Court monitor sought for California city in pay scandal

Attorney General Jerry Brown's move came as eight current and former Bell officials, including its former city manager, who was paid a salary of nearly $800,000, pleaded not guilty on Thursday to public corruption charges.

The eight defendants, arrested on September 21, are collectively accused of bilking taxpayers in the blue-collar city of 40,000 out of roughly $5.5 million through excessive salaries, benefits and illicit loans of public money.

They were charged in nearly two dozen counts of misappropriating public funds, including salaries they received for "phantom" meetings that never occurred. Los Angeles County District Attorney Steve Cooley has called the scandal in Bell "corruption on steroids."

The eight also are named in a civil suit brought by Brown alleging fraud, conspiracy and waste of public funds.

Former Bell City Manager Robert Rizzo, the central figure in the scandal, also is charged with conflict of interest and falsification of public records by an official custodian.

Rizzo on Thursday asked that the city pay for his defense lawyers, led by Los Angeles attorney James Spertus. Rizzo and other top city officials stepped down in July after the salary scandal broke. City Council members, who were earning nearly $100,000 a year, subsequently cut their pay but have balked at calls to resign.

Bell is a "city in crisis," Brown said in a statement, adding that he also has subpoenaed testimony from officials in Vernon, California, about pay and pension benefits for some of its top officials, including one who received more than $1.6 million in a single year.

Brown, who is also the Democratic nominee for governor, said "independent scrutiny is essential in restoring public trust" in Bell and Vernon, which both neighbor Los Angeles.

"The public has suffered from raiders who plundered the city treasuries," he said. "The people deserve to know that the guilty individuals will be held accountable and that their tax dollars will no longer be siphoned into exorbitant salaries."

The Bell scandal has helped focus voter attention on public employee compensation as the November 2 gubernatorial election nears. Brown's Republican rival is former eBay Inc Chief Executive Meg Whitman. She has proposed cutting 40,000 employees from the state's payrolls.

In addition to local and state probes, the U.S. Securities and Exchange Commission is investigating bonds issued by Bell.

Last month, state Controller John Chiang's office said it found Bell had issued $50 million in general obligation bonds under a 2003 measure to build a sports complex without a documented plan and timeframe for how to use proceeds or an apparent need for the money.

"In six years, it is unclear what has been accomplished except for acquiring a site that consists of a dirt lot with a masonry wall around it and a water pumping station in the middle," an audit report by Chiang's office said.

A second audit has found at least $1.2 million in inappropriate payments, Chiang's office said in a statement. "Public money dedicated to increasing affordable housing and maintaining local roads were instead used as a self-indulgent slush fund to pay for excessive salaries, perks, and other unlawful expenses," Chiang said in a statement.

Fitch Ratings last month cut and then withdrew its ratings on $57.5 million of outstanding bonds issued by Bell, noting the pay scandal increases the city's near-term credit risk and makes it unlikely investors or others will lend to it.

The criminal case is People of the State of California v. Robert A. Rizzo et al., California Superior Court, Los Angeles County, No. BC445497.

(Reporting by Jim Christie; Additional reporting by Terry Baynes of Reuters Legal)