For years, the small city of Beaumont appeared to be something of a bright spot in the often struggling Inland Empire.
During the housing crash, it avoided the deep budget cuts that hollowed out nearby cities. And even as its population quadrupled over two decades, it managed to keep the small-town feel that locals prize.
But earlier this year, seven former officials were arrested and charged with stealing nearly $43 million during the city’s development boom. Now, residents are learning that the town’s problems go much deeper than the criminal case.
As new leaders work to unravel the finances, they have found a city that is deeply in debt and facing the need for painful cuts in services and the possibility of tax increases. Officials say they’re now working to avoid bankruptcy.
Beaumont “is in crisis,” said Treasurer Nancy Carroll. “We’ve been turned upside down.”
For all its growth, Beaumont, 30 miles east of Riverside, has few jobs to offer residents and many travel long distances to work, making it difficult for them to be involved in the day-to-day operations of City Hall.
“A lot of us that came in the last 10 years are all commuters and most of us have families with young kids,” said Mayor Pro Tem Lloyd White, who was elected to the City Council in 2014. “When you do get home it’s all devoted to baseball and soccer and that kind of stuff. You don’t really pay attention.”
The city’s problems came to light last year when the FBI and county authorities raided City Hall.
In May, prosecutors announced that they were charging almost all of Beaumont’s former top leadership – from its city manager to the head of its planning department – with corruption they said had been going on for years.
The officials together face dozens of charges, including accusations that some of them advised the city to issue new municipal bonds while making payments to their own companies from bond money.
Others were accused of securing interest-free loans of city money for members of the Beaumont Police Department.
Former City Manager Alan Kapanicas, former Finance Director William Aylward, former City Atty. Joseph Aklufi and former police Chief Francis Coe are awaiting trial along with David Dillon, Deepak Moorjani and Ernest Egger, the principals of Urban Logic Consultants, which contracted with the city to manage its planning, economic development and public works services.
“After they were arrested, it became clear there were serious problems in the way the city was handling its financial affairs,” said Interim City Manager Richard Warne.
A review by the state controller’s office late last year found that the city’s accounting controls were so deficient that they were “effectively non-existent.”
While various city units together issued more than $620 million in bonds, the controller’s office couldn’t determine whether the proceeds were used for the intended purposes, the report said.
The city has hired the municipal consulting firm Urban Futures Inc. and others to try to find out.
According to a report presented by that company to the council this summer, more than $45 million in bond money was paid to Urban Logic for design, planning, engineering and management.
Former City Manager Alan Kapanacis’ company, General Government Management Services, was paid about $1.09 million for various services related to the bonds, including administrative costs and cost of issuance.
But the report is incomplete because officials have not been able to obtain all necessary information from bond trustees, officials said.
The report also did not explain in detail what the city got for all that money. Mayor Mike Lara said the city is now preparing to conduct a detailed inventory of roads and other infrastructure projects to determine more precisely where the money went.
Despite millions spent, officials believe the city needs more police officers as well as a new fire station, that its roads are in need of upkeep and its planning and finance departments are understaffed.
“All you have to do is drive down 6th Street and you know there was tremendous corruption in this town,” said Judy Bingham, a longtime resident who for years tried to call attention to the city’s troubled finances.
The city’s main street is dotted with empty lots, an aging city hall and dilapidated storefronts.
Now Beaumont, whose annual budget is about $28 million, faces an annual deficit between $6 million and $10 million.
It also owes $2.8 million to the state for redevelopment funds that were improperly transferred to the city’s general fund, Warne said.
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The city’s financial situation, according to Urban Futures and another consultant, is “highly unusual and reflects a cash insolvency that is worse than what we found in Stockton,” which filed for bankruptcy in 2012.
Riverside County Dist. Atty. Mike Hestrin said the his office aims to recoup some of the city’s money through the criminal case. But much of it cannot be recovered.
“Unfortunately for the citizens of Beaumont, much of the money that was involved here in this case is gone. This was money that was spent on projects and unfortunately citizens are left … paying for the misdeeds of their city leaders,” he said.
Paul Grech, an attorney for Dillon, said the money was used properly on infrastructure and other public works.
“It’s all traceable to those roads and those sewers and the work that the City Council approved,” he said.
Gregory Kassel, who represents Kapanicas, said the city’s development boom shows it got its money’s worth.
“It was the fastest growing city for a few years in that time frame. Obviously money went to that infrastructure,” he said.
Attorneys Grech and Mark Werksman, who represents Moorjani, said their clients worked lawfully and openly.
“There was a city council … who was informed of and approved of every aspect of Urban Logic Consultants’ handling of city affairs,” Werksman said.
Stephen Larson, who represents Aklufi, said his client “always conducted himself with the highest of integrity as Beaumont’s city attorney.”
Other attorneys declined to comment, could not be reached or did not return requests for comment.
Adding to Beaumont’s troubles, earlier this year it announced that federal securities officials are investigating the issuance of city bonds.
And looming over the city is a civil court ruling that it owes $43 million plus interest to a fund that was supposed to pool money from several cities for regional transportation projects.
Prosecutors have accused six of the former officials with failing to send millions in those funds to the Western Riverside Council of Governments and instead using the money on projects in Beaumont and awarding the work to their own companies.
The civil court decision is under appeal.
Recently, the city began considering hiring the same law firm that represented Stockton and Vallejo in their bankruptcy filings.
Lara, the mayor, said, “We’re doing everything we can to avoid bankruptcy.”
The firm, he said, would seek to prevent the city from going down that path.
Either way, to become solvent again the city may have to increase fees and taxes. But many homeowners are already frustrated at having to pay off the city’s bond debt via a special property tax.
“I think we all understand that the city has been a victim already in terms of what was happening in the past,” said Councilman Mark Orozco. “I don’t think it’s fair to go and say we need to fix our problems on the backs of the residents.”
But, he noted: “We have to make sure that we get out of the hole that we were in.”
City officials say they’re working hard to change things in Beaumont, including making the city more transparent and tightening budgets.
But the corruption scandal, said Lara, who was elected to the council in 2014, “has destroyed the trust of government, within our city.”