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Compton not filing for bankruptcy, city manager says

July 24, 2012 |  3:07 pm

Compton City Hall

Compton's new city manager sought to assure the public Tuesday that the financially troubled city is not planning to file for bankruptcy, but it may hire L.A. County to do a forensic audit to put allegations of fraud to rest.

"The rumors of the city of Compton's financial death have been far exaggerated," City Manager Harold Duffey said at a new conference in council chambers. "The city is not entertaining bankruptcy. We are not a distressed community. We wouldn't even qualify for bankruptcy."

The city has a more than $40-million general fund deficit accrued by borrowing from other funds over the years, but the more pressing issue is cash flow to pay the bills, since the city has no reserves.

City Treasurer Douglas Sanders told the council last week that, with $3 million in the bank, $5 million in bills to pay and bond payments coming due Aug. 1, including $1.1 million that would need to come from the general fund, they should talk about bankruptcy as an option.

Sanders said since then that the city had received another $2.3 million in revenue, and Duffey said he was confident the city would pay its bills through the end of the year.

But another issue hangs over the city. In late June, an independent audit firm refused to complete the city's annual audit of its financial statements, citing allegations made by Mayor Eric Perrodin in a letter to State Controller John Chiang in December. Perrodin asked the state to do a forensic audit of the city and suggested the general fund deficit was caused by "possible fraud, waste and abuse."

The city's audit firm was unable to get Perrodin to elaborate on the allegations.

The audit firm's move led Standard & Poor's to threaten to withdraw the city's bond rating on its lease revenue bonds unless the city can get an audit completed.

Duffey said he had spoken to L.A. County Chief Executive William T Fujioka about bringing the county's auditors in to do a forensic audit to settle allegations one way or the other. That step would cost the city about $100,000 but would likely enable it to get its annual audit completed to satisfy credit ratings agencies.

"We pay now or we pay severely later," Duffey said.

He said the city would also talk to the county about making its payments on the sheriff's contract quarterly rather than monthly. Compton has frequently fallen behind on payments and accrued  $500,000 in late fees last year because of it.

The council Tuesday night will also vote on a measure that would allow it to use proceeds of its lease revenue bonds to make debt service payments on the same bonds for the next fiscal year. Duffey said the move would put the city's budget in balance at least for this year--although the general fund will be paying down the deficit from its internal borrowing for the next 20 years.

Some citizens who have watched the city's financial turmoil over the past year expressed confusion and a lack of faith in the city's leadership.

"We citizens don't trust them, and we don't trust you, because you just got here," resident Patricia Simpson, 64, told Duffey. "We need an investigation. Somebody is lying."


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-- Abby Sewell

Photo: Visitors enter Compton City Hall. Credit: Mel Melcon / Los Angeles Times