City of Bell’s financial audit town hall scheduled for tonight

A town hall will be held tonight to discuss a comprehensive audit of City of Bell’s finances. The event will take place at 6 p.m. at the City of Bell’s Community Center located at 6250 Pine Avenue, Bell, California 90201.

Last fall, the Los Angeles County of Supervisors authorized county auditors to perform a review of the scandal-ridden city’s finances including “Bell’s current cash position (including tax collections, investments, and other cash equivalents); current and outstanding debts (including authorized and issued bonds as well as ongoing debt service costs); current city commitments, and other obligations; income and revenue received by the city, and the sources of such income; core services provided by the city, and the cost of such services; other city operating expenses; and whether the city has the resources to continue day-to-day operations and long-term obligations.” The audit was performed by Los Angeles County Auditor-Controller Wendy L. Watanabe and the findings will be released at tonight’s town hall.

“It is critical for all of us to know exactly what financial shape Bell is in. The people of Bell have been misled about the solvency of their city for far too long. We intend to provide clarity at tomorrow’s town hall—and to give the public the opportunity to ask questions directly to the county auditors who helped put together the final audit,” said Los Angeles County Supervisor Gloria Molina, who funded the county’s audit through the First District’s Discretionary Funds.


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UPDATE: Friday, 14 January 2011

Questions and answers from the Jan. 6 town hall meeting to discuss the financial condition of the City of Bell.

City of Bell Financial Condition Review Questions from Public Presentation

FROM: Wendy Wantanabe, Los Angeles County Auditor-Controller

Dear Bell Residents and the General Public:

On January 6, 2011, the Auditor-Controller issued a report on the financial condition of the City of Bell and presented the results at a town hall meeting. During the meeting, the public had an opportunity to submit questions about the review. The questions and our responses are below:

Question #1: Why did the County review Bell’s financial condition? Was the review necessary given that Bell will hold City Council elections in March?

Answer #1: County Supervisor Gloria Molina requested that we review Bell’s financial condition because of the significant issues raised by the media and the State Controller. Both current and future City Council members, and more importantly, the residents of Bell, need to understand Bell’s financial condition so they can make informed decisions regarding City operations.


Question #2: What should Bell do to reduce the structural budget deficit, which costs need to be lowered (i.e., salaries, contract fees, etc.), and what impact will this have on residents?

Answer #2: The City Council and management are responsible for reducing the deficit. They will need to make some difficult cost saving decisions, which may negatively impact the level of services provided to the residents. Examples include eliminating programs, contracting for services, and across-the-board reductions in salaries and benefits.


Question #3: Can Bell management reduce salaries and other costs below the figures reported in the Auditor-Controller’s expense estimates?

Answer #3: The intent of our review was to provide Bell with a basic workable financial plan based on the City’s estimated revenues and expenses. The City Council can decide on cost reductions that can be made from the estimates in our projection.


Question #4: How much could Bell save by contracting with another municipality for public safety services?

Answer #4: Cost savings would largely depend on what services are contracted, the level of service, and the amount charged. City management will need to decide on the appropriate level of service, request proposals from other municipalities, and compare the proposed costs to the City’s current costs.


Question #5: What is the value of City property and other tangible assets? Could Bell reduce the deficit by selling some of these assets?

Answer #5: We did not review the value of the City’s property. According to Bell’s latest annual financial report, the historical cost of all City and related agency-owned (i.e., Community Housing Authority) property was approximately $42.9 million. It should be noted that the fair market value of the property may be more or less than the historical costs shown in the City’s financial report, and that the proceeds from selling some properties may not be used by the General Fund.
Bell might be able to sell some property, which may increase available cash and reduce the City’s projected budget deficit on a one-time basis. However, if the City continues to spend more than its ongoing revenue, any cash received from selling property would eventually be used up. Bell could also try to lease some of its unused property to generate additional revenue. However, we have no information on the revenue that could be generated.


Question #6: Did the Auditor-Controller review City bonds and other debt?

Answer #6: We did a limited review of the City’s bonds. A schedule of Bell’s bonds and other related debt is attached to the end of our Letter to the Board of Supervisors. The schedule shows the amount of the bonds, the debt service cost, and the revenue used to pay the debt service. As discussed in the notes on the schedule, some of the bonds could adversely impact the City’s financial condition.


Question #7: Will the California Public Employees Retirement System (CALPERS) issue Bell a refund for pension contributions the City made as a result of the higher salaries? Why wasn’t the possibility of a refund included in the discussion about uncertainties?

Answer #7: We included this information in the “Other Uncertainties” section of our report. CALPERS has indicated that a substancial portion of the large pensions for some of Bell’s prior officials may not be paid. However, this area will probably be the subject of legal challenges by the prior officials. If the large pensions are not paid, Bell’s future pension costs may be reduced. However, the savings, if any, will not be known until the conclusions of the legal process. In addition, any savings from this would be another one- time savings, and would not address the long-term issues facing the City.


Question #8: Will the assets of former Bell officials be seized, and will proceeds from selling the assets be returned to the City?

Answer #8: This is a legal issue. Please contact City management for further information.


Question #9: How can residents lower their tax rates (i.e., property tax, utility tax, etc.)? Answer #9: Changes to Bell’s tax rates generally require City Council approval. Some of the City’s taxes are related to specific expenses (e.g. retirement) or intended to repay
specific debts (e.g., General Obligation bonds), which limits the City’s ability to reduce the related taxes.


Question #10: What is Bell’s current credit rating? If the City were to file for bankruptcy, what impact would it have on the local economy?

Answer #10: A credit rating expresses a credit rating agency’s opinion of a government’s ability to meet financial obligations on time. In August 2010, Standard & Poor’s (S&P) lowered Bell’s credit rating to BB. This means that Bell’s debt is considered speculative (“junk status”), and the City will have to deal with major ongoing uncertainties related to adverse business, financial and economic conditions. S&P subsequently withdrew their rating in September, which indicates that either additional information is needed to assess Bell’s credit, or the City defaulted on debt and a rating is no longer useful.

Bankruptcy provides municipalities with protection from creditors, giving them the time to adjust debts and other obligations. However, the stigma associated with a bankruptcy may have a negative effect on the local economy. New businesses may be reluctant to come to the municipality, real estate sales may decrease, and general economic conditions may be depressed.


Question #11: How will the County help Bell through its financial troubles?

Answer #11: Supervisor Gloria Molina paid for the Auditor-Controller’s review using her discretionary funds so the residents of Bell and the City Council would have a clear understanding of the City’s actual financial condition. We are available to assist City management with any questions they may have regarding our review, or to evaluate the potencial impact of decisions they make to reduce the deficit. However, the County does not have the resources to help the City reduce its debt.


Question #12: Would an independent forensic audit of Bell be beneficial? How can residents request a forensic audit?

Answer #12: Forensic audits generally examine an organization’s past financial activites to obtain reliable information for legal proceedings (i.e., fraud, etc.). A forensic audit may be useful in pursuing actions against the prior City management. However, Bell may not need a forensic audit at this time because several agencies have reviewed or are reviewing the City’s past financial activities.


Question #13: Have Bell officials repaid the loans they received from the City?

Answer #13: We did not look into loans made to prior Bell officials. Please contact City management for further information.

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