Anaheim tries to turn the page on corruption scandal, pandemic

The guilty plea this month by Anaheim, California’s former mayor underscores the long slog the city faces in restoring its image and finances after an FBI corruption probe became public amid the city’s efforts to recover financially from the COVID-19 pandemic.

Harry Sidhu, the ex-mayor, agreed to plead guilty to federal felony charges for obstructing an FBI public corruption investigation by destroying evidence and for making false statements to FBI agents, the Aug. 16.

Sidhu, 66, agreed to plead guilty to one count of obstruction of justice, one count of wire fraud, and two counts of making false statements to the FBI and the Federal Aviation Administration.

Closed ticket windows outside the Disneyland theme park in Anaheim, California, in September 2020.
The shuttered ticket windows of Disneyland in Anaheim, California, in September 2020. The city’s reliance on Disney is a negative rating factor.

Bloomberg News

The FBI’s corruption investigation, centered on questionable dealings regarding the Major League Baseball Angels’ stadium, in 2022, triggering Sidhu’s resignation.

Sidhu provided confidential information belonging to the city to people working for the Angels to help the team buy the stadium on favorable terms, and was later recorded saying he expected a $1 million campaign contribution from the Angels, the plea agreement states.

When Sidhu’s actions came to light, the $320 million stadium sale was voided. Co-conspirator Todd Ament, who had headed the Anaheim Chamber of Commerce, pleaded in 2022.

Even prior to the recent controversy, the city of nearly 350,000 residents held single-A-level bond ratings, partly because of its dependence on revenue driven by the Disneyland Resort.

That hit the city hard during the pandemic, when Disneyland was closed for more than a year.

The city holds issuer ratings of A-plus from Fitch Ratings and A1 with a stable outlook from Moody’s Investors Service.

Fitch lifted its outlook to positive from stable in February. The outlook revision “reflects the revenue recovery beginning in fiscal 2022 that exceeded expectations in both speed and intensity.”

The Fitch rating “reflects the city’s strong revenue expectations now that Anaheim’s largescale attractions are fully operational after the pandemic. The rating also incorporates the near-term cost pressures the city faces as it reinstates services reduced during the pandemic and a manageable increase in debt service costs in order to repay its working capital borrowing.”

But the Mouse looms large over Anaheim’s credit quality.

The A-plus rating “incorporates the asymmetric risk associated with the economic concentration of the tourism industry and the heavy reliance on the success of Disneyland. Given the pronounced impact of the pandemic on the city’s main revenue sources, Fitch views the asymmetric risk as greater than before.”

Fitch downgraded Anaheim’s issuer rating to A-plus from AA-plus in March 2021.

Moody’s A1 rating from Aa2 in February 2021, citing hotel taxes and sales taxes lost due to pandemic restrictions on travel and tourism.

Amid the pandemic, city coffers took a big hit as Disneyland’s closure rippled out to restaurants and hotels that counted on Disney’s many guests to drive business.

The city contracted JL Group, a consultant that specializes in forensic accounting, to conduct a forensic audit of campaign contributions and expenditures going back 10 years to compare individuals and entities that donated with the awarding of city contracts or agreements.

The purpose, according to the report, was to determine “whether there was undue political influence, otherwise referred to as pay-to-play.”

Fitch Ratings analysts said in February they don’t “expect the investigation or its findings to cause undue financial pressure on the city, but there could be damage in the face of public opinion regarding city management.”

The estimated costs for the investigation conducted by JL Group at the city’s behest are estimated to be between $1.5 million and $2.5 million, according to Fitch.

JL Group was also instructed to investigate any issue of corruption and inappropriate conduct in the proposed sale of Angel Stadium under the leadership of Sidhu.

“Over the last 10 years (and perhaps longer), there seems to have been a willful disregard of regulations governing political activity and undue political influence in the City of Anaheim,” the report concluded. “We have found this to be true regarding lobbying and a number of political contributions/PACs, as well as concerning certain nonprofit organizations operating under the auspices of the Chamber of Commerce and the use of city resources for political purposes.”

The current mayor and council have introduced a series of reforms based off the report’s recommendations.

At a City Council meeting Tuesday, a steady stream of outraged residents expressed impatience with the city’s progress to reform systems they believe led to the city acting like it has a strong-mayor system of government, when the city’s charter places power in the city manager’s hands.

Former Anaheim Mayor Harry Sidhu
Former Anaheim Mayor Harry Sidhu agreed earlier this month to plead guilty to four federal charges stemming from a corruption investigation.

City of Anaheim

Over time, turnover in the city manager position resulted in the mayor having undue influence over the city, according to the investigative report. The mayor and city council are all part-time politicians, who hold full-time jobs separate from their city council positions.

One resident suggested the mayor should be appointed, rather than elected, to disconnect the position from influence by special interests in the need to raise cash to pay to run for office.

Anaheim resident Bob Donaldson supported reforms outlined in measures introduced by Mayor Ashleigh Aitken that will be taken up at a series of council and special meetings over the next several months.

“I read the JL Group’s report,” he said. “A neutral party gave a report, and half of you on the City Council don’t want to do what the mayor recommends.”

Proposed changes include appointment of an ombudsman to uphold the council/manager form of governance, improvements to information technology, amending the lobbying ordinance, and an audit of how the Anaheim Chamber of Commerce and Visit Anaheim may have misused funds.

“Sure there were some minor misspellings in the report, and then they had a hard time conducting the investigation, because they don’t have subpoena powers like the city attorney’s office,” Donaldson said, noting that the both the Angels and Disney officials declined to be interviewed by JL.

“I think the mayor’s recommendations should carry forward, because they will make the city better,” Donaldson said. “The city is a laughing stock in the country because people no longer have faith and trust in city leaders.”

He also suggested that Mayor Pro Tem/Vice Chair Natalie Rubalcava and Council Member Stephen Faessel should resign.

“I think the council would be better if we had two less,” he said.

But others defended Rubalcava, and lobbed attacks at the mayor demonstrating how divided the city has become since the FBI handed down indictments.

After nearly two hours of resident comments, a visibly shaken Aitken told residents that the city would have an easier time moving forward if residents ceased attacks against her, the city’s first female mayor, and council members who were elected in December to replace most of those who served with Sidhu.

“Most of the reforms others are taking credit for — were proposed by me,” Aitken said. “I don’t need credit, I tend to be the sort of person that just wants to get stuff done, but I won’t tolerate further attacks against myself or other council members.”

She added that the personal attacks were delaying the work the City Council needed to accomplish to enshrine needed reforms and tackle issues like the city’s shortage of affordable housing.

Rubalcava avoided addressing reforms at Tuesday night’s meeting, but had said at a council meeting a few weeks back that “suggestions that JL Group’s report represents what Anaheim is today are completely inaccurate.”

“The people who currently sit on the dais have grown up in this city and have best interest in the success of the city,” Rubalcava said.

The total maximum sentence for all the offenses to which Sidhu plead guilty is up to 50 years in prison, according to the plea agreement.

Sidhu also admitted to cheating California tax authorities and making false statements to the Federal Aviation Administration in relation to his purchase of a helicopter.

Sidhu “compromised the city’s negotiating position by providing confidential information and secretly working to influence the city’s decision-making process, all of which had a detrimental effect on the city and its residents,” First Assistant U.S. Attorney Joseph T. McNally said in a statement. “Public confidence in the integrity of public officials is critical to our society.”

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