WE INVESTIGATE
Alhambr and Montebello signs (Photos – Jey0h,Eric).
The State Auditor of California recently released a scathing report on the financial practices of the City of Montebello. Included in the report was the finding that Montebello’s Golf Course was poorly managed and that the city entered into contracts that were not subjected to a competitive bidding process (“no- bid contracts”). Singled out as a party to multiple problematic contracts is one contractor; it is clear that the report is referring to Brad Perrin.
By Sean McMorris
Brad Perrin and his father, David, own and operate numerous LLC’s specializing in hospitality and management services. Montebello has entered into multiple no-bid contracts with Perrin that have plagued the city with financial headaches and have significantly increased Montebello’s deficit. One of those contracts has been amended multiple times, resulting in a 63-year no-bid services contract.
Alhambra has a near identical contract with Perrin. The contractual practices of Alhambra and Montebello also appear to be very similar, as does the Perrins’ political giving to politicians in the two cities. Although Alhambra’s golf course is not losing money like Montebello’s golf course, it is not making very much either ($45,857 net profit in 2018), and rounds of golf played have consistently declined over the last decade so that L. A. County has recommended that Alhambra repurpose nine holes to open park space.
Lengthy no-bid contracts
In 1984, Alhambra entered into a 25-year no-bid contract with Brad Perrin and his LLC, Almansor Court, inc. (“ACI”), for exclusive rights to concession services at Almansor Court, the restaurant and banquet hall at the Alhambra Golf Course. The contract was amended 12 years later to add an additional 25-years to the contract; it now expires in 2037 (50 years total).
Similarly, Montebello entered into a no-bid contract with one of Perrin LLCs in 1974 to manage the city’s event center, including exclusive concession rights in the city’s golf clubhouse. Amended three times to extend the term, the contract now expires in 2064 (63 years total). According to the State Auditor’s report, “the city’s contract term with the hotel operator’s company to manage the event center is unusually long.” The report goes on to state, “Without having followed a competitive process, the city cannot be sure that this was the best deal, one that would maximize potential revenue….”
Lack of safeguards to protect the cities from losses and fraud
In both contracts, Alhambra and Montebello each receive a graduated 5-10 percent share of revenue over the course of a year based on gross concession sales each month. In contrast, it is standard practice for the City of Los Angeles to charge it’s concessionaires “a Minimum Annual Guarantee (MAG) or a percentage of gross receipts, whichever is greater, as determined monthly.” This safeguards L.A. from losses against underperforming concessionaires.
Alhambra and Montebello appear either to lack the needed oversight capacity or the willingness to monitor Perrin’s concession operations.
In Montebello’s case, Perrin’s LLCs are required to submit operations and financial reports to the city, but according to the State Auditor’s report, “Montebello lacks the hotel industry experience required to determine whether the hotel expenses are reasonable.” The State Auditor’s report goes on to state that, “Without strong monitoring of its agreements….the city cannot safeguard its interests in the contracts.”
Alhambra’s contract with Perrin does not require that ACI submit operations or financial reports to the city at all. A “business records” clause in the contract requires Perrin to keep correct records that the city can examine at any time. A public records request revealed, however, the city has never audited ACI.
After multiple public inquiries and press exposure, Alhambra City Manager, Jessica Binnquest, announced at the January 14, 2018 city council meeting that Perrin was sent a letter notifying him that the city intended to audit ACI’s books for the first time since the commencement of the city’s contract. As of March 2019, that audit is contentiously ongoing.
Perrin getting better end of the deal
In its report on Montebello, the State Auditor of California notes that several amendments and extensions to the Perrin contracts have tied the city’s hands, making it difficult for the city to competitively bid contracts related to its hotels and golf course without incurring significant losses to the city’s general fund. The State Auditor writes, “With the current arrangement, the city’s agreements with the hotel operator favor the operator’s financial interests while the city assumes significant financial risk.”
Bad clauses and amendments in Alhambra’s contracts with Perrin also have bound Alhambra contractually, resulting in two lawsuits and settlements that appear to greatly favor the interests of Perrin over those of Alhambra.
In 1989, Alhambra sued Perrin over a signage dispute. Perrin countersued and both sides settled. The settlement resulted in the city paying ACI $250,000 over two years, re-carpeting the entire Almansor Court Restaurant, reimbursing ACI $23,703 for a salad bar, paying up to $30,000 to enhance the HVAC system of the facilities, and paying $600,000 for an expansion to the current facility that would be constructed by ACI (another no-bid contractual arrangement), for a total of nearly $1 million.
Alhambra’s contract with Perrin was updated to reflect the changes as a result of the settlement. Those changes resulted in another lawsuit in 1994, this time initiated by Perrin.
When Alhambra settled with Perrin in 1990, it amended its concessionaire contract to allow Perrin sole oversight and construction of the promised expansion of the Almansor Court facility. The amended contract read, “it is in the best economic, health, safety and welfare interests of the CITY and the public it serves to delegate the CITY’s authority and responsibility to construct said project to CONCESSIONAIRE…” In a separate clause, “…CONCESSIONAIRE is performing the work as an accommodation to CITY and all ownership shall remain with CITY…”
Not only did Alhambra legally bind itself to another no-bid contract with Perrin, but it also outsourced its contractual duties to him; Perrin hired a third party of his choosing to do the work. In addition to the $600,000 the city placed in a joint bank account with Perrin to cover the cost of construction of the proposed expansion, Alhambra agreed to pay for the design fees for the banquet room expansion and a slew of esthetic amenities for the facility.
What could go wrong? Apparently a lot.
Perrin sued Alhambra for breach of contract surrounding the Almansor Court expansion amendment to the contract, which resulted from the 1989 lawsuit and subsequent settlement. The details of the 1994 lawsuit are unknown, but the city settled again with Perrin, agreeing to enter into a contract with Perrin’s choice of contractor, Rohm Construction, Inc., for portions of the expansion project that the city had previously reserved the right to contract out on its own. The agreement, as outlined in the contract’s third amendment, commits Alhambra to a $117,993 contract with Rohm Construction, Inc., which is in addition to the $600,000 (plus interest) already committed to Perrin for the oversight and construction of the Almansor Court expansion. Alhambra also agreed to pay up to $12,000 for Perrin’s legal fees arising from the lawsuit.
After all this, Alhambra rewarded Perrin with a 25-year contract extension in 1996.
Questions of legality
It appears that Alhambra may have violated the law by not sending the Almansor Court expansion project out to competitive bid (see AMC Article XIX Section 135 and CA Public Contract Codes 20161 and 20162). The California Constitution mandates that any “public project” (defined as: A project for the erection, improvement, painting, or repair of public buildings and works) costing more than $5,000 must be competitively bid. Alhambra Municipal Code (AMC) is bound to this section of California law. The Alhambra golf course and all of its facilities are owned and contractually operated by the city. Thus, any city-funded construction or renovation to the facilities at the Alhambra Golf Course would likely be subject to the state’s public works project competitive bidding laws.
Nearly identical situation in Montebello
The State Auditor’s report on Montebello outlined a nearly identical situation.
Montebello granted the Perrins a no-bid contract to manage construction of a second hotel that the Perrins would operate upon completion. The State Auditor’s report states, however:
There is no evidence that the [Perrin] entity submitted a proposal or any other formal documentation that would demonstrate competence or professional qualifications. Further, the city did not consider the fact that this entity, as the franchise and operator of both hotels, already had significant, closely related business interests with the city.
Even though the Perrins offered to manage the project for free, the State Auditor’s report notes that the city did not seek qualifications from other entities that may have been able to better provide construction management services.
Similar Municipal Codes
Montebello and Alhambra have similar contractual laws in their Municipal Codes (MC) that increase the likelihood of graft and corruption.
Unlike public works contracts, the state allows charter cities to determine their own rules for service contracts. Both Montebello and Alhambra have municipal codes that do not require competitive bidding or city council approval for service contracts less than $50,000 (i.e. non-construction and repair contracts).
Montebello’s MC provides no rationale for such bidding practices. The rationale in Alhambra’s MC is tenuous at best: that consulting and professional services are so specialized, and therefore limited, that cost for such services will vary little. Regardless, the Alhambra MC’s chapter on service contracts is essentially pointless as it has a discretionary clause that allows city hall to ignore the entire chapter and do as it sees fit “if they deem it would be advantageous to the city to do so.”
The State Auditor of California believes such bidding practices lack integrity and can lead to real or perceived malfeasance and financial vulnerability. In its rebuke of Montebello’s contractual practices, the state auditor wrote:
Competitive bidding is a generally accepted method for ensuring that public entities obtain goods and services from the most qualified vendors for a fair and reasonable price. Regardless of whether the municipal code requires such a practice, the city should use competitive methods to ensure that it receives the best value for goods or services with few exceptions—such as for very small purchases or legitimate emergencies. In fact, we have observed procurement policies in other governmental entities that specifically limit the circumstances under which the entities may forego competitive bidding and that require justification of such a decision. Otherwise, the city risks not obtaining the best value for the services it seeks and it risks accusations of unethical contracting practices.
The State Auditor’s report recommends that Montebello amend its MC to “require bidding for most procurements and to outline procedures for—and identify circumstances in which—the city may procure professional and special services from a single source.”
A common practice
Alhambra’s contract with Brad Perrin is not an anomaly. Colorado Boulevard.net previously reported on Alhambra’s annually renewed no-bid contracts with the Alhambra Chamber of Commerce. The city is currently engaged in a lawsuit over its no-bid contract for towing services with Al’s Towing. Public records also show the city has no-bid contracts with Trans Tech (the city’s engineer). Other questionable city contracts include a contract with local business, Javee Empire, Inc., where the city provides free services for the permittee to conduct a fee-based running event; an annually renewed no-bid contract with the Alhambra Central Business District Association, which has the same address and executive director as the Alhambra Chamber of Commerce; and a contract with local realtor, Leland Lieberg, in which city management provided no rationale for why Lieberg’s real estate business was chosen over nine other brokers who submitted proposals for the sale of millions of dollars of former redevelopment agency city property.
It is noteworthy that the principals of the recipients of the above contracts, with the exception of Trans Tech, all sit on the Alhambra Chamber of Commerce Board of Directors.
The Perrins’ involvement in city elections
The Perrins have a long history of involvement in Montebello and Alhambra elections that could easily be interpreted as “pay-to-play” politics. A 1988 L.A. Times article reported that David Perrin contributed to a Political Action Committee (PAC) that spent $22,000, primarily on negative political mailers, to unseat two Montebello councilmembers who voted against the expansion of city property that the Perrins were under contract to manage. Montebello Councilman, William M. Molinari, who was on the receiving end of many of the PAC’s political mailers and subsequently lost re-election in 1987, stated to the L.A. Times at the time, “Mr. Perrin very generously rewards those who support what he’s trying to do and very severely punishes those who oppose him.”
Two years later, in Montebello’s 1989 election cycle, Brad Perrin organized a PAC that sent out mailers attacking city council candidates who opposed the use of eminent domain in the city. Perrin contributed $20,000 to the PAC through one of his many LLCs.
In 2018, Brad Perrin donated tens of thousands of dollars through numerous associated LLCs to an independent expenditure committee called “Working Families CA” to help elect Montebello Councilman, Art Barajas.
Similarly, the Perrins have donated tens of thousands of dollars to the campaigns of current and former Alhambra City Councilmembers. In 2016, the Perrins, through four associated LLCs, donated $10,000 each to Councilmembers, Jeff Maloney and David Mejia. In 2018, the Perrins, again through multiple LLCs, donated $8,000 to a PAC called “Alhambrans United to Save our Neighborhoods by electing Dr. Laura Tellez Gagliano and Suzi Dunkel-Soto to the Alhambra City Council 2018.” The PAC sent out political mailers that negatively portrayed Dunkel-Soto’s and Galliano’s opponents. Over the years, the Perrins and their LLCs also have given thousands of dollars in campaign gifts and monetary donations to former Alhambra Councilmembers Barbara Messina, Luis Ayala, Steven Placido, and Stephen Sham.
Birds of a feather…
The similarities between Montebello and Alhambra’s contractual practices are eye-opening.
Both cities entered into long-term no-bid contracts with little or no oversight with the same family—the Perrins. Both cities then non-competitively contracted out construction management services to the Perrins for projects in which the Perrins had a vested interest. In both cities, the Perrins appear to be getting the better end of the deal to the detriment of each city’s coffers. Both cities’ elections have been greatly influenced by campaign contributions from the Perrins and their many LLCs. Both cities have municipal codes that allow for no-bid service contracts with no process for documenting city rationale for procuring services without competition. In both cities, non-competitive service contracts are the norm.
The potential for graft and corruption because of poor procurement practices is great. The State Auditor of California already has outlined why Montebello needs to reform its municipal code and contractual practices. Short of similar action by the State Auditor, what will motivate Alhambra to do the same?
It is worth reading the State Auditor of California’s summary report on Montebello to see just how similar the criticisms laid out in the report mirror Alhambra’s procurement practices.
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The flow of $300,000 of tax money every year into the chamber of commerce for operations and “promotion” is going to get the State Auditor’s attention sooner rather than later. Additionally I feel certain they would be interested to know how much of the Tournament of Roses Float money went directly into the chamber coffers or to individuals . Added up over the years, it is easily over millions dollars of public funds that are unaccounted for. The Alhambra Chamber of Commerce echoing the national office has lobbied against minimum wage and environmental safeguards and regulations in their city subsidized paper Around Alhambra. Is that representative of our community? I know it is not. Shameful and illegal activity in my view. This corruption must end.
Wow. What an eye-popper. So many of these “small” cities orbiting the City of LA receive little or no scrutiny for their practices and seem to get away with, if not outright incompetence, all sorts of shenanigans (think City of Bell). Thanks for this reporting. We need much, much more like this.