Vernon paid millions to firms connected to relatives of city officials, records show

The city of Vernon, already under fire for oversized salaries earned by some leaders, has paid millions of dollars in the last decade to private firms connected to relatives of top city officials, according to records reviewed by The Times.

In all, Vernon has employed at least a dozen family members of city officials, the documents show, either directly at City Hall or through companies that have done business with city. The most prominent cases involved the families of three former administrators: Bruce Malkenhorst, Eric Fresch and Donal O’Callaghan, who together had seven relatives working for one of the contractors.

Details of the hirings are contained in thousands of pages of city financial records obtained from Vernon under the California Public Records Act. The state Legislature is now debating whether to disband the industrial city with a population of less than 100, which has been mired in allegations of corruption.

Many of the family members were hired by Project Labor Group, a private company created in 2003 to provide engineering, security and administrative services at the city’s power plant. When the firm was established, Malkenhorst was Vernon’s city administrator and Fresch its city attorney. O’Callaghan became head of the city’s Light and Power Department two years later.

John Van de Kamp, the former state attorney general hired by Vernon in February to perform an ethics review of the municipal government, said that he was not aware of Project Labor Group but that he would consider recommending a new anti-nepotism policy to prevent city officials from directly hiring relatives.

Van de Kamp said he’s pleased with the city’s recent efforts to enact reforms, including slashing salaries and imposing term limits, but believes other policies are also needed to make the city more open. He plans to submit his report to the City Council next month.

City spokesman Fred MacFarlane declined to comment on Project Labor Group, saying that “the people who are probably most in the know are no longer with the city.”

“That was then, this is now,” MacFarlane said. “This is a city that’s turning a corner on its past and moving in a new direction.”

Malkenhorst and O’Callaghan have both left the city. But Fresch, who in 2008 made more than $1.6 million as city administrator, continues to work as a legal consultant. He’s been paid more than $300,000 so far this year, according to city warrant registers.

Project Labor’s principal was J.D. Hicks, an associate of Fresch who lives near his home in Marin County.

Fresch’s brothers, Curtis and Patrick, both worked for Project Labor Group before being hired as contractors at the city’s power department.

Malkenhorst’s daughters, Rachel and Jennifer, were also employed by Project Labor, along with Jennifer’s husband, Mark McNabb, according to records and multiple sources. At the time, Malkenhorst’s son, Bruce Jr., was on Vernon’s staff as a city clerk and deputy attorney.

Between June 2007 and December 2008, Project Labor Group employees submitted their time sheets to O’Callaghan’s wife, Kimberly McBride, whose official title was “administrator of PLG employees.” Among those on the payroll was her brother, Doug.

The family members were paid between $30 and $60 an hour, and they billed as much as 70 hours a week, according to time sheets.

Critics have long argued that Vernon is governed like a fiefdom for the benefit of a small group of leaders who earn large salaries. The city owns nearly all the homes within its borders, essentially making the City Council the landlord for voters. The Times reported last winter that more than a dozen friends and family members of top Vernon officials lived in city-owned residences at below-market rates, including four nephews of new City Administrator Mark Whitworth. The rents range from $136 to $472 a month.

One of the reforms the City Council approved recently called for an advisory commission to take over management of the city’s housing.

Records show that millions of dollars flowed from Vernon’s Light and Power Department to Project Labor Group and Hicks’ other firm, J.D. Hicks & Associates. In 2008, for example, more than $3 million was paid to the two companies.

The firms were based in the Bay Area, where Fresch and Hicks both live, but most of the employees worked out of city facilities. The exact nature of the work was not detailed in documents reviewed by The Times, and Hicks did not respond to requests for comment.

Vernon officials said they could not estimate the total amount Project Labor Group was paid. But in a Chapter 7 bankruptcy action filed by the company in June 2009, it listed gross income of more than $4.4 million for the three previous years, including $2.5 million in 2007 alone.

Over its six-year history, Project Labor Group employed between 10 and 45 individuals at a given time, records show. The staffing levels varied depending on the status of construction of the city’s power plant, which was its only client.

One of the jobs Project Labor handled for Vernon involved the city’s controversial effort in 2006 to evict three people who had moved into a warehouse and filed to run for the City Council.

Project Labor oversaw private investigators who were hired to tail the candidates, whose campaigns marked the first competitive election in the city in decades. South Pasadena police accused some of the private eyes, who were hired by Hicks, of drawing weapons and driving recklessly while following the candidates around that city.

Project Labor Group was phased out in early 2009 after Vernon sold the power plant to a private company.

Around the same time, Vernon entered into an agreement hiring O’Callaghan’s wife, McBride, as a “Contract Services Business and Administrative Accountant” and tasking her with handling bookkeeping duties for the city’s gas department. She was paid $40 an hour, the same rate she earned at Project Labor Group.

Vernon’s former city attorney said that the arrangement lasted only three months and that McBride was paid about $13,000 total.

In early 2010, however, Vernon approved another contract with McBride, through Tara Energy Inc., a private company formed in her name. Vernon paid $243,000 to the company last year. The city placed O’Callaghan on administrative leave last summer shortly after The Times inquired about Tara Energy and McBride’s work for the city. O’Callaghan resigned in October and weeks later was indicted on conflict-of-interest charges.

Curtis Fresch also received a contract at the city’s power department around the time Project Labor folded. Then, in 2010, the city’s Redevelopment Agency entered into an agreement with Nevada Renewable Power for consulting services at $160 an hour. Curtis Fresch was the president of the company and his son was treasurer.

The city has since terminated Curtis Fresch’s various agreements, but Patrick Fresch remains under contract with its gas department.

Eric Fresch still works for Vernon as well. Last July, he proposed that the City Council approve a contract with Associated Energy Partners. Fresch was the president of that company, and the agreement could have paid him a multimillion-dollar commission on a major energy deal.

The council, however, selected a different company, BLX Group, to handle the transaction. A memo prepared at the time by Vernon’s city attorney said Fresch was permitted to work for BLX. But neither Fresch nor the firm would say whether he actually did.

Malkenhorst, Fresch’s predecessor, pleaded guilty to misappropriation of public funds last month. Vernon officials said they’ve had no relationship with him since 2006.

Earlier this year, the city retained Chris Lehane, a high-profile political consultant, to help advise its campaign against the disincorporation bill.

Then, in May, Vernon approved the hiring of Lehane’s sister, Erin, as a consultant to its Light and Power Department. She will work on a community outreach plan at a rate of $250 an hour.

sam.allen@latimes.com

Los Angeles Times staff writers Hector Becerra and Kim Christensen contributed to this report.