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City of Vernon in Fight to Death With Assembly Speaker John Perez

The city of Vernon may be the nastiest place in California.

The industrial city a few miles southeast of downtown Los Angeles is home to the region's last remaining slaughterhouse, a handful of rendering plants, chemical manufacturers and a gas-fired power plant.

It may also be the most corrupt five square miles in California, with a former city administrator quintuple-dipping his way to a $600,000 annual paycheck and other executives pocketing huge salaries.

All in all, there is little to recommend this ugly, smelly and rotten little borough.

But does that mean it deserves to die?

The region's most powerful lawmaker, Assembly Speaker John Pérez, is trying to take the unprecedented step of abolishing a charter city against its will. In his view, the only way to end corruption in Vernon is to wipe the prickly 106-year-old burg from the map.

Given that Vernon has just 112 residents, many of whom work for the city or are related to City Council members, Pérez says voters simply aren't capable of keeping their government honest.

It's a curious argument. If Vernon isn't worthy, why should the city of Bell continue to exist? And what's to stop the Legislature from abolishing San Francisco or Los Angeles if their leaders do something state legislators don't like? And who made the Legislature jury and executioner anyhow? When the Legislature suffered a major bribery scandal in the late 1980s, did anybody try to abolish California's statehood?

None of those questions has deterred Pérez from his single-minded quest to put Vernon out of business. He has refused to listen to those who say eliminating the city will lead to dramatic, unintended consequences, including the loss of thousands of jobs. He has turned a deaf ear to arguments that the city can be reformed. He has refused to negotiate for anything less than total surrender.

Now, as summer heats up, there's a running gunfight between one ornery lawmaker and the nastiest town in California.

Which black hat will win?

A CITY IN NAME ONLY

The truth about Vernon is that it has always been something of a charade — a functioning city in name only. Consider the city's public library. It's little more than a storage closet at City Hall. The hours posted on the door — Monday to Thursday, 3-5 p.m. — are fictional because it's always closed. Some books are on the shelves, but you can't check them out. Ask for a copy of a book on Vernon history and you'll be told to file a public records request.

The city has no parks, no pools, no playgrounds — not even a grocery store.

Vernon is less a city than an industrial park with its own police force. (See "City of Vernon vs. Assembly Speaker John Perez: A Photo Essay.")

The city owes its existence to John Baptiste Leonis, who persuaded three railroads — the Southern Pacific, the Santa Fe and the Union Pacific — to build a spur to his ranch and create an "industrial city" in 1905. Leonis was born into a poor Basque family in the French Pyrenees. He died a rich man in 1953, with a six-bedroom Italianate mansion in Hancock Park and an estate worth $8 million, which passed to his grandson.

Leonis, who served on the City Council for more than 45 years, gave a bit of wisdom to his grandson, Leonis Malburg, who would serve for 53 years: "Politics is a two-headed snake."

Vernon was run by a couple of families, and was closed almost entirely to outsiders. It rarely held elections. The city owned most of the residential property, and subsidized the rent. Many residents were city employees or relatives of the council members. They tended not to rock the boat.

Strangers who set foot in Vernon City Council meetings were treated with suspicion or downright hostility.

"It's a very, very private city," says Supervisor Gloria Molina, who has battled Vernon for decades. "Vernon has always operated for its own special and unique interests and doesn't really care about talking to anyone."

That secrecy has allowed a series of administrators to plunder the city treasury.

Bruce Malkenhorst, who held five city jobs at once, rode a city-paid limo to work and still collects the largest pension in the state. He pleaded guilty last week to misappropriating funds.

After Malkenhorst was pushed out, the city hired Donal O'Callaghan, who made almost $800,000, much of it through a consulting contract paid to a company run by his wife. Last fall, he was indicted on a relatively minor conflict-of-interest charge and forced to resign.

Nowadays, there is Eric Fresch, an attorney and former city administrator who consults for Vernon Light and Power. He collects more than $1 million a year, and has been described as the new power behind the throne.

 

In the absence of any electorate to speak of, the primary oversight of the city comes from the L.A. County grand jury. It has taken prosecutors three tries and 65 years to break the grip the Leonis family had on the city for a century. Leonis and Malburg each were indicted, 35 years apart, for the crime of serving as Vernon's mayor while living in the same 7,000-square-foot mansion on South Hudson Street in Los Angeles. In both cases, in 1943 and 1978, the charges were dropped.

Malburg claimed in later years to live in a penthouse apartment on the third floor of the Leonis Malburg Building, on Leonis Boulevard, in Vernon. But he could not convince a judge of that in 2009, and he finally was convicted of voter fraud and driven from office after a half-century on the City Council.

Through it all, Vernon's thriving business community was somewhat aware of corruption at City Hall — the high salaries, the hiring of friends and relatives — but business leaders tended to keep quiet.

"Some of us bitched about the way the city was run," says Bill Hughes, owner of King Meat, a meatpacking company that has been in Vernon for generations. "But what do you do when you have the cheapest power around, a good fire department and low taxes? It shuts you up."

A TERRIBLE NEIGHBOR

Vernon may be a wasteland of toxic smells and diesel traffic, but to industry, it is paradise. The taxes are low because there are hardly any residents in need of city services. The power is cheap because the city runs its own utility and subsidizes the rates. Fire insurance is discounted because the city has a top-notch fire department.

It was set up that way — a little island of pure, unbridled capitalism. Slaughterhouses moved in during the 1920s to take advantage of Vernon's proximity to the L.A. River, which was used as an open sewer. Giant hills of sulphur were left out in the open. In the postwar era, Vernon's police department maintained an "industrial relations" detail that gathered intelligence on strikes and kept an eye out for communists. It was and remains a company town.

Vernon's prosperity has always drawn the envy and suspicion of its neighbors.

In December 1951, the Vernon Chamber of Commerce warned its members "of prejudicially 'slanted' opinions to the effect that Vernon is a municipal parasite made up of unscrupulous and greedy persons who, in some unexplained manner, are the beneficiaries of unreasonable profit at the expense of adjoining municipalities."

Los Angeles made threats to annex Vernon, which would result in massive tax increases. Even Gov. Pat Brown suggested eliminating it in 1959. In a speech, he said: "Vernon, where over 80,000 people work, has a population of 417. Its per capita assessed valuation is over one-half million dollars. ... I hope that we can develop better laws governing annexation, consolidation and redistricting of local governments to restore economic logic to old urban areas."

In other words, Vernon was so absurd that it should be abolished.

Today, the inequity is even worse. In 2010, Vernon's total assessed valuation was $4.1 billion, or $37 million per capita. Maywood, just next door, had a tax base of just $830 million, or $28,000 per capita.

Vernon's neighbors have good cause for jealousy. Nowadays, Vernon has 50,000 jobs and almost no inhabitants. That means nearby communities — Bell, Maywood, Commerce, Huntington Park, Boyle Heights — have 50,000 residents and no jobs.

Vernon has long maintained that it doesn't owe its neighbors much of anything — not even a returned phone call. If anything, it argues, the surrounding communities should be grateful that Vernon provides so many jobs.

Outsiders who attempt to influence Vernon's decisions often have been met with unrestrained contempt. In the 1980s, environmental activists from Boyle Heights and Huntington Park rallied to stop the construction of a toxic waste incinerator. Vernon fought back, and the issue dragged on for years before the project was finally scuttled.

Vernon took the same confrontational approach in 2006, when it proposed to build a massive new natural gas power plant. Vernon officials said it would be "clean," and was necessary to ensure a reliable power supply for years into the future.

Activists argued it was a profit-making venture that would lead to increased emissions and premature deaths.

The city initially was dismissive of health concerns, says Diana del Pozo-Mora, of activist group Mothers of East L.A. "They just told us everything that would shut us up," she says. "They lied to us. They told us it would have zero effects."

She adds that at one point, city representatives told her, "We have too much money and too much time. You will never be able to defeat us."

Mothers of East L.A. and other activist groups organized demonstrations. One of those who marched with the protesters was the city's current nemesis, Assembly Speaker Pérez, who was then merely a candidate for the Assembly.

 

As the project stalled, Vernon belatedly hired a public relations expert to try to build support in the surrounding communities. The city made donations to youth groups and built a swimming pool at Bell High School. But by that point, the opposition was firmly entrenched and resented being bought off.

"Before the project started, they should have tried to get input," says the PR consultant, Hector Elizalde. "But they didn't. When I came on, I was trying to catch up."

It took three years of fighting at state regulatory bodies before the project was finally withdrawn.

"They brought all this upon themselves," says Father John Moretta, the monsignor at Resurrection Church in Boyle Heights and a veteran of many environmental fights with Vernon.

The idea of killing off the city was first floated back in the '80s, during the fight over the incinerator, Moretta says. That was long before the recent spate of corruption cases. At that time, the feeling among many lawmakers was that Vernon had forfeited its right to exist by being so determined to stick its finger in its neighbors' eyes.

"Vernon is a terrible neighbor and has been for decades," says John Vigna, Pérez's spokesman. "Nobody in Vernon has had to give a tinker's damn about what the people in Maywood, Bell and Boyle Heights care about anything they do."

UNDER PRESSURE

Vernon might have gone on as it always had — enriching itself and enraging its neighbors — were it not for the salary scandal in the nearby city of Bell. When the story of City Manager Robert Rizzo's excesses hit the news in the summer of 2010, there was a rush to tote up the salaries of city officials everywhere. Attention quickly turned to Vernon's outrageous pay packages.

In Bell, citizens engaged in a popular revolt and the council was thrown out of office. But in Vernon, the handful of residents didn't seem to mind. "I don't understand what their problem is," says John Kriste, 80, a retired Vernon firefighter who has lived in the city for 35 years. "You have two little incidents in 100 years."

District Attorney Steve Cooley called for the city to be abolished. Others, including L.A. City Council members, joined the chorus.

As those calls grew, the Vernon Chamber of Commerce pleaded with the Vernon City Council to reform. In a letter last November, the chamber urged the council to bring salaries under control, to do open candidate searches for vacant positions and to open up the city's government to input from the business community.

But after so many years of getting along fine without answering to anyone, the council was slow to perceive the threat. City officials defended the high salaries and hunkered down, waiting for the controversy to blow over.

"It's like they were in a time capsule," says Juliet Goff, president of Kal Plastics, a Vernon manufacturer. "They woke up in 2011 and they think it's 1950."

Pérez got their attention in December, when he introduced a bill to abolish Vernon. If it passed, the city would be turned over to the county initially. After that, any city that borders Vernon — including Los Angeles — could apply to annex it and its rich tax base.

Suddenly Vernon could no longer gamble that the storm would pass. But instead of coming out forcefully and publicly against the bill, the five city councilmen — each of whom makes $68,000 a year and lives in city-subsidized housing — withdrew further into their shells. They have been mostly absent from the debate over disincorporation, feeding the impression that they lack sophistication or are the puppets of the city's highly paid attorneys and consultants.

In early May, Mayor Hilario "Larry" Gonzales answered a reporter's knock on his door but refused to be interviewed.

"You say anything to a reporter, it gets twisted," he said, referring inquiries to the city's spokesman. "We got Fred [MacFarlane] to answer questions."

Another longtime councilman, Mike McCormick, came out of his apartment with his dog at his side but refused to talk.

After weeks of negotiations with the spokesman, McCormick and Councilman Bill Davis agreed to an interview. But they would not discuss pending reforms or questions about Eric Fresch and his million-dollar contract.

Asked whether previous administrators' salaries had been too high, Davis defended the city's hiring process. "When we're looking for a department head, we ask opinions," he said. "We ask the lawyers if this is a good candidate for a position. That's what we're basing it on."

The city's problem, he argued, is not systemic. "As Mayor Gonzales says, we got some bad apples."

 

"When we find out something is not right, we take action to correct it," McCormick said. "We don't let it fester. ... We've learned from our past, and we'll enact changes to protect our future."

That was their first interview in almost a year. Beyond that, council members remained quiet.

Instead of taking the lead, they did what they are more accustomed to doing: hiring other people, at great cost, to fight back for them. The city hired attorneys at Latham & Watkins to give legal advice. The attorneys hired Chris Lehane, a Democratic strategist, to give political advice. Lehane hired political consultant Ace Smith to do a TV commercial.

The city also hired former state Attorney General John Van de Kamp to give advice on political reform. Van de Kamp hired Bob Stern, who co-authored the Political Reform Act, to help out. As the city attracted more and more media scrutiny, it hired MacFarlane to deal with the press.

The Vernon Chamber of Commerce hired its own PR consultants and strategists. They launched the Save Vernon Jobs campaign, which has a Facebook page and a Twitter account. The chamber alone has raised hundreds of thousands of dollars from its members. Including the city's expenses, the campaign to save Vernon has undoubtedly reached seven figures.

Most importantly, the city hired two of the state's top lobbying firms, Nielsen Merksamer and KP Public Affairs, to work the corridors of Sacramento. Vernon spent $567,000 just on the lobbyists in the first three months of the year.

The hired guns have put together an impressive sales pitch, explaining why the city shouldn't be put to death.

But still missing from the equation are the elected officials. The mayor and council have been unable to explain their own vision for reform. That has led to questions, even within Vernon, about whether the council is serious about changing the way it does business.

At a meeting in mid-May, business leaders urged city officials to adopt reform measures before Pérez's bill reaches the Senate floor. "You gotta do it fast," Jim Andreoli, president of Baker Commodities, a Vernon rendering plant, said at the meeting. "You gotta do it now, before we lose this city."

Mayor Gonzales assured them that plans were in the works. Vernon's lawyers were hurriedly drafting measures on term limits and executive salary caps.

"The past is in the past," Gonzales said.

The council has taken some steps in the direction of reform. It created a committee to oversee utility rates. At one meeting, a committee member broached the previously taboo question of whether O'Callaghan, the former administrator, had been paid too much money and whether the utility was paying too much for consultants. The utility director, Carlos Fandino, responded by saying it was cutting back on consultants. (He read off a list of consultants still on contract, but for some reason he did not mention Eric Fresch.)

"The light of day is the most important prophylactic you can have," Van de Kamp says. "They're under pressure. They need to do some things. I think they are motivated to do them. But we'll see."

THE WAR

Vernon's business community is in an awkward position. Corruption is bad for the bottom line. After all, it was the business community's tax dollars and utility payments that lined Malkenhorst's pockets.

But shutting down the city would be even worse. Power and insurance rates would go up, and some businesses surely would not survive.

And so, for perhaps the first time, the Vernon business community has come together. Unlike in Bell, where the community rallied to overthrow corrupt leaders, the pressure for reform in Vernon came from the business community. Business leaders pushed in two directions at once. They wanted reforms. But they also wanted city officials to stay in power.

In defending the city, they don't defend Malkenhorst, Malburg or O'Callaghan. They simply note that all three have been ousted from office.

"All the miscreants are long gone," says Gene Erbin, a Vernon lobbyist. "It's ancient history."

They argue that abolishing the city would only kill jobs.

To drive that point home, Vernon hired Capitol Matrix Consulting, which produced a report that said eliminating the city would cost 11,000 jobs. In a publicity coup, the business community got Texas Gov. Rick Perry to write a letter encouraging them to move to his state if they weren't welcome in California.

Some of these claims are exaggerated. No doubt, there are plenty of companies that could survive while paying the county's tax rates and Southern California Edison's electric bills. But others probably would shut down without Vernon's low taxes and low fire insurance and utility rates.

And in a time of high unemployment, that makes for a powerful message in Sacramento. Eliminating Vernon might not cost 11,000 jobs, but even if it were only 1,000 jobs, that would still be enough to make some lawmakers think twice.

 

The businesses most at risk of extinction are those that have only survived this long because of Vernon's unique cost structure.

To enter some factories is to step back into the 1950s. The style is postwar jet age. The technology is decidedly analog. You half-expect someone to pull out a slide rule. Businessmen gather for lunch at La Villa Basque, where the bar is so old-fashioned it was used as a set on Mad Men. These are dinosaurs, and they may well go extinct.

In February, the Vernon Chamber of Commerce sent 25 business leaders to Sacramento to make their case directly to Pérez. They got a chilly reception.

According to Chamber of Commerce President Marisa Olguin, Pérez told the group he was willing to discuss how to protect jobs after the city is dissolved. But if they were there to argue against his bill, they shouldn't bother. For that, they could talk to his staff.

Pérez is a former political director for the United Food and Commercial Workers Union, so it's not surprising that he wouldn't give a business delegation the time of day.

But he would listen to labor, and labor also opposed the bill. Maria Elena Durazo, the head of the L.A. County Federation of Labor, in April sent Pérez a letter opposing AB 46 unless it was amended. She acknowledged that Vernon has a "storied history of blatant corruption." But simply eliminating the city, she wrote, "gives great concern to a number of affiliated local unions."

Pérez has had many more phone calls and meetings with labor groups than with the chamber. In conversations with labor leaders, he has promised to amend the bill to protect jobs. He has not explained how.

Setting aside the practical concerns, there is a question of whether it's even legal to disincorporate a city against its will.

California's constitution contains a "home rule" clause, which makes a city charter almost sacrosanct in municipal affairs. No charter city has been disincorporated against its will, and Vernon's lawyers contend that AB 46 is unconstitutional.

"If that bill passes, we'll be in court the next day," says David Fleming, an attorney with Latham & Watkins, which represents Vernon.

Pérez's office argues that the state holds the power to grant city charters, and it can take them away. There is some case law to back that up, but there are no exact precedents.

The closest parallel to Vernon may be the tiny village of New Rome, Ohio (population 60, 0.02 square miles), which existed primarily as a speed trap for six decades. Elections were rare. The council members ran unopposed and filled vacancies by appointment. After a court fight, the state succeeded in dissolving New Rome in 2004.

There is no doubt that Vernon would go to the mat to defend itself, which could keep the issue bottled up in court for years. Asked about the possibility of litigation if AB 46 passes, Councilman McCormick says, "Vernon is a charter city. Vernon is defending itself against an unconstitutional political attack."

JOHN PÉREZ'S TRUE MOTIVE

In hindsight, it seems clear that Pérez blundered into this without a full appreciation for the consequences of his bill or of the opposition it would generate. Specifically, his office seems to have been unprepared for a fight with his close allies in labor. But he has not wavered in the slightest, or agreed even to consider political reforms, which has led many to question his motives.

When the bill was introduced in December, Barry Broad, a Sacramento lobbyist who represents labor groups, heard immediately from the Teamsters in Vernon.

"I got a call ordering me to oppose the bill," Broad says. "I never get calls like this."

Broad could feel an ache in his stomach. Pérez was a friend, and he had just been told to go to war with him.

"How the fuck did this happen?" he says.

Broad called Pérez's office, and asked what was going on. He was told not to worry — no businesses in Vernon were unionized.

Broad looked into it, and found that wasn't true. Teamsters worked in the refrigerated warehouses and UFCW members worked in the meatpacking plants and in the slaughterhouse. The chemical plants had Machinists union members and the power utility had IBEW workers. Out of 50,000 private-sector workers, perhaps 10,000 were unionized.

"Not only was it unionized, it was union central casting," Broad says. "Some of the speaker's staff had no idea what was in Vernon."

Pérez's office denies this.

Having staked out an absolute position, Pérez was in no mood to compromise. Mark Whitworth learned that firsthand when he paid the speaker a visit in January. Whitworth was promoted to city administrator when O'Callaghan resigned last fall, but he kept his title as fire chief, and — because of newfound sensitivity about executive salaries — he was still paid his old wage: $210,000.

 

Joined by the interim police chief and lobbyist Gene Erbin, Whitworth had a short and unproductive meeting with Pérez.

"I have the votes," the speaker said, according to Whitworth. "I have the support. It's gonna happen." He advised Whitworth to get ready.

When Whitworth tried to present reform ideas, Pérez was blunt: "Don't piss in my pocket and tell me it's raining."

When it comes to ending corruption, Pérez has been so unwilling to take yes for an answer that Vernon supporters have started to suspect that graft is not his real motivation.

"I don't think this is about corruption," says MacFarlane, Vernon's spokesman. "If this was about corruption, he would be using that speaker's bully pulpit to go after all the other cities in Southeast L.A. County."

"Pérez has a motive and it's certainly not goodness," says Hughes, of King Meat. "I can only assume he wants to give it to his cousin."

Pérez's cousin is L.A. Mayor Antonio Villaraigosa, who has endorsed the bill and has expressed an interest in annexing Vernon's tax base.

"They're not up front. Their fingerprints aren't on it," says Fleming, the attorney at Latham & Watkins. "But you can better believe that they're taking this food off the table, and it's gonna be eaten by somebody. The city of Los Angeles is gonna be the one that enjoys the lunch."

An alternate theory involves annexation by the city of Commerce, which sits on Vernon's eastern flank. The city attorney there, Eduardo Olivo, used to work for Vernon but was fired in a dispute over Malkenhorst's expense reimbursements. About five years ago, Olivo tried to get his revenge by joining with South Gate treasurer Albert Robles — who had been convicted of federal corruption charges — in a plot to take over Vernon. The attempt failed, but the episode suggests there are plenty who covet Vernon's tax base.

"All the cities around Vernon are licking their chops," says Gary Toebben, president of the L.A. Area Chamber of Commerce.

Pérez has denied that his motive is to hand over Vernon's tax base to Los Angeles or anyone else, and there is no proof that he's lying about that. There is also a better, simpler and somewhat less nefarious explanation, and it goes back to the battles over the incinerator and the power plant.

Most of the ground-level support for killing off Vernon comes from environmental-justice activists. Pérez is close to many of them, thanks to his role in defeating the power plant.

"John Pérez was a real leader in pushing back," says Adrian Martinez, an attorney with the Natural Resources Defense Council.

And that may be why he's not interested in reform. No amount of internal reforms will make Vernon more responsive to outside pressure. But dissolving the city and handing it over to Supervisor Gloria Molina, a longtime Vernon foe, surely would.

For all the opposition his bill has aroused, Pérez still has good reason to be confident. Support for the measure in the Assembly was bipartisan and overwhelming. The speaker's staff aggressively rounded up support, getting 71 of the 80 Assembly members to sign on as "co-authors" of AB 46. In a rare move, Pérez also worked the Senate floor, getting 23 of the 40 senators to co-author the bill.

So he does have the votes. But until Jerry Brown signs his name to AB 46, Vernon still has a chance.

One of those who co-authored the measure was Sen. Kevin de León, whose district includes Vernon. "It was an easy thing to do," he says. "The headlines were on the front page of the L.A. Times about corruption. ... I just figured, 'L.A. Times, corruption, that makes sense.' You just read it. You don't go deep into it because you've got a whole bunch of other things going on."

But now, he seems to be wavering. "We cannot hemorrhage any jobs in our community," de León says. "The vast majority are working-class, Latino immigrants, with good union jobs."

Assemblyman Tony Mendoza also signed on as a co-author. But when it came to the Assembly floor in April, he abstained. (The bill passed, 62-7.)

A week later, Mendoza got a hero's welcome in Vernon. He and his staff were given a tour of several factories, including Gaviña Gourmet Coffee and Coast Packing Co. At Coast, they donned hairnets and white lab coats and were led up four flights of narrow, concrete stairs. Over the clamor of a row of chilling machines, company officials explained how lard is made. Mendoza watched as a machine squirted chilled lard into 50-pound boxes.

 

"This floor used to be the killing floor," says Ron Gustafson, the company president.

Next door, Farmer John still slaughters 7,000 pigs a day. The aroma attracts seagulls, though the city is 20 miles inland. There, Mendoza was welcomed with a free hot dog.

At a luncheon at Holy Angels Church of the Deaf — Vernon's only house of worship — Mendoza advised business leaders to talk to Republican senators, and labor leaders to work on the Democrats.

"Getting labor together — that's the key," he said. "Disincorporating the city is not the answer."

He was given a standing ovation.

TOO LITTLE, TOO LATE?

With Sacramento's executioners closing in, council members voted last Thursday to cut their own salaries to $25,000, impose term limits and establish a housing commission. The commission would be responsible for managing city-owned rental properties, with the aim of establishing a truly independent electorate.

Whether it's enough to convince the Senate is still to be determined. There's no chance it will convince Pérez. At a recent meeting in Sacramento, Pérez asked Van de Kamp if his reform proposals would forever eliminate the possibility of corruption in Vernon. It seemed like an impossible standard.

"When you're dealing with public officials, you're dealing with the potential for human venality," Van de Kamp says.

And so the war goes on. Pérez will stop at nothing short of disincorporation, which Vernon is flatly unwilling to accept.

"The city remains eager and willing to compromise. But it will not negotiate its own extinction," says Erbin, the Vernon lobbyist. "The speaker has been unbending, unyielding. Some have called him arrogant."

That's a fair characterization, but it applies to Vernon as well. In Vernon, politics is still a two-headed snake.


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