Grand Jury Urges Audit of Pacific Waste

The Los Angeles County Grand Jury has recommended that the Irwindale Community Redevelopment Agency audit the records of a private firm that earned $18 million from city-issued bonds for a huge trash-to-energy plant that was never built.

Auditors should examine about $20 million in expenses claimed by Pasadena-based Pacific Waste Management Corp. through the four-year life of the controversial project, which was killed last October, the grand jury said.

“We have our doubts about what happened to this money. That ($20 million) was used to pay expenses was difficult for us to swallow,” grand jury Foreman Manuel A. Gallegos said in an interview Tuesday after the release of the jury’s report.

Grand jury auditors, whose investigation ended in January, concluded that Pacific Waste Management then had an undetermined amount of cash raised through the 1984 bond sales and at least $1.5 million worth of other assets purchased with bond earnings.

Since the money was raised to build a trash-burning facility that was rejected by the state Energy Commission last year, the assets are “a windfall” that may rightfully belong to the city Redevelopment Agency, auditors said. Ownership should be determined, they said.

In response, Pacific Waste President Mark White said Wednesday that his firm has lost at least $1.5 million on the failed project.

The company spent all $18 million from bond earnings plus at least $2 million of company money, White said. Remaining assets--rights to dump ash at disposal sites--are worth only $500,000, he said.

White said air-emission rights purchased for $1.5 million are not assets as reported by the grand jury’s auditors from the firm of Deloitte Haskins & Sells. The $1.5 million was a down payment, and both the rights and the money were forfeited when Pacific Waste failed to complete the purchase, he said.

“I don’t see how there has been any kind of windfall at all,” White said.

Pacific Waste would cooperate with an audit by Irwindale, he said, even though the trash-burning project has already been examined by company auditors, the grand jury and Manufacturers Hanover Trust Co., the trustee that oversaw payment of all expenses from the $18 million in bond earnings.

Irwindale City Manager Charles Martin, who received the grand jury report about two weeks ago, would not answer questions about it. Fred Lyte, a Redevelopment Agency consultant to whom Martin referred questions, said he did not know whether Irwindale would order an audit.

Of the grand jury recommendations, which also included greater city involvement in redevelopment projects and an early study of projects’ feasibility, Lyte said Martin had instructed him to say: “We will certainly consider them in an appropriate manner.”

Martin had said previously that the city’s role in the trash-to-energy project was to provide financing for it through the sale of $395 million in bonds by an arm of the Redevelopment Agency.

“We’ve just been the interested bystander on this,” Lyte said. “Everything was really done by Pacific Waste Management in terms of financial control and all that.”

Lyte said he knew nothing of project assets to which the city may be entitled.

“Charlie (Martin) told me that the accounting furnished us (by Pacific Waste) was that there is $117 in the bank plus a desk and some typewriters,” Lyte said.

In its report, the grand jury said it investigated Irwindale’s and Pacific Waste’s handling of the trash-to-energy project to determine whether backers ever intended to build the plant or were simply using it to generate money for themselves.

“There are allegations that the project was never feasible and certain officials were only interested in generating personal income,” the report said.

It was impossible for the grand jury to determine the intent of the project’s backers, the report said. But it added: “Our findings indicate that there were bona fide efforts made to construct the facility.”

Several reputable engineering and bond firms were hired, permits were pursued with regulatory agencies, and engineering studies indicated that the project was viable, the grand jury concluded.

Its investigation was also prompted in part by 1987 news reports of alleged conflicts of interest by Irwindale officials who directly profited from city contracts with private companies, the grand jury said.

In the trash-to-energy project, Martin, who is also city attorney and counsel to the Redevelopment Agency, received $246,875 in attorney’s fees from Pacific Waste Management, the grand jury said.

Last December, Martin agreed to pay $400,000 in civil fines to avoid criminal prosecution on conflict-of-interest charges on six city bond issues, including the issue for the trash-burning plant, the report noted. It drew no conclusion, however, about the propriety of fees paid to Martin.

The Irwindale Resource Recovery Authority, which was created by the city Redevelopment Agency, sold the $395 million in bonds in December, 1984, to finance a plant that would burn 3,000 tons of trash a day, generating electricity for sale to Southern California Edison Co.

The bonds were sold under a plan that reinvested the proceeds in home mortgages. Because the bonds were tax exempt, they were sold at an interest rate substantially below the rate gained from reinvestment of the proceeds.

The difference generated about $18 million before federal investigations of similar bond issues in other states raised questions about the Irwindale bonds’ tax-exempt status in October. Pacific Waste then redeemed the bonds and the project fell apart.

Neighboring cities, citizens groups, state and federal office holders and the Miller Brewing Co., which owns a brewery nearby, had fought the project, charging that trash incineration would pollute the air and endanger public health.

A year ago, the state Energy Commission rejected Pacific Waste’s application to build the plant, and the city quickly offered the plant site--at the bottom of a rock and gravel quarry-- to the Los Angeles Raiders for a football stadium.

Pacific Waste has persisted with the project, looking for a new site in Irwindale and announcing that it would reduce the size of the plant by two-thirds, which would take it out of the Energy Commission’s jurisdiction.

White said Wednesday that his company is pursuing that option.