Ousted Lawndale Officials Vow to Continue Inquiry on City Use of $8-Million Grant

Ousted from their appointed positions for questioning the handling of a federal grant, two Lawndale civic activists vowed to redouble their investigations into possible wrongdoing at City Hall.

Councilmen Larry Rudolph, Dan McKenzie and Harold E. Hofmann voted last week to remove Recreation Commissioner Nancy Marthens and Beautification Committee Chairman Virginia Rhodes from their advisory posts after the two wrote to the U.S. Department of Housing and Urban Development, alleging that the city mishandled an $8-million federal grant.

The inquiry by Marthens and Rhodes “was not in the city’s best interest,” Rudolph said in an emotional call for the removal of Marthens, whom he appointed to the commission last year.

McKenzie, who appointed Rhodes, said: “I don’t think they (Rhodes and Marthens) are working for the city’s interests anymore.”

Marthens and Rhodes said they believe their vigilance is needed. Rhodes accused city officials of “inefficiency, waste, neglect and incompetency.”

They added to the controversy Thursday night by publicly distributing copies of a billing statement from City Atty. David J. Aleshire’s law firm, Rutan & Tucker. One of the charges listed was for “laundering of funds” in conjunction with the federal grant.

Visibly upset, Aleshire said laundering was an erroneous and “unfortunate” word used by an assistant attorney in the firm. He said the charge was for an analysis of how city officials can determine when grant funds restricted to a specific use become available for general purposes. He said Marthens’ failure to ask him for an explanation first was “another example of political grandstanding as opposed to openness and honesty.”

Marthens said she does not believe Aleshire’s explanation and she plans to submit to HUD the bill with the “laundering” entry.

Marthens and Rhodes said they were outraged by their removal from the city posts and view it as an abrogation of their constitutional right to free speech. “You are making it a crime in Lawndale to seek the truth,” Marthens told the council.

After the vote, Marthens and Rhodes said they will keep pressing for answers to their questions on Lawndale’s administration of the $8-million federal grant that the city obtained in 1984.

Under a complex agreement, the city lent the $8 million to South Bay Associates, a subsidiary of Forest City Enterprises, the developer of the $70-million Galleria at South Bay. In addition to repayment of the loan with 6% interest--which provides the city with an income of nearly $48,000 a month--the city eventually is to receive a share of mall proceeds once the developer reaches a certain level of profits.

Marthens and Rhodes say that the city failed to meet hiring objectives for the employment of Lawndale residents at the mall; that the city failed to seek HUD approval for a mall refinancing approved by the council last year, and that the city has failed to comply with a provision of the original deal that for 10 years prevents the developer from buying out the city’s interest in the mall.

Aleshire and members of the City Council have defended the city’s handling of the grant funds and said the loan is one of the best investments the city has ever made.

Mayor Sarann Kruse said the voluminous document Marthens and Rhodes submitted to HUD is “full of lies and unfounded allegations.”

Hundreds of Lawndale residents got jobs at the mall, Kruse and McKenzie said, adding that they personally helped run a special job recruitment program when the mall opened in 1985.

Aleshire said the city did not need HUD approval for the refinancing because it did not increase the outstanding debt. He said that because HUD has signed off on the project, the federal agency is no longer a party to the contract and the 10-year restriction can be waived by the remaining parties--the city and the developer.

HUD has asked the city to respond to the inquiry, but has made no comment on the substance of the allegations. A HUD official in Washington said that the federal agency has reviewed the city’s procedures and issued a certificate of completion on the project, which normally ends the agency’s involvement.

Marthens’ and Rhodes’ inquiry comes at a sensitive juncture as the city winds up months-long negotiations on a proposal by the developer to cash out the city’s interest in the mall.

Proponents say the cash could be a windfall for the city, but Rhodes and Marthens oppose the plan because they believe the city might squander a lump sum. In their letter to HUD, they pointed out numerous management problems that have plagued City Hall, including the loss of $1.68 million in a speculative securities investment in 1987.

In a surprise move, Kruse and Norman abstained from voting on the removal of Marthens and Rhodes. In interviews last week they were highly critical of Marthens and Rhodes and said they would support their removal.

But after Thursday’s vote, they said they abstained to protest a method of commission appointments adopted last year by the council majority, a method they say is illegal. Formerly the mayor made all appointments with the approval of the council. Now each council member makes an appointment to each city panel.

Marthens and Rhodes did not mention that issue in interviews last week. Political observers said that by abstaining, Kruse and Norman may have hoped to pin responsibility for the removal of the two outspoken activists on the council majority, with whom they are often at odds. “They’re the ones accountable,” Kruse said.

Kruse and Norman said in an interview that their abstentions do not mean they are backing away from earlier comments that they, like the council majority, are displeased with Marthens and Rhodes over the HUD inquiry. They said they view the inquiry as conflicting with the responsibilities of city representatives.

“They can’t play two roles at the same time,” Kruse said.