WE NEED YOUR HELP — Support your hometown newspaper by making a donation.

Long Beach City Council rescinds audit response

City report said state omitted millions in questionable payouts

Three City Council members voted last week to rescind the city’s response to a preliminary state audit of questionable separation payouts that exceeded city code or contracts, saying they had not had a chance to review or approve it.
Three City Council members voted last week to rescind the city’s response to a preliminary state audit of questionable separation payouts that exceeded city code or contracts, saying they had not had a chance to review or approve it.
Christina Daly/Herald

Amid what one elected official recently called a “governing crisis,” three City Council members voted last week to rescind the city’s response to a preliminary state audit of questionable separation payouts that exceeded city code or contracts, with some members saying they had not had a chance to review or approve it.

At a special 7 a.m. meeting on Oct. 11, Council President Anissa Moore, Vice President John Bendo and Councilman Scott Mandel rejected the city’s Sept. 23 response to a draft audit issued by State Comptroller Tom DiNapoli’s office in late August. Council members Anthony Eramo and Chumi Diamond were not present.

Bendo and Mandel have said that council members were excluded from the response, part of an attempt by city officials, they claimed, to control the outcome of the state’s final report.

“The staff has consciously decided to leave the City Council out of the process, so the response submitted was a staff response — it was not a response endorsed by the elected officials,” Bendo said at the Oct. 2 council meeting. “We have a little bit of a governing crisis right now over who’s in charge, and there are some staff right now that seem to be taking the position that they run the city, not the council.”

The city’s response stated, in part, that union and non-union employees — including police, fire and Civil Service Employees Association workers — received $3.1 million in questionable separation payments and “drawdowns” over the past decade and that attempting to recoup such funds would present significant legal challenges, which city officials claimed DiNapoli’s office overlooked and did not address in the audit.

The draft audit, which only covered the 2017-18 fiscal year, found in part that the city had overpaid 10 current and former non-union employees more than $500,000 in separation payouts — including former City Manager Jack Schnirman — and noted that the city had failed to take corrective action in response to two prior audits in 1992 and 1996, which found questionable leave payments that were inconsistent with city code — 30 percent of unused sick days and 50 vacation days — or contracts. The state recommended that the city recoup any overpayments identified in its report.

The second part of the audit, which focused on the city’s overall finances, found that the city mismanaged funds, resulting in operating deficits totaling $8.5 million over the past four years.

Two criminal investigations into the city’s practices, at the county and federal levels, are continuing. Bendo and Mandel had called on DiNapoli’s office not to accept the response for the better part of a month — both unsuccessfully attempted to retain outside legal counsel to represent the council last month — and asked for an extension.

Both Bendo and Mandel cited a conflict of interest, saying that an outside attorney, former federal prosecutor Anthony Capozzolo, who wrote the response — hired more than a year ago, under former Acting City Manager Mike Tangney, to represent the city amid the criminal investigation — was retained without their knowledge and was working with some of the employees who received payouts that are now the subject of investigation. Greg Kalnitsky, the city’s assistant corporation counsel, who did not receive a payout, also worked on the response.

The city had a month to respond to the audit and make recommendations to the state about its findings.

“The council has not endorsed the Capozzolo response, as the council was excluded from the entire process,” Bendo, Mandel and Moore wrote in an Oct. 3 email to Ira McCracken, chief examiner of the state comptroller’s office. “Furthermore, it is necessary to emphasize that top management persons within the city administration that were subjects of the investigations controlled that process, so the response can only be viewed as submitted by them, thus the conflict.”

Moore, who has pledged to recoup any overpayments, said she was voting to rescind the city’s response in part because it was limited in scope and did not address the city’s finances. She also said that while Capozzolo cites payouts dating back more than a decade, the state audit only reviewed one fiscal year.

“This reply, I feel, was unsatisfactory,” she said. “The . . . city was really acknowledging the actions but not moving forward with corrective action and also not taking full responsibility for their actions. It was important for the city to take ownership of the mismanagement that took place, and I didn’t feel the draft response was really clear in addressing that issue.”

McKracken informed the city last week that it had until Oct. 11 to rescind the response, and the city now has until Nov. 11 to respond formally.

Officials deny conflict of interest

City officials have strongly denied any conflicts, saying that former Acting City Manager Rob Agostisi, who was among the employees who received a separation payout while still employed, had recused himself from the investigation, and that Capozzolo has cooperated fully with investigators. City officials also said that the response did not require council approval.

At last week’s meeting, Kalnitsky said that he informed the council about the city’s response on Sept. 23, after an exit conference with state comptroller representatives that day, a meeting at which Moore was present. Moore had informed Mc-Kracken that the council would submit an additional response by the initial Sept. 30 deadline, according to letters obtained by the Herald.

To the chagrin of Bendo and Mandel, however, newly appointed Acting City Manager John Mirando sent a letter to McKracken on Sept. 25 reaffirming the city’s initial response, based on a conversation that he said he had with Moore, Eramo and Diamond. Moore insisted at the Oct. 2 meeting that she was only made aware of the letter after it was submitted, and said she was disappointed that the entire council was not notified.

The 32-page resolution to rescind the response, which was written by Kalnitsky and included a copy of the city report, claimed that Bendo, Mandel and Moore violated state Open Meetings Law by writing an “unofficial” letter to McCracken on Oct. 1 as a council majority.

All three council members voted to amend the resolution, however, with Mandel saying it included “wild mischaracterizations,” and that it did not include the council’s request to reject the response.

Kalnitsky asked council members if they had any “substantive comments” on the findings in the city’s response.

“That has no bearing on what we’re doing right here and now,” Bendo said.

Next steps?

Bendo, Mandel and Moore said they were not in a position to respond to both the audit or Capozzolo’s findings without first retaining outside legal counsel to analyze the reports. But it was unclear on Wednesday, when the Herald went to press, whether those efforts had yet to move forward.

Some city officials, who declined to be identified, said Bendo and Mandel did not want the response made public or sent to the state because it showed that many overpayments were made to union members as well, and that attempting to claw back such funds would hurt them politically. Instead, they claim a small group of non-union employees are being singled out.

Mandel strongly denied those claims. “Capozzolo didn’t advise us,” he said. “The response says that payouts can’t be clawed back, and he didn’t include council in that dialogue. We’re saying it was kept secret from us, it was generated without certain council members’ knowledge, and appears to be offering an excuse and justification based on past practices.”