(Corrects paragraph 9 to show that San Bernardino voted on
bankruptcy but has not yet filed)
By Ronald Grover and Jim Christie
July 17 The City of Compton, a city of 93,000
people located on the outskirts of Los Angeles, must decide by
Sept. 1 whether to seek bankruptcy, according to its two most
senior financial officials.
Such a move would see it join a growing number of
deficit-hobbled California cities that have used the filing to
restructure onerous debt loads.
Compton, which has an accumulated $43 million deficit and
has depleted what had been a $22 million reserve, will run out
of cash to make its payroll on Sept. 1 at its current cash
consumption rate, city comptroller Steven Ajobiewe told the city
council during a July 17 meeting.
"I have $3 million in the bank and $5 million in warrants
due in the next 10 to 12 days," said city treasurer Doug
Sanders. "By then, the council will have a decision to make:
don't pay the bonds, default on them, or have a serious talk
The city council adjourned at 11 pm without discussing a
potential bankruptcy filing.
Compton Mayor Eric J. Perrodin also said he brought
unspecified charges of "waste, fraud and abuse of public monies"
to California officials, and had met with auditors from both the
state and Los Angeles County.
He told the city council that at one point in its past the
city had overspent legally set limits on certain programs by $17
million but would not elaborate.
Neither the state nor county has started an audit or
investigation, city officials said.
On July 9, the city council of San Bernardino voted to seek
bankruptcy, marking the third time in recent weeks a California
city opted to seek protection from its creditors. Earlier,
Stockton and Mammoth Lakes also said they would file.
Compton's problems escalated on July 13 when credit rating
agency Standard & Poor's said it may cut Compton's BB
long-term and underlying ratings for its lease revenue bonds.
S&P cited a decision by Mayer Hoffman McCann, the city's
independent auditors, to resign rather than sign off on
Compton's 2011 financial statement.
Mayer Hoffman McCann did not return phone calls and e-mails
S&P gave the state 90 days to produce certified audited
financials, said city controller Ajobiewe, who said the rating
agency could withdraw or suspend its ratings on as much as $70
million in city bonds.
Ajobiewe said he had found no other auditing firm willing to
step in. City treasurer Sanders said the city had made little
progress on a short-term line of credit.
The city council added to Compton's accumulated deficit on
July 10 when it adopted a $161 million budget with a $9 million
The red ink grew to $10 million during the council meeting,
when city maintenance officials said they needed to make $1
million in immediate repairs to the city's water system to bring
them up to code and avoid fines from LA County health officials.
Mayor Perrodin was more optimistic than his financial staff
that the city could avoid bankruptcy, although he noted
similarities between Compton and San Bernardino, which has a
population twice that of his city.
Unemployment is worse in Compton than San Bernardino, he
said, although both have seen property taxes fall precipitously
due to rising home foreclosures.
Unlike San Bernardino, which has a large unfunded liability
to pay its employees' pensions, Compton years ago increased its
property tax to fund its workers' pension obligations, said
Perrodin, and the retirement program is fully funded.
"Those other cities that went bankrupt all had huge pension
liabilities that they couldn't meet," said the mayor. "Even so,
we're in pretty dire straits."
(Reporting by Ronald Grover; Editing by Catherine Evans)