Corruption can leave cities with enormous legal bills

In 2005, former Lynwood Mayor Paul Richards was convicted of funneling about $500,000 in city contracts to a company he secretly controlled. Two years later, five more then-current and former elected officials were charged with siphoning off hundreds of thousands of public dollars to boost their salaries and pay for personal expenses.

But the stolen money was nothing compared with what was to come. From 2005 to 2010, the city’s annual legal costs soared, averaging $1.5 million, about 5% of the general fund budget, much of it related to the scandals. The high tab left over from the corruption leaves some residents fuming.

“The ones that went out, the ones that did the corruption and nepotism, those are the ones that should be paying, not the city,” said Joaquin Mesinas, 43.

While municipal corruption and mismanagement cases have led to millions of dollars being stolen from city coffers, the biggest toll is often the enormous bills from attorneys who are paid by the hour to clean up the mess, according to a Times analysis of municipal legal bills across California.

“Unfortunately, that’s the double-headed monster whenever you have wrongdoing,” said Jose Pulido, the new city manager of Temple City, where legal costs roughly doubled after the mayor and other officials were convicted of soliciting bribes from a developer.

In some cases, the legal bills continue years after officials accused of corruption have been ousted or jailed, leaving the affected cities struggling beneath a heavy burden.

In Bell, legal expenses rose by at least $1 million — about 6% of last year’s general fund budget — in the year after the former city administrator and other officials were arrested for allegedly stealing millions of dollars from the city by giving themselves exorbitant salaries and benefits.

The city attorney projected that higher-than-normal legal costs stemming from the scandal could continue for two to five more years.

In San Diego, outside legal expenses rose from $1.4 million in 2005 to $10.9 million in 2009 after city officials were criminally charged in two scandals, dubbed pension-gate and stripper-gate.

On top of that, a court ruled in March that the city is liable for more than $5 million in personal legal fees for six former members of the city’s pension board who were indicted on charges that they boosted their own pensions. The case against them was eventually dismissed.

Determining how much a city is paying for past corruption can be difficult, since many cities do a poor job of tracking or disclosing how much they spend on legal services.

As part of a look at municipal legal issues, The Times requested the total spent on legal services for the years 2005 to 2010 from every city in Los Angeles County. Many cities did not readily provide a response.

Assessing what portion of the costs stems from a corruption scandal is even more difficult, because most cities do not specifically track those expenses. (Bell is an exception — one of the city’s law firms helpfully included a line item for “corruption” in its monthly invoices).

But the data showed that many cities where officials were charged with crimes saw a spike in legal costs in the following years.

In most cases, the added legal fees weren’t for defending officials accused of wrongdoing — they have to pay for their own attorneys. Instead, they were for defending the city from related lawsuits or complying with requests from investigating agencies

In some cases, the legal expenses can exceed the amount of city money that officials are accused of stealing or squandering in the first place.

In Lynwood, a May 2007 legal bill, accompanied by a letter from the city’s law firm apologizing for the high tab, gave a glimpse at how the legal costs had mounted.

Along with the charges for normal city business, lawyers had racked up $15,840 that month for reviewing public records requested by the media and investigators, and $23,664 for other items related to the criminal charges, including conferences with prosecutors and research on the legality of stipends paid to council members and whether the city was required to defend them in court.

The corruption allegations also fueled a recall election and lawsuits. Among them was one filed in July 2007 by the former city manager and two other employees who claimed they had been punished for whistle-blowing.

Eventually, the plaintiffs received settlements totaling $724,000, with $156,000 of that coming from the city and $568,000 from its insurance coverage.

Current city officials said that the legal spending has finally subsided and that they are taking measures to get such costs under control. But they are facing another costly legal issue.

An appeals court decision last spring put Lynwood’s redevelopment agency on the hook for up to $2.7 million in attorney’s fees stemming from a lawsuit over its failure to build affordable housing as required by law.

One reason the figure was so high was that city officials had insufficient documentation for how they had spent money meant for affordable housing and the plaintiffs’ attorneys had to spend many hours reconstructing where the funds went.

The officials don’t contest that records were missing but say it couldn’t be helped because the district attorney’s office had seized original copies of many of the records in an earlier corruption investigation.

A few miles north of Lynwood in Bell, city leaders say soaring legal costs from the corruption scandal there are slamming an already precarious city budget.

Maneuvering his car through a shabby city-owned trailer park on a recent rainy morning, Bell Councilman Nestor Valencia bemoaned the fact that the corruption and the legal costs that followed have eaten up resources that could otherwise go to cleaning up the neighborhood and replacing aging sewer lines.

He pointed to a pool of standing water, homes that may have improperly expanded off their designated plots, and overgrown bushes that he worried could be rat-infested.

“The city is supposed to maintain this,” he said.

After the revelation in July 2010 of the exorbitant salaries being paid to top city officials, including nearly $800,000 to City Administrator Robert Rizzo and $100,000 to part-time City Council members, the city found itself beset by a host of issues requiring lawyers’ attention.

Bell was inundated by requests for documents from media outlets, including The Times, the public and government agencies seeking evidence of corruption. The city paid attorneys more than $400,000 in a year on “document production issues” related to the various investigations, as lawyers reviewed piles of records.

Former city officials involved in the scandal, including Rizzo, sued the city for back wages and attempted to get the city to pay their legal bills stemming from criminal charges and a lawsuit by the state attorney general. According to city officials, the attorney general’s lawsuit alone has cost the city more than $300,000 in legal fees.

City Atty. Dave Aleshire estimated in November that half the city’s legal costs were for matters that weren’t “normal.” Although he said the costs are slowly subsiding, he warned that some issues, including a U.S. Securities and Exchange Commission investigation and any resulting enforcement actions, could drag on for years.

The lawyer bills represent one of many hits to the city budget caused by the scandal, including the refunding of millions of dollars of illegally levied taxes from the Rizzo era. But residents express frustration that the fees are one more thing they must now cover.

Back at the trailer park, Felipe Guerrero, 42, bemoaned the city’s situation. “We, as citizens, we have to pay the debts of others,” he said.

In rare cases, cities have successfully recouped money from those involved in the corruption. But officials admit that this is a difficult process, and some cities that have tried have failed.

South Gate is the exception. City. Atty. Raul Salinas said that the city actually turned its legal bills into a “profitable enterprise” in the years after former city Treasurer Albert Robles was recalled and indicted.

Robles, ousted in 2003, was eventually convicted of plundering more than $20 million from the city treasury. After he relinquished his hold on the city, officials began filing lawsuits to recover city funds. They got $8.5 million back from a trash contractor and $3.5 million from the law firm that had worked for the city during the Robles years.

“It’s in the long-term public interest to expose [companies] that did business with the city,” Salinas said. “We went after the [alleged] bad guys. We spent money, but we made more money than we spent. That’s a good thing.”

Los Angeles Times data analyst Sandra Poindexter contributed to this report.