Montebello faces possible insolvency in the coming months if it cannot close a gaping budget deficit and has consulted with bankruptcy attorneys to weigh available options, according to a memo obtained by The Times.
The memo, written last week to the City Council by Montebello's departing city manager, also said the city could face the potential of "bond default or other difficulties" if it does not repay the $17 million it borrowed from its redevelopment agency by June 30.
Additionally, the city is struggling with cash flow. If it cannot get a loan by September, "the functions of local government [could] shut down," according to the memo Peter Cosentini sent to the council.
The latest fiscal blow comes as Montebello is grappling with the announcement that state Controller John Chiang will perform a rare outside audit of the city's finances amid evidence that the city has produced false or inaccurate financial reports dating back several years.
Montebello has been the subject of several outside probes, including investigations by the Los Angeles County district attorney's office into what happened with two "off-the-books" city bank accounts that more than $1 million moved through in the last 12 years.
Next week, council members will vote on whether to issue subpoenas to a bank to get more information on what happened to nearly $1 million in one of the suspect accounts that officials said went to a local restaurant developer, Hank Attina.
The city agreed to give Attina a $1-million loan, but, according to the council agenda, officials now are questioning whether he was paid $2 million instead, with some of the funds moving through the off-the-books account.
"We don't know if it's the same money or if it's double," said the city's police chief, Kevin McClure, who recently was appointed as the city's spokesman.
In a phone interview Friday afternoon, Attina said he only got the amount — just over $1 million — approved by the council, and not $2 million. He criticized Cosentini, saying that he was engaging in a "fishing expedition."
"He's going to find out we did not receive this money, and it really damages people's reputations when you make reckless accusations like this," Attina said. "Once everything comes out, it'll show we only received what the city allocated for us to receive."
Montebello has reached the fiscal brink after years of infighting and destabilizing recall elections. The city also has a history of questionable accounting practices, according to the controller's office and local officials.
On Friday, city officials could not even agree on the size of the city's deficit or on how much money the city's general fund owes to its redevelopment agency.
Montebello took the unusual — and some say potentially illegal — step of borrowing money from its redevelopment agency last year to keep the city afloat.
In his memo, Cosentini said the loan was for $17.3 million. Councilman Bill Molinari said he thought it was $14 million. Councilwoman Christina Cortez put the total at closer to $19 million.
"We can't even agree on the numbers in front of us," Cortez said. "How can we move forward?"
Whatever the figure, McClure said the city will be forced to make major layoffs and cuts in services if it cannot get a loan to cover the debt.
He said the city has many new leaders, including most of the council members, and that they are trying to solve problems left by previous officials.
"There's stuff being uncovered," McClure said. "These aren't the problem-makers. They're the problem-uncoverers."
The state controller has accused Montebello of dragging its feet in turning in financial reports. McClure said one of the reasons was that incoming Montebello officials had no confidence in the city's past financial record-keeping and did not want to turn in wrong information.
"The way they moved money was not up to today's standards," McClure said.
The Montebello police chief said he is in contact with L.A. County prosecutors in case any allegations of criminal wrongdoing come up.
Councilman Molinari added that Montebello's financial situation was "critical," but not because of any "sinister plot." He said the struggling economy and other past decisions that were wrongheaded but not necessarily illegal played a role. He said the council has voted to hire an independent forensic auditor.
"If there are problems, we want to know what they are, and we're taking steps every day to correct them," Molinari said. "We've been self-policing ourselves."Copyright © 2015, Los Angeles Times