Critic’s Efforts Lead to Audit, Official’s Resignation : Government: Watchdog is satisfied after questioning city manager’s handling of finances. Report revealed carelessness but no criminal wrongdoing.

Resignation of the city’s longtime chief administrator satisfies City Hall’s biggest critic.

City Administrator James E. McRea resigned after extensive allegations surfaced that he had mismanaged finances, moved funds without the City Council’s knowledge and made other misjudgments that cost the city money and credibility. McRea has denied the charges.

“The problem was McRea,” said Steven A. Broiles, an environmental attorney who led public criticism of city management. “He lacked the ability to properly manage the city fiscally. He was moving around money without the City Council knowing and (failing) to use the correct funds for things.”

Broiles’ efforts prompted the City Council last month to authorize a special audit of Sierra Madre accounts and a report from its attorney. Now, Broiles said, he no longer is certain the two reports will serve any purpose.

The council is scheduled to receive the reports Sept. 14.

A group of residents went public with concerns at a council meeting earlier this summer when the city was developing its 1993-94 budget. “I became interested because the figures just did not add up,” Broiles said.

Broiles accused the city of spending more money than it was raising and mixing the business of the city and the city-run Redevelopment Agency. The Redevelopment Agency oversees development of the central area of town, and although it is run by the city and the council members make up its board, it is a separate entity with a separate budget and agenda.

According to Broiles, city officials balanced their books by spending all of the city’s reserves by 1992, and then borrowed $1 million interest-free from the Redevelopment Agency without getting approval from the council or redevelopment board--a violation of state law.

“Nowhere in the minutes is there any mention of the loan,” he said.

Several of his contentions are backed up by the audit of city finances, which found carelessness but no criminal wrongdoing.

“No city official has taken any money,” said Robert Eichel, of Edwards, Eichel & Berenek, the Pasadena accounting firm examining the transfers of money between the city’s general fund and the city-run Redevelopment Agency.

The errors were made by overburdened officials who disregarded his firm’s advice to keep better books, raise more money and clearly separate the finances of the city and the agency, he said.

Eichel, whose firm has conducted yearly audits of the city since 1983, said Sierra Madre is not broke but did use up its reserves between 1988 and 1992.

“City officials must face the reality: a city which has a low sales tax base and relies on property taxes just cannot afford the level of services provided at the price charged in Sierra Madre,” he said.

His firm has warned the city about the situation before. Last year, its audit noted that the city might not be able to continue unless revenue increased.

It also warned in 1991 and 1992 that the ordinance creating the Redevelopment Agency did not meet all the requirements of state law governing such entities, and needs to be amended.

McRea, 53, announced his resignation after a closed-door meeting with the council Tuesday night. “We decided it was in the best interests of the city,” he said. McRea started with the city 22 years ago as an administrative assistant, and for the past 15 years has served in the city’s top staff spot.

He said his resignation, which will be effective Wednesday, is voluntary and that the investigations in progress will ultimately show that he did nothing wrong. An interim administrator from outside the city will take over until a permanent replacement is found.

Mayor Clem L. Bartolai said McRea was a valued employee who resigned because he thought it was best for the community, and that council members agreed.

“It was an attempt to appease those raising concerns who wanted his resignation,” said Councilman George A. Maurer.

Council members Bartolai, Maurer and Orville L. Cline say they were unaware of the controversial $1-million loan last fall and do not remember authorizing it.

“I am not in the habit of writing blank checks,” Cline said.

Bartolai said, “This seems to be something we were not aware of.”

But McRea said the council authorized the loan at its Sept. 22, 1992, meeting and it was discussed three times before that date. He, the treasurer and a temporary finance officer signed a note initiating the gradual loaning of the money.

However, McRea acknowledged that the motion he cited did not mention the Redevelopment Agency, $1 million or a loan, only “interfund transfers.”

City officials also admit that minutes show council members were not in session as the agency board, as required by state law.

The city has not yet paid back the loan. But auditors said the loan will not need to be repaid. Eichel said the administrators should have known the agency already owed the city more than $1.1 million for its bills paid by the city in 1991-92. Careless accounting kept the city from acting to get the money back from the agency, leaving it short of cash and forcing it to borrow, Eichel said.

Broiles said he is concerned that the auditors are seeking justifications to balance the books and clear the city of debt. All of the $1.1 million in agency bills paid by the city must be authorized to be legal, he said. Auditors say they will provide a list Sept. 14 of the money the city paid on behalf of the Redevelopment Agency.

Other accounting problems involved the use of redevelopment money--meant to reduce blight and attract business--for civic projects that were also financed by the city.

“In Sierra Madre, the (Redevelopment Agency) was used to make improvements that it usually doesn’t pay for in other cities,” Eichel said.

Redevelopment Agency money was spent on city buildings, a library, playground, two firetrucks and audio-visual equipment, records show.

Eichel said it is up to the city attorney to determine what spending is legal.

Municipal attorneys say generally only physical construction, not vehicles, can be paid for by a Redevelopment Agency. School districts and the county can challenge the continued existence of a Redevelopment Agency if money is not spent correctly.