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Federal officials cut off funding for Montebello, demand $5 million be repaid

April 27, 2011 |  6:22 pm

The struggling city of Montebello was hit with another significant setback Wednesday as federal housing officials suspended funding to the city and demanded that it repay a total of $5 million in grants.

The news added more financial pressure in a city already facing possible insolvency later this year as well as probes by state and  local agencies of allegations of misspent money and falsified records.

In a memo to City Council members Wednesday afternoon, departing city administrator Peter Cosentini said a meeting with Department of Housing and Urban Development officials had reduced him to tears.

“The report [from HUD] was so bad that I was shocked, and embarrassed and openly crying in front of my staff and a room full of people I did not know,” he wrote. “I have not experienced anything so bad in all my 27 years of City service.”

He also said that some of the city’s past handling of HUD funds “may border on criminal.” He did not elaborate further in the memo and could not be reached for comment. HUD cited 31 violations by the city of various rules but did not provide specifics. Officials said a full report would be forthcoming.

Councilwoman Christina Cortez said it appeared the city had little documentation for how it spent federal money. 

HUD officials told the city Wednesday that they will be required to pay back an additional $2.7 million, on top of about $2.2 million the federal agency previously demanded. HUD is also freezing Montebello’s access to HOME funds, which are used to build affordable housing.

City spokesman Kevin McClure, who is also the  police chief, said some of the $2.7 million was money the city had awarded to Rehab Financial, a Huntington Beach-based company that handled city money for rehabilitating low-income housing and whose former president recently pleaded guilty to federal charges of embezzlement.

McClure also said the staff member who administered that money for the city was recently fired.

-- Abby Sewell and Jessica Garrison