costs of paying down new debt, Cosentini recommended that the city lay off 45 employees; when the City Council refused, he resigned. The council then hired Interim City Manager Larry Kosmont, agreeing to pay him $7,500 more per month (UPDATED: the Daily originally reported the difference as $6,500/month) than it had paid Cosentini. So what has Kosmont concluded after his own evaluation of Montebello's finances? That it needs to secure a private loan of $3.9 million by mid-September, or it may fail to make payroll as soon as October. Even worse, Kosmont's plan, unlike Cosentini's, doesn't include spending cuts. Instead, he appears to believe that a robust economic recovery is around the corner, and that the city will be saved by a rise in tax revenues. "If we could get a little bit of a bounce on sales tax and property tax, I don't think we would have to cut," Kosmont said.

Since Montebello currently has a junk credit rating, it will pay dearly for the new debt. Kosmont expects the city to pay about 5% interest on the nine-month loan. We'd guess they'll be able to get the loan, but the city is delusional if it thinks a broad recovery is coming to LA County anytime soon. In other words, we think getting the loan would actually be bad news for Montebello, insofar as it would add millions in high-interest debt to the city's tab while accomplishing little other than delaying the inevitable.

2 comments:

  1. randianAug 26, 2011 03:35 PM
    The council then hired Interim City Manager Larry Kosmont, agreeing to pay him $6,500 more per month than it had paid Cosentini

    Wow! They aren't paying him $6,500 per month, which would be a mighty fine wage by itself, they're paying him $6,500 more per month than the previous guy. I wonder what benchmark they used to decide that? There's certainly no market wage for the job. Life sure is good when you can get paid huge wages with little or no requirement to produce something somebody would voluntarily pay for.
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  2. GSLAug 26, 2011 04:27 PM
    Actually, it's even worse: the Daily updated the difference in pay to $7,500/month. Apparently they pay Kosmont $25,000 a month.

    I should also reiterate that the city is out of money. Which I'm sure is just a coincidence.
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