Orange Overpaid Recycling Contractor $180,000

Failure by the city’s recycling contractor to provide required annual financial data led to more than $180,000 in overpayments by the city last year, according to documents released this week.

While the city arranged to recover the money through credits applied against the contractor’s invoices this year, the delay allowed Orange Resource Recovery Systems to use $181,925.51 in city money interest free.

Those details, and other revelations about the city’s dealings with the company and its sister company, trash-hauling contractor Orange Disposal Service Inc., are included in documents released by the city in response to requests under the California Public Records Act.

The documents consist of a memo dated Jan. 27, 1997, from City Manager David L. Rudat to the mayor and City Council members, and a letter the same day addressed to Mike and Jeff Hambarian, whose family owns the companies.

Rudat has said that he informed the council in January of suspected problems with the city’s financial dealings with Orange Resource Recovery, but his memo makes no mention of them. Council members have said they didn’t learn of the suspected problems until early this month, as word spread of criminal investigations by Orange police and the Orange County district attorney’s office.

Attempts to interview Rudat about the letters were unsuccessful. City Atty. David A. De Berry announced Wednesday that city officials would no longer consent to interviews on the issue, and would only answer questions in writing.

However, there was no response from Rudat’s office Thursday afternoon to faxed questions about the state of the city’s relationship with the contractors, whether the overpayments had indeed been credited back to the city, and why Rudat’s memo to the council did not mention city officials’ suspicions about possible misappropriation of city funds.

At the heart of the criminal investigation is whether members of the Hambarian family, who have held the city’s trash-hauling contract for more then 40 years, misappropriated recycling revenue and improperly lent themselves money from a separate account.

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The investigation has focused attention on the city’s relationship with the Hambarians, which includes a no-bid contract to build the current waste-transfer station for the family’s Orange Resource Recovery Systems company, but financed through a $6.5-million bank loan being paid off by a special monthly levy on city users.

The released documents show that city officials learned of last year’s recycling overpayments after analyzing financial data provided in October 1996 for the fiscal year that ended 16 months earlier--June 30, 1995.

The delay in providing the data meant that the city did not adjust its rates for processing recyclable material effective July 1, 1996, resulting in overpayments through the end of the year, according to the documents.

Those same documents also reaffirm that city officials were conducting business as usual with the trash contractors at least six months after they learned of possible financial irregularities.

Rudat’s January memo to the council was upbeat in tone, informing the council that “(s)taff is making excellent progress with respect to ODS and ORRS issues.” It did not mention that the city had already been warned by the Hambarians’ accountant of possible problems with the accounts.

At the same time, Rudat’s letter to the Hambarians states that the city intended to hire a consultant to review the companies’ operations, hoping “to improve our contractual relationships, continue to provide high quality services at the lowest possible costs, and confirm the integrity and credibility of our working relationship to the citizens of this community.”

The letter refers to discussions between the Hambarians and city officials about the possible use of recycling receipts and excess gate fees to finance an automated waste program. But the letter also warns the Hambarians against premature use of money held in the garbage-collecting accounts.

“I wanted to remind you that our contract requires that you place gate fee revenues in a separate bank account for safekeeping,” Rudat wrote.

The memo also said the city’s consultant would review a proposal by the Hambarian family for financial help from the city for a $2-million expansion of the waste-transfer station, where recyclable materials are separated from garbage.

Rudat has since said that those discussions have ended in light of the investigation.