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State audit: Vernon's finances are in dire condition

June 28, 2012 | 12:48 pm


A long-awaited state audit painted a dire picture of the city of Vernon's finances, saying the city has  operated its general government fund at a deficit for more than two decades.

The report, which comes in response to a Times story on Vernon’s financial problems published last year, criticized officials for poor oversight of contracts and bond issuances. It also found some risky investments have cost the city huge sums of money and described retirement plans given to be officials to be "legally questionable."

Separately, the audit called into question the government reform plan Vernon enacted last year, after it was nearly disincorporated by the state Legislature. The auditor said the city has failed to develop policies to actually implement some of the reform proposals, and that other key initiatives — like increasing the city’s residential population — are still years away.

The audit marks the latest in a series of investigations in the industrial city south of downtown L.A., which has been plagued by corruption scandals in recent years. Three top officials have been convicted of public corruption since 2009, and critics have argued that the city has failed to function as a legitimate democracy.

Much of the audit, however, focuses on Vernon’s past financial decisions, which it said are now threatening the stability of the city’s government.

For decades, the city has failed to collect enough general fund revenues to meet the costs of the services it provides, the audit said. General government expenditures have increased 50% in recent years, and the city has often overspent its budget.

Part of the problem, the auditor said, is loose contracting procedures. Since 2005, Vernon has paid out more than $60 million in taxpayer dollars under contracts that had no caps on total expenditures, the audit said. Some of the agreements reviewed did not even define specific work product.

The state report also criticized Vernon’s decision to enter an unusual, prepaid natural gas purchase in 2006, which has cost the city millions. The audit said the city was unable to provide any evidence of a risk assessment on the deal or evaluation of alternatives.

The auditor also noted that Vernon provided “legally questionable” retirement benefits to some of its top officials. The California Public Employees Retirement System has already moved to slash some of those benefits, but it is unclear whether any legal action will be taken against the city or the individual employees.

The 190-page report also revealed some tensions between state officials and the leaders of Vernon’s government. The auditor described “highly unusual” difficulties during the probe, including Vernon’s insistence that attorneys be present for staff interviews, and their refusal to give auditors access to a central file of all contracts.

An attorney from the law firm Latham & Watkins LLP issued a sharp response to the report on behalf of Vernon, saying that it contained “serious factual errors and mischaracterizations” and reflected a lack of objectivity.

“The report appears to be drafted with one goal in mind: to minimize and ignore the historic reforms underway and focus instead on events that occurred several years ago,” attorney David Schindler wrote in the city’s formal repose to the audit, adding that it “falsely accuses the city of not providing certain documents.”


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Photo: The largely industrial city of Vernon. Credit: Los Angeles Times