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Legislature considers audit of Vernon's finances

August 30, 2011 |  6:38 pm

Assembly Speaker John Perez

The state senator who helped save the city Vernon from disincorporation this week is calling for an audit of its struggling power utility.

State Sen. Kevin de Leon (D-Los Angeles) on Monday led an effort to block legislation that would have disbanded Vernon and made it an unincorporated part of Los Angeles County. On Tuesday, De Leon requested an emergency meeting of the Legislature’s Audit Committee to consider an audit of the Vernon Light & Power Department, citing concerns about the utility’s financial health.

Earlier this month, The Times reported on significant losses Vernon suffered in a series of aggressive investments in its energy businesses. Between 2005 and 2010 the city posted a $130 million decline in net assets and amassed close to $500 million in debt.

The Times also reported this week that the Internal Revenue Service is investigating $419 million in tax-exempt bonds Vernon issued in 2009 to help pay for a 15-year supply of natural gas. The IRS declined to comment on the probe, but experts said the agency is most likely focusing on whether or not the purchase qualified as a tax-exempt project.

“The public owns this utility and it’s important that we know what the facts are,” De Leon said. “We must know the full scope of Vernon’s debt and the other risks involved.”

Vernon officials said they are fully cooperating with the IRS and do not believe any violations occurred. City spokesman Fred MacFarlane declined to comment on De Leon’s audit request.

Only 112 people live in Vernon, a 5.2-square-mile industrial enclave south of downtown Los Angeles, but the city government has an annual operating budget of over $300 million. Most of its revenue comes from the Light & Power Department, which sells electricity to about 1,800 companies located in the city.

Critics have argued for decades that Vernon was controlled by a small group of individuals who ran the city for their own personal benefit. The city rarely holds competitive elections. Nearly all of its residents live in homes and apartments owned by City Hall.

Over the last nine months, Assembly Speaker John Pérez (D-Los Angles) argued that the city government should be dissolved completely. But his bill, AB 46, was challenged by business and labor leaders who said it was too drastic and would cause a loss in jobs. The city of Vernon spent over $5 million in legal and lobbying fees trying to stop the legislation, records show.

The disincorporation bill died Monday when De Leon and a group of other Senate Democrats rose against it, arguing that Vernon should be given more time to reform before being disbanded.

Pérez lashed out in a statement after the vote, saying De Leon and others in the Senate had “given Vernon a free pass to continue doing business as usual.”

“Those senators will own the responsibility for any misdeeds that may occur in the future,” Pérez said.
In an interview Tuesday, De Leon said he hoped his vote wouldn’t create a rift with Pérez.

“The bottom line is we need each other, I need him and he needs me,” De Leon said. “Any retaliation would be most unfortunate."

De Leon’s reform plan, which the Vernon City Council unanimously supported last week, calls for new housing that would double the city’s population and the creation of a community benefit fund.

If approved, the audit would give lawmakers a better understanding of Vernon’s liabilities and financial decisionmaking as they continue to track the city’s reform efforts, De Leon said.

The Joint Legislative Audit Committee does not have a meeting scheduled before the end of the legislative session, Sept. 9. It would have to convene for a special hearing to approve De Leon’s request.


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Photo: Assembly Speaker John A. Pérez (D-Los Angeles) talks with Assembly Minority Leader Connie Conway (R-Tulare) at the Capitol Monday. (Rich Pedroncelli / Associated Press)