The city of Bell could be on the hook for $4 million in legal fees for court cases stemming from its corruption scandal, according to a state audit.
Adding to the problems, the city is showing a possible negative balance in its general fund of $1.1 million, the auditors found, and has seen a significant drop in revenue after it stopped collecting the illicit taxes.
"The city is facing significant fiscal challenges that, if left unresolved, could lead to a fiscal crisis," the report released Wednesday said.
The city’s finances have worsened considerably since its infamous corruption scandal, leaving the city unable to refund millions of dollars in taxes illegally levied on residents and businesses, the audit shows.
The report by the state controller paints a troubling picture of the small southeast Los Angeles County city's efforts to recover from the 2010 scandal, which resulted in felony convictions against five former City Council members. The city's longtime city manager, Robert Rizzo, faces trial on corruption charges later this year.
Bell still owes more than $3 million in refunds to property and business owners, including more than $800,000 the city overcharged residents for sanitation services. City leaders told the controller's office it didn't have the money to make refunds.
Although Bell has made some reforms, including repaying residents $3 million for illegal property tax collections, the controller found that more action is required. Auditors noted "current accounting records, general ledger and balances are inaccurate" for a number of reasons, including an "outdated electronic accounting system."
"Many of the same fiscal management and internal control lapses that allowed Bell to fail its citizens in the past remain unaddressed today," Controller John Chiang said.
Bell officials took issue with some of the findings. City Manager Doug Willmore said he worried the critical report "makes it even more challenging to rebuild and regain trust from residents."
Willmore acknowledged the city's finances remain rocky but said the situation is not as dire as auditors say.
"I think it's a premature conclusion they made," Willmore said. "I think at the end of the year, you'll see the city dramatically different. The financial state will brighten.... We inherited a financial mess, and we've done a lot of work, and there's still a lot of work to do."
The Bell scandal broke after The Times revealed Rizzo's outsized salary of nearly $800,000, which experts said almost certainly dwarfed that of any other municipal administrator in the country.
Rizzo's salary financed a lifestyle that included thoroughbred horses. He owned a gelding named Dependserdel'argent — French for "spend money." Many of the city's other administrators also drew hefty salaries.
In March, a Los Angeles jury convicted five of six former council members for misappropriating public funds by exceeding pay limits established by state law and the city's own charter.
The prosecution argued the six defendants overpaid themselves by sitting on city boards and authorities that did little work.