City of Industry

By Jason Henry, San Gabriel Valley Tribune
Posted: 05/07/16 – 5:24 PM PDT |

A year ago, a troubling audit found the City of Industry paid its former mayor’s companies more than $326 million over 20 years and put a spotlight on the manufacturing-heavy city of about 200 residents.

Today, the city says it’s fixing those problems and more, but not everyone agrees the city is better off. The city has not rebid any of its contracts in the past year, though officials say they’re reviewing each and every one.

Doug Johnson, a fellow with Claremont McKenna’s Rose Institute of State and Local Government, said the city took a turn for the worse when it elected a new City Council in June favored by former mayor David Perez. They have since backed down on going after the city’s former leader or the contracts that fill his coffers, he said.

“A year ago we had a city council and a city manager dedicated to unraveling this big ball of string that had enveloped the city,” said Doug Johnson, a fellow with Claremont McKenna’s Rose Institute for State and Local Government. “Today, all of that has been shut down. The city isn’t looking at itself at all.”

The controversy started when an internal report from auditing firm KPMG showed Perez’s companies benefitted from lucrative arrangements that dated back at least 20 years. The audit, first published by this news organization, found that many of the payments were for vague or potentially erroneous invoices that may have resulted in massive overpayments. It spawned a district attorney’s investigation, a bill in the state senate to reform Industry and a state controller’s probe that wrapped up in January.

The Los Angeles County district attorney’s office began looking into the head of Industry’s trash hauler and several other companies related to his family almost exactly one year ago following requests from County Supervisors Hilda Solis and Mike Antonovich.

That investigation, which questions whether Perez properly billed the city, remains ongoing today, according to spokeswoman Jane Robison.

Johnson, a local government expert, said he doesn’t expect any dramatic changes in the city unless the district attorney’s office brings criminal charges against Perez.

Since the criminal investigation began, Perez’s flagship trash hauler Valley Vista has continued to make more than $12 million through its exclusive agreement with the city. The arrangement, dating back to the 1970s, requires customers to send Industry their checks for Valley Vista’s services before the money is passed on to the trash company. Industry takes 10 percent of more than $1 million a month to cover its own costs.

Industry’s previous administration sued Perez twice prior to the new council’s election. One lawsuit alleged Perez’s company dumped on city-owned land without permission. The other accused him of contract fraud based on the audit and the criminal investigation.

The new council delayed both lawsuits after coming into office. Officials say they’re now looking to settle the cases rather than taking it to trial.

Industry’s City Manager Paul Philips said the city wants to change its symbiotic relationships with certain contractors by making companies less reliant on public assets. Philips has hired new staff to oversee and review its contracts, but none of the contracts have come before the council for changes. The city purchased two electronic systems to help with bids and contractor costs, according to Philips.

He said he expects the review process for the city’s roughly 85 contracts to take another two to three years to fully play out.

“We’re not dragging our feet or making excuses,” Philips said. “I think we’re making headway.”

It’s starting small, but contracts like the one with Valley Vista will eventually undergo the same process.

So far, the city is focused on Industry Security Services, the Industry Manufacturers Council and the Homestead Museum. The security company uses Industry’s vehicles to patrol. IMC received $14.7 million since 2003 for advertising and promotion, but a state controller’s audit couldn’t determine what the city got in exchange. The council gives the Homestead Museum quarterly payments of about $250,000.

“They’ve been joined at the hip with the city for so long, that they have to transition out of that,” Philips said. “But we can’t just cut them off and then they don’t have the money to operate.”

Most of Industry’s largest contractors have been embedded in city hall for decades — some as far back as the city’s founding. In January, the state controller’s audit found Industry severely lacked financial controls. Philips hired an in-house city controller to help fix those problems, but the city outsources the rest of its finances to Frazer LLP. The city has used Frazer since the 1970s.

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