San Gabriel Official Charges City Made ‘Illegal’ Investments

City Treasurer John Janosik said this week that in recent years the city has put $5 million into “illegal investments,” including about $4 million in certificates of deposit in out-of-state savings and loan institutions.

But a report on the city’s investment portfolio by Janosik, who was elected last April, was quickly branded as a “political ploy” perpetrated by one faction in the city’s tumultuous political makeup to take the heat off of Vice Mayor Frank Blaszcak, who is facing a recall drive.

Both Blaszcak and Janosik came to office on a slate endorsed by the slow-growth group Citizens for Responsible Development.

Besides the certificates of deposit, Janosik reported, financial officials in the previous administration had made an “improper” investment in a government securities fund, violating state law by paying a $6,500 sales charge, sometimes known as a purchase price. He also found that investments made within the past two years, totaling about $1.3 million, have suffered an aggregate loss in face value of $147,000.

Report to City Attorney

Janosik said he had forwarded his report to City Atty. J. Kenneth Brown for possible referral to the district attorney.

The treasurer acknowledged that what he called “illegal” or “imprudent” investments had little bearing on the city’s immediate financial health. “On a practical level, if we don’t have to liquidate our investments, we haven’t realized a loss,” Janosik said in an interview. “It’s disconcerting, but in terms of our financial status, we do not appear to have to liquidate. We are not exposed to any risk of loss at this time.”

Critics of the report, including two councilmen who are at odds with the slow-growth faction, say that Janosik has shown he doesn’t understand municipal investment strategies. They also denied that the city had done anything illegal.

“The bottom line is that the city is financially healthy,” said Councilman Sabino Cici. “The rest is just a smoke screen for a cover-up.”

In the past two years, the city has become a battleground for competing political forces. One of the most significant of a series of recent developments in the rivalry has been the recall drive against Blaszcak, who has frequently been at the center of controversy since he took office.

The investments in certificates of deposit were made before the state government code was amended in September, 1986, to ensure that such institutional investments be made exclusively in California, said Cici. “It would be illegal today, only because the law changes,” said Cici, a frequent adversary of three colleagues who reached office with support for the Citizens for Responsible Development (CFRD). “It’s like driving without a seat belt.”

Wording Change

But Janosik, while acknowledging that all but one of the CDs had reached maturity, insisted that the law forbade out-of-state investments even before a minor change in the wording of the law, which now says that such municipal investments should be made in “this state.” Before 1986, the law had referred to just “the state.”

“No reasonable person could believe that the Legislature meant in the prior statute anything different than is meant by the present one,” said Janosik.

Assistant Dist. Atty. Edward Feldman said Wednesday that no complaint had been made regarding San Gabriel investments. He said that to his knowledge the issue of out-of-state investment had not been ruled on in other cities in recent years.

Besides the out-of-state CDs, most of them purchased from banks in Texas, there were nine time deposits made under a federal program to bolster troubled institutions, the report said. Two of the thrift institutions the city invested in--American Diversified Savings Bank of Costa Mesa and North America Savings & Loan Assn of Santa Ana--have failed.

Since the investments were less than $100,000, they were covered by federal insurance, Janosik said. “Nevertheless, it is not good practice to maintain funds in troubled institutions, since we only receive interest through the date they are closed,” Janosik said.

Former City Treasurer Helen Achilles, who was defeated by Janosik in the April election, responded angrily to her successor’s suggestion that some investments were imprudent. “There has not been a single dollar of loss,” she said.

The decline in the face value of the city’s bond investments was caused by the “vagaries of the market,” she said.

‘We’re an Investor’

“You know, we had a little something happen last October,” she said, referring to the precipitous drop in stock prices last year. “But the city is not a stock market trader, we’re an investor. We have no intention of selling every time the market goes wiggle-waggle.”

Mayor John Tapp, who has had a falling out with his former supporters from CFRD, said that he has checked with the city’s investment adviser in New York, who advised that bonds had “bottomed out” and were headed upward in face value.

He said the payment of a $6,500 purchase price for a $250,000 investment in the Kemper U.S. Government Securities Fund was a mere technicality. “It’s the top-rated government security mutual fund available,” Tapp said. He said the city had a choice of paying a purchase price or a management fee, which could have cost more. “Based on my research, there’s no fund of this kind where you don’t pay some kind of a fee,” he said.

In another development in this city’s wars between slow-growth newcomers and old-guard civic leaders, the district attorney has found no substance to allegations by Cici that some of his colleagues were holding illegal secret meetings.

Slow-Growth ‘Deal’

Cici had charged that a slow-growth cabal, including Blaszcak, Councilman Ted Anderson, Janosik and Planning Commissioner Guy Denechaud, had attended a “secret” meeting on Sept. 1 to discuss the possible firing of City Administrator Robert Clute and to arrange a “deal” for a major development on the site of a former drive-in theater.

Assistant Dist. Atty. Feldman said that the witnesses named by Cici had denied the report. Additional witnesses whom Cici claimed to have identified were later described by the councilman as too “fearful” to come forward, despite assurances from authorities that they would be protected, Feldman said.

“We came to the conclusion that neither allegation was supported by the facts,” Feldman said.