Suspect Firm Asks Orange for Hike in Recycling Fee

The recycling company under criminal investigation for suspected misappropriation of money that belongs to the city notified Orange officials last month that it wanted to increase its rates by 32%, records show.

The steep hike was tucked inside a thick stack of documents about the city’s dealings with Orange Resource Recovery Systems Inc. released Thursday under a California Public Records Act request by The Times.

City Council members reached Saturday expressed outrage that the company, now embroiled in one of the biggest scandals to ever hit City Hall, would try to raise rates while a criminal investigation was still in progress.

“For them to even suggest a rate increase, given the problems with the past audits [of the company], is outrageous,” said Councilman Dan Slater. “Either they weren’t reading the contract correctly, they knew something we didn’t or someone was out in La-La Land.”

Councilman Mike Alvarez agreed.

“I don’t think it’s appropriate for [the recycling company] to even be asking for an increase when all their records are in question,” Alvarez said.

Alvarez said he feels top city officials tried to keep the rate request under wraps because he attended a nearly two-hour meeting on Wednesday with City Manager David L. Rudat and his assistants and the proposal was never mentioned.

“It was quite the opposite,” Alvarez said, adding that Rudat and his staff spent the time discussing decreasing rates charged residents by the recycling company.

Alvarez said he found it odd that “we were not given anything on paper” and that Rudat and his staff seemed so “uptight.”

At a news conference Thursday to answer questions about the released documents, Rudat didn’t mention the proposed rate hike in prepared remarks that he read aloud.

But he strongly defended the city’s contracts with the garbage and recycling concerns in his statement and later, in response to a question, called the contracts “a sweetheart deal for ratepayers.”

Rudat said Saturday there was no attempt to conceal the request from Alvarez or anyone else, and he said he thought he or his staff had mentioned it to the councilman.

But, he added, “that request is irrelevant anyway because we totally reject it.” He said his staff disagreed so completely with the work of the company accountants who prepared the request that “we might pay for our own audit of the [recycling] company.”

The rate request was included in a letter dated June 11 to Harry W. Thomas, the city’s public works director, from Patricia Miller of Alder, Green & Hasson, the recycling company’s accountants. After calculating the company’s expenses, Miller wrote, the proposed rate would increase by 32.04% for the fiscal year that began July 1.

Six days after receiving Miller’s letter, Thomas wrote back to Michael Hambarian, head of Orange Disposal Service Inc., the recycling company’s parent company, telling him the city had “significant concerns” about the company’s calculations to justify the increase.

“The rate review does not conform to past practice,” Thomas wrote, adding that “it is unclear to us” whether the hike had been approved by the company’s board of directors--Sam and Alyce Hambarian, and their sons, Michael, Donald and Jeffery.

The Hambarians have been the exclusive trash haulers in Orange since 1955.

Alder, Green & Hasson replaced Steven V. Nakada, a Laguna Niguel certified public accountant, as the Hambarians’ accountants after Nakada quit in February, a year after alerting city officials that the recycling company deliberately kept files from him and impeded an audit he tried to perform to identify the missing salvage revenues.

Assistant City Manager Scott Morgan, who handles city budget matters, said of the rate request, “We just don’t agree with that report in any way. I think they misinterpret the contract significantly.”

Police have been investigating the suspected theft of recycling revenues that belonged to the city from the sale of aluminum, glass, paper and other material extracted from the city’s trash stream since mid-April when a national accounting firm verified Nakada’s concerns that money was missing.

In early June, the city voiced suspicions in court papers that “salvage revenues belonging to the city may have been misappropriated for personal use by one or more members of the Hambarian family.”

Two informants have since come forward to tell police they participated in an elaborate check-cashing scheme in which payments to the recycling company from salvage processors were endorsed and cashed at restaurant-bars in Signal Hill and Inglewood and that as much $6 million may have been involved.

Z. Harry Astor, the attorney who represents the Hambarians and the garbage and recycling company, said the Hambarians have repaid some of the money and also fired their son, Jeffery, as head of the recycling company in March after hearing allegations about the missing money.

News of the rate request angered veteran City Hall watchdogs Saturday.

“I’m really upset about this,” said Carole Walters, president of the Orange Taxpayers Assn. “I think the City Council needs to pull away all the contracts they have with the Hambarians.

“The residents are mad and are thinking about filing a class-action lawsuit,” Walters continued. “If the City Council lets them raise the rates, they should be recalled immediately and I will be right behind it.”