City of Industry

By Rebecca Kimitch, Inland Valley Daily Bulletin
and Steve Scauzillo, San Gabriel Valley Tribune
Posted: 04/25/15, 9:51 PM PDT |

INDUSTRY>> An audit of city finances concluded Industry paid more than $326 million to companies owned by former Mayor Dave Perez and his family over the past 20 years, much of it for vague or even erroneous invoices that possibly resulted in massive overpayments.

The 33-page audit, obtained by this news organization, also found that Perez, his brother and their company Zerep Management Corporation cost the city more than $7 million as the result of a sexual harassment lawsuit and an unrelated fine from state water regulators.

“This is crony capitalism at its worst,” Douglas Johnson, a fellow at the Rose Institute of State and Local Government at Claremont McKenna College. “This isn’t why cities exist. They exist to provide service and structure, not for the benefit of one family conglomerate.”

Calls to Perez, his attorney Mark Austin and Zerep were not returned.

The Perez family has for decades had outsized influence in business-centric Industry, which has about 400 residents but $140 million in annual revenue. One of the original families to live in the region, the Perezes own various companies that have since the 1970s held lucrative contracts to provide city services. And on the political side, family members have served on the city council, planning commission and the redevelopment agency board before it was dismantled.

But that influence began to fade when Dave Perez stepped down as mayor in 2012, citing health issues, after 11 years on the dais. Then last year, Industry sued Perez and his various companies for nearly $10 million. And in September, it cut the lucrative contract with Zerep — Perez spelled backwards — to provide general maintenance for city infrastructure and facilities. The city is also reviewing its even more lucrative contract with the Perez family’s trash collection company, Valley Vista Services.

Now the Perezes are trying to regain their power in Industry. Family members are backing three challengers in the city’s June 2 council election — only the third time the city has even had a competitive election since 1962. One of the challengers is the City Manager’s brother.

The KPMG audit, dated April 6, reveals just how much is at stake.

It largely focuses on invoices from the last decade, when Perez held elective offices including the post of mayor.

Among the findings:

• Industry paid Zerep six times more for monthly citywide street sweeping and parking lot maintenance than it pays the current service provider. In fiscal 2014, it paid Zerep on average $133,000 a month for such services. Since ending the Zerep contract, the city now pays about $20,000 a month.

• Based on the average number of hours Zerep billed Industry for labor every year, the city was paying Zerep for the equivalent of 50 full-time field employees for general maintenance of city infrastructure and streets in the 12-square-mile city.

• Based on the average number of hours Zerep billed for vehicle and equipment rental, the city “could have purchased and owned a fleet of the same or similar vehicles and equipment several times over.”

• The city already owns several of the same categories of vehicles and equipment that Zerep was charging it to rent. Some of these vehicles and equipment, which were in working condition, were in Zerep possession and at least once, Zerep billed the city rental fees for a city-owned vehicle. The city did not pay the invoice.

The audit stops short of claiming Zerep overcharged, but it raises doubt about the veracity of the invoices and cost of services provided.

“These foregoing observations … raise questions regarding the hours and costs Zerep charged the City for general maintenance and miscellaneous services — including whether the costs of the services invoiced by Zerep are reasonable based on the nature of the services performed and/or reflective of actual labor and vehicles/equipment hours incurred in providing the services,” the report reads.

Industry City Manager Kevin Radecki and Mayor Tim Spohn also would not say whether they think Zerep overcharged the city. The audit was done to ensure the termination of the Zerep contract “was on solid legal ground,” City Attorney Michele Vadon said.

“I think it was the city’s responsibility to do their due diligence, to have somebody outside of the city to look at what is going on … we want to make sure we are proceeding down the right path,” said Spohn, who has been on the council since 2007.

Radecki, who has been city manager since 2008, couldn’t say why the city only started looking into the Zerep invoices now, despite irregularities that date back years.

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