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City attorney claims San Bernardino administrators falsified budget information for years

San Bernardino City Hall on May 14, 2008 in San Bernardino, California. The city is facing deep economic problems.
David McNew/Getty Images
San Bernardino City Hall on May 14, 2008 in San Bernardino, California.

San Bernardino is still reeling from Tuesday night’s city council decision to seek bankruptcy protection for the city.

That was hard enough to take. But making it harder is a cryptic accusation by the city attorney that San Bernardino officials have been covering up deep deficits for years by submitting phony budget numbers.

The claim by San Bernardino City Attorney James Penman came moments before the city council voted 4-to-2 in favor of seeking Chapter 9 bankruptcy protection.

“We have now learned that for 13 of the last 16 years, documents presented to the mayor and council were falsified,” said Penman.

“That for 13 of the last 16 years the city was in the red.”

If true, it would mean city managers, finance officers and staff falsified documents to make the city’s books appear balanced. For what gain, Penman wouldn’t say.

After the meeting, he brushed past reporters. But late yesterday after being inundated with calls from the media, Penman broke his silence.

“The only thing I will say about that is the following,” Penman told a crush of reporters at a hastily scheduled news conference. “Any evidence of suspected wrongdoing has been turned over to the appropriate government agencies.”

Penman would not say if that means the San Bernardino County District Attorney or the FBI. He says the alleged deceit was uncovered during an audit by the interim city manager and her staff.

“And they were able to obtain documents that we had not been previously able to obtain and those documents were turned over to the appropriate government agencies.”

Penman was short on specifics. But he did apparently share details with some members of the city council.

“I feel this city and taxpayers have been duped, hoodwinked,” said Councilman John Valdivia at Tuesday’s hearing. He took office four months ago, says he believes city staff may have been cooking the books for decades.

“I think up to 30 years,” he said.

He abstained from voting on the bankruptcy protection action. Valdivia said that based on what he learned from the city attorney, he couldn’t trust the accuracy or integrity of the city’s accounting.

“(I’m) very conscientious of some of the individuals who have had their hands in the cookie jar,” said Valdivia.

“And I will seek out those individuals and encourage that our city adopt some kind of protections against employees who have misguided this city to the tune of tens of millions of dollars to this city.”

Valdivia declined to say who he thought bilked San Bernardino taxpayers. Councilman Chas Kelley, who voted against the bankruptcy action, said there’s evidence of gross mismanagement if not criminal wrongdoing in the city’s finance department.

“Although some council members saw the numbers didn’t add up, the numbers we received in the past were false and perhaps illegal,” said Kelley.

But what numbers exactly? And how were they manipulated and by whom? Kelley declined to say. When reached by phone after Tuesday’s meeting, he referred questions to the city attorney or to San Bernardino Mayor Pat Morris.

“That statement stunned me,” said Morris of Kelley and Penman’s allegations.

Morris—who took office six years ago—told KPCC’s Larry Mantle that he has no idea what city attorney Penman or the council members are talking about.

“And I think that’s a pretty bold statement to make about prior city administrators and finance directors.”

Morris said he had not seen any evidence of wrongdoing, despite claims by James Penman that he’d briefed the city council and the mayor prior to Tuesday’s hearing.

Morris did say there was a $3 million discrepancy in last year’s budget. San Bernardino’s previous city manager Charles McNeely abruptly resigned after the error came to light. He claims his resignation was spurred by what he called poisonous political divisions between mayor’s office, the city attorney and the city council.

Inland economist John Husing says San Bernardino is run like separate fiefdoms.

“You have the mayor who has no vote on policy; that’s the city council. They set policy,” explains Penman.

“And then you have a city attorney who’s a power center in and of himself. And so the result of that has generally been stalemate on any given major issue as a consequence of three power centers that generally have never gotten along.”

It’s not clear if San Bernardino’s notoriously bare-knuckled politics are driving the allegations of fiscal corruption - or if something has been uncovered that could make a municipal bankruptcy pale by comparison.