State auditors Thursday said they had found a third instance in which the city of Bell collected taxes illegally, bringing to $5.6 million the amount owed to taxpayers and raising questions about how the struggling town will balance its books.
In a letter to Bell officials, state Controller John Chiang said the city had failed to get the required voter approval as it hiked business license taxes by more than 50% over the last decade. The exact amount overcharged is unknown, but Chiang estimated it at more than $2.1 million. More than 1,000 businesses were affected, he said.
Chiang's auditors previously found that Bell had illegally raised a "retirement tax" to fund pensions, costing taxpayers $2.9 million, and assessed improper sewer fees of more than $600,000. In all, auditors' findings of tax and assessment overcharges amount to $5.6 million, or more than one-third of the city's $13.5 million general fund.
City officials said Thursday the latest finding was a financial setback and that they were working with state officials to form "a relief plan" to deal with refunds and the loss of future revenue from lowering taxes that were illegally raised.
"Today's finding is another potential problem for us," interim City Administrator Pedro Carrillo said, adding that the immediate effects are unclear. Carrillo said he would consider "any and all means" to balance the budget but declined to say if layoffs or cuts to city services were imminent.
The working-class city of about 39,000 drew national attention this summer when The Times reported that its top officials were among the highest-paid public employees in the country.
A subsequent Times analysis of county records showed that Bell also had the second-highest property tax rate among Los Angeles County cities. Even with a rollback of the retirement tax, Bell will still have a higher rate than many cities in the county, records show.
The auditors' findings underscore property owners' longstanding complaints that they were overtaxed. After the salary scandal broke in July, throngs of residents protested at City Council meetings, decrying assessments on their tax bills that they said they didn't understand or were not fully informed about.
Alberto Alvarado owns Nuevo Mundo Super Market, a meat market and bakery across from City Hall that's been in his family for nearly 50 years. Over the last decade, he said, he has complained to the city not just about rising business license fees but about trash, water and sewer charges and other city fees he said make it difficult for businesses to survive.
"I know it's not like this in other cities," he said in Spanish. "Walk down Gage …. You'll see how the businesses have closed. It's like the city wants us to close."
Sadas Cortes, who owns Lidia's Bargain, a new-and-used clothing store just down the street on Gage Avenue, said business owners had tried to ask city officials about the fees over the last few years but "they would just blow us off."
"That's the whole problem," he said. "We don't know what's legal and what's not. We're going by what the city told us."
The city will immediately draft a resolution to lower business license taxes, Carrillo said, and also plans to suspend new payments for those who have overpaid in the past. He said he did not know if such a moratorium would satisfy the controller's demand for refunds but that giving the money back would deplete Bell's reserves.
The city expects to refund the $2.9 million in overpaid retirement taxes from its estimated $5 million in reserves. But Carrillo said he hopes to avoid draining that fund by having to also return all $2.1 million in business tax overcharges disclosed Thursday.
Carrillo said he was in discussions about it with Chiang's office, whose team of auditors he has been working with for weeks at City Hall.
Auditors are also looking into whether any state or federal funds were misused and into who audited and approved the tax hikes.
The Los Angeles County district attorney and the state attorney general also are investigating Bell. On Wednesday, Atty. Gen. Jerry Brown announced a civil lawsuit against eight Bell officials and council members, accusing them of fraud and misuse of public funds.