How sick are California’s county and city governments? Sacramento’s $25 billion state budget deficit has become infamous nationwide, although on a per capita basis the Golden State is far from America’s most troubled state. But local governments around California are dangerously close to default, and many of them are attempting to conceal that truth.
In April the eastern Los Angeles County town of Montebello revealed that it needed a bridge loan to avoid defaulting on $126 million in bond debt at the end of this year. Montebello has a general fund budget of $47 million with a $6.6 million deficit, and the city may not be able to collect on a $17 million loan it made to its redevelopment agency. California Controller John Chiang has ordered an audit of the city’s financial records, which he calls “false, incomplete, or incorrect.”
One example of Montebello’s shadow budget: An effort by City Administrator Peter Cosentini to track down off-the-books funds turned up a $1 million payout the city made in 1999 to a connected local restaurant developer. The forgivable loan, according to a staff report, was intended to fill an “untapped market” for an “entertainment venue and restaurant” by funding a new chain of Latin-themed restaurants branded by the pop star Juan Gabriel. After that deal went south, the developer put up an Applebee’s.
With a population of about 64,000 and close proximity to downtown Los Angeles, Montebello already boasts several retail centers with chain restaurants. It’s hard to understand how a city grant was necessary to entice an Applebee’s at a time when the company was opening more than 100 new restaurants a year. It’s also unclear how many city liabilities are still hidden. Shortly after discovering the restaurant payola, Cosentini quit, informing the city council that he is “no longer comfortable with our progress toward a balanced budget” and suggesting they hire a manager “more in tune with your approach to municipal finance.”
Like neighboring communities such as Bell and Maywood, Montebello is looking at a fiscal crisis but also at an existential one. In May, following a far-reaching corruption scandal in the nearby town of Vernon, the state legislature revoked the city’s charter altogether. The years-long fiscal swindle in the so-called Gateway Cities may end up giving new meaning to the Applebee’s slogan: “It’s a whole new neighborhood.”