Placentia Draws State Audit of Rail Funding

State auditors are investigating whether millions of dollars in gas-tax money were improperly diverted by Placentia officials in an attempt to bail out an ambitious railway project that has plunged the city deeply into debt.

The California State Controller’s Office began an audit June 7 after receiving a tip about possible irregularities involving municipal accounts, including the city’s gas-tax fund, which by law must be used to pay for street improvements.

In a 2001 audit, the controller’s office concluded that Placentia had improperly transferred about $2.3 million from the fund to OnTrac, a city effort to rebuild a railroad corridor and boost downtown redevelopment. That money has never been returned to the gas-tax account, said Garin Casaleggio, a spokesman for the agency.

The state’s latest audit will look into the gas-tax account as well as other municipal funds, Casaleggio said. He declined to provide further details, saying it was agency policy not to discuss audits until completed. He said the matter could be finished by the middle of this month.

The controller’s office, which oversees the receipt and disbursement of public funds, has the power to audit local governments to ensure that tax dollars are accounted for accurately and spent properly.

“I think we need this,” said Placentia City Councilwoman Constance Underhill, who has been a critic of OnTrac’s management. “Our accounting procedures don’t seem to portray an accurate picture of the city’s finances.”

Steven Brisco, the city’s finance director, declined to discuss the audit or the controller’s earlier finding that gas-tax money was transferred improperly to OnTrac.

“We won’t comment until the audit is done,” said Matthew Reynolds, a city spokesman. “We’re not worried. Audits are common.”

Proposed in the late 1990s, OnTrac would rebuild 11 intersections through Placentia and lower the Burlington Northern Santa Fe Corp. right of way into a five-mile concrete trench. Planners say the $460-million proposal will revitalize the city’s historic downtown and speed the movement of freight to and from the ports of Los Angeles and Long Beach.

The project, however, has been mired in controversy. Facing a $12-million shortfall in state grants and uncertainty in federal funding, officials have mortgaged city property, auctioned parkland, sold $22 million in bonds and cut municipal services to keep OnTrac afloat.

In addition to the controller’s audit, the Orange County district attorney’s office has been investigating the project, including potential violations of state conflict-of-interest laws involving Christopher Becker, OnTrac’s executive director.

The district attorney is looking into whether Becker, when he was the city’s public works director, improperly influenced his hiring by the city as OnTrac’s manager at a salary of more than $400,000 a year. Becker has denied any wrongdoing.

City records show that to keep OnTrac solvent it has borrowed millions of dollars from other municipal accounts. A number of those funds have had negative balances for several years, including some with deficits of hundreds of thousands of dollars, records show.

The accounts hold tax money for storm-drain construction, law enforcement and housing and community development. They also contain the city’s share of revenue from Measure M, the county’s transportation sales tax.

The largest deficits appear in the gas-tax fund, documents show. The negative balances range from $1.24 million to $4.3 million, depending on the year.

City records state that the deficits “have been caused by advance funding of the OnTrac rail-lowering project in anticipation of future state and federal grant funding for which approval has not yet been granted.”

Community activists question whether city and OnTrac officials are misusing municipal accounts to save OnTrac and misrepresenting the health of those accounts to the state.

“Our bottom-line concern has been the financial stability of the city,” said Craig Green, a member of Citizens for a Better Placentia.

“Now it appears that Placentia has a fiscal house of cards in dire need of a forensic audit.”

Though municipal records show negative balances, the city has reported to the state that the gas tax account has had the same positive balance of $369,502 year after year since 2000.

State auditors first discovered irregularities in the gas-tax account in early 2001 during a review of expenditures between July 1, 1999, and June 30, 2000. They gave the city 30 days to repay the account $2.3 million it had transferred improperly to OnTrac to help pay for rail corridor improvements.

According to the audit, city officials said the money was a loan from the gas-tax fund that would be repaid with future government grants to the project.

But auditors told city officials that state law restricted the use of gas-tax revenue to street improvements. They also recommended that the city take steps to prevent inappropriate transfers in the future.

Casaleggio said his agency didn’t follow up to make sure Placentia repaid the gas-tax money. Because of staff shortages, he said, it generally takes four years before a city can be audited again by the controller’s office.

If Placentia doesn’t comply with the controller’s order, the agency can refer the matter to its own attorneys or the California attorney general’s office for further action.