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Official Leaves Costly Legacy

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Times Staff Writer

Years of alleged fraud and questionable business deals have left South Gate’s finances in shambles, officials said, prompting the small working-class city to lay off workers, and to consider raising taxes and selling off property.

City officials said the actions of former Treasurer Albert Robles, who was indicted last week on charges of fraud, money laundering and public corruption, have left South Gate with a dwindling reserve fund and limited prospects for recouping the lost money.

Federal authorities allege that Robles masterminded a kickback scheme with several city contracts that cost South Gate $12 million. City officials said that fees from attorneys whom Robles and his allies hired before being recalled from office last year and other contracts cost the city several million dollars more, though they do not have an exact number.

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South Gate faces a deficit of as much as $6 million next year. It has laid off 200 employees and significantly scaled back city services, including graffiti cleanup, street repairs and street sweeping.

City employees, including police officers and secretaries, have agreed to forgo raises for two years and have waived sick leave payouts for one year.

The city is $900,000 over budget in legal fees from costly lawsuits and expects more. It has paid $250,000 so far defending itself against the lawsuits of two police captains, a lieutenant and the chief, who allege that they were mistreated when Robles and his allies were in office, City Atty. Raul Salinas said.

South Gate this week put a utility tax on the March ballot to help bridge next year’s expected deficit. The water rates have been raised. Building safety, planning and other fees that have remained stable for a decade may also be increased. The city has frozen hiring and is changing its employee retirement program to save money.

The city has attempted to block some of the contracts Robles issued, with limited success.

Last month, a judge ruled that the law firm of Sheppard, Mullin, Richter & Hampton must repay the city $517,000 in legal fees charged to represent Robles before grand juries in 2001 and 2002.

In August, a judge voided a controversial deal to sell a city-owned 11-acre site to a nursery belonging to a former Robles partner for a below-market price. The judge also ordered the company’s owner, George Garrido, to repay the city $2.5 million in loans and grants given to him to pay for the deal.

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The city has also gone to court on other projects, though officials doubt the court actions would make the city whole.

“You can’t fight every fight,” Mayor Henry Gonzalez said. “If we did, we’d spend twice the money they spent just on legal bills. We’ll just have to pick our battles.”

According to the federal indictment, Robles demanded that firms seeking to work with the city hire consultant Edward T. Espinoza. Espinoza allegedly funneled money back to the former treasurer and his associates. Prosecutors said Robles, his family members and friends garnered $1.2 million from the deals, which he spent on a variety of things, including a beach condo in Baja California in his mother’s name.

When Robles and his political allies controlled City Hall, the city ran up huge bills to law firms. Lawyers were allowed to charge hourly rates far above what other municipalities allow. Moreover, some city employees received huge raises and extravagant severance packages, Gonzalez said.

City Manager Gary Milliman said South Gate under normal circumstance would be facing belt-tightening.

“Many cities have a hard time,” he said. “The difference between a city like Downey and us is that they have a sufficiently large reserve fund to weather the storm.”

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South Gate now has only $3 million in its reserves, Milliman said. Just a few years ago, the reserve was $8 million, he said.

“The city’s financial condition is struggling,” he said. “The city has had to spend several millions of dollars in legal fees just to try to undo bad deals related to the prior administration.”

One major problem is that the city’s redevelopment agency has $30 million in contracts from Robles’ term and only $24 million in available redevelopment funds, said outgoing City Councilman Hector De La Torre.

The city has convinced some people to return money or break deals made before -- with one developer returning nearly $1 million and agreeing to forgo $6 million more, officials said.

South Gate has sued developer Southland Land Corp., whose president is Michael Keele, to recover $12 million the former city leadership gave him to create moderate-income housing, after selling him the seven-acre site for $1.

Keele could not be reached for comment.

The city is also suing the downtown Los Angeles law firm of Albright, Yee & Schmit for allegedly overbilling South Gate.

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A representative for the law firm, which has denied the accusations in the past, declined to comment. City officials said the indictment of Robles and two associates on federal charges of money laundering, bribery, wire fraud and public corruption could strengthen their chances of recovering more money.

“If the U.S. attorney is successful, that will really help us get at that money,” De La Torre said. “We’re winding down with other litigation, and have been pretty successful overall, but then it’s going to start all over again.”

A trial date of Jan. 11 was set this week in federal court for Robles, who pleaded not guilty to the charges, Assistant U.S. Atty. Cynthia Valenzuela said.

South Gate voters are expected to consider a 5% utility tax increase in March. The tax would last for five years and was expected to generate $6 million.

Gonzalez said there has been grumbling from some businesses and residents about the proposed utility tax increase. But he sees little other choice.

“It’s a bad situation to be in, but the reality is we’re here,” he said. “We got dug into a hole, and we have to dig ourselves out.”

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