Suit charges Hawthorne trash pickup deal stinks.

Court orders city to defend contract at hearing

The financially strapped City of Hawthorne is coming under new fire over its controversial, high-priced contract for refuse collection, which critics have labeled as a "sweetheart deal" for years.

The latest salvo was fired by businessman/community activist Jerry Jamgotchian, who claims the city fails to properly collect franchise fees from waste hauler H & C Disposal Co. Last week, an L.A. County Superior Court judge granted a request from Jamgotchian for an "order to show cause," requiring attorneys for the city to appear at a hearing Sept. 6 and defend the garbage contract.

The City of Hawthorne, which takes in $2 million a year on the garbage contract, is still grappling with a budget deficit from last year and trying to find a way to pay about $4 million in past-due bills. Earlier this month, a Hawthorne fire station's gas service was cut off for failure to a bill.

H&C has had an exclusive contract to collect and dispose of garbage in Hawthorne since, 1957. A decade ago, a 1984-85 L.A. County Grand Jury investigated the situation and recommended that the city go out to bid for refuse service, but the city never did.

In 1989, the City Council voted 3-2 to extend the contract until 1996 and to increase the "franchise fee," with the additional funds to be obtained by hiking customers' bills. That fee brings $2 million a year into city coffers.

Councilwoman Ginny Lambert questioned in 1989 whether the increase constituted "a tax disguised as a fee in order to circumvent the provisions of Proposition 13" which requires an election to raise taxes.

Lambert said last week she still feels the fee increase "was not done appropriately or correctly."

In 1990, Martha Bails - then a Hawthorne taxpayer advocate, now a councilwoman - charged that three members of the council were guilty of a conflict of interest because they received good deals on home purchases in 1986 from developer George Tumunjan, then-owner of H&C. Now critics contend H&C's new owner is a close personal friend of Mayor Larry Guidi, one of the five sitting members of the council.

The Business Journal has confirmed that earlier this year, then-City Manager Todd Argow asked waste hauler Browning-Ferris Industries, among other companies, to consider lending Hawthorne money to help save the city from financial ruin. And as part of the proposal, Argow also asked BFI to examine H&C's $7-million-a-year contract to determine if BFI could offer the city a better deal.

However, Argow was fired shortly thereafter and there was no more such communication between the city and BFI. The council voted 3-2 to fire Argow, saying he was upsetting city staff by suggesting payroll cuts. Bails and Lambert voted against the firing.

Prices compared

Residents in Hawthorne pay 20 percent to 33 percent more for residential trash pick-up and recycling than do residents in neighboring cities. Businesses pay almost twice as much - or about $100 a month more - than businesses in other cities for the same service.

Charles Herbertson, Hawthorne director of public works, said the city charges $15.15 a month for residential service, which includes recycling. The city charges $225.85 a month for businesses to have a three-cubic-yard dumpster serviced twice a week.

Chip Scholz, director of community affairs for BFI, said the Hawthorne garbage rates "seem to be out of line with what other cities in the area are charging."

According to a BFI survey of refuse rates in March, Hawthorne is charging more for residential pick-up and recycling than do Gardena, Hermosa Beach, Lomita, Torrance, Manhattan Beach and Redondo Beach. (Hawthorne wasn't included in the survey.)

The highest residential charge was $13.65 in Torrance, Scholz said. The lowest was $10.09 in Hermosa Beach.

Bob Morris, vice president of public affairs for the Western U.S. division of Waste Management Inc., said Hawthorne's residential and commercial rates are "very high." Oak Brook, Ill.-based Waste Management "would love to compete for that contract," he said.

Herbertson admitted: "I know we're charging a lot more than some other cities." That is because the city "takes more off the top," he said.

Suit hits charges

Last year, pool hall owner Jamgotchian and Hawthorne resident Francis Stiglich sued the city, claiming the city was over-charging residents and businesses for trash collection and that, as Lambert earlier contended, the so-called "franchise fee" constitutes a hidden tax.

In his new lawsuit, Jamgotchian alleges the charge is not a franchise fee because it is added on to customer bills by the city, not paid by the franchisee, and H&C additionally bills customers for some services on which the company pays no city fees.

Attorney Nowland Hong, who represents the city, said the city's system of collecting the franchise fee directly from customers is "typical with cities that contract out for refuse collection" and is not improper or illegal.

Jamgotchian's attorney Chris Sutton alleges that a "cozy" relationship exists between H&C and the city.

H&C owner Matt Bagdasarian did not return phone calls seeking comment on the situation.

RELATED ARTICLE: Ownership change near for Hawthorne Plaza 

Teachers Insurance and Annuity Association of America is close to inking a deal to transfer ownership of most of the Hawthorne Plaza shopping mall to a partnership formed by a San Diego builder and an African-American activist.

Teachers, which foreclosed on a $23 million mortgage on the property against the former owner, the Arden Group, has agreed to forgive the debt to unload the property and has already paid $1.4 million to help fund issuance of a Mello Roos bond issue that was sold to refinance old bond debt on the property.

Mello Roos bonds are sold by California municipalities, thus earning tax-exempt status, but are guaranteed by the property involved and retired through assessments levied on the property owners.

Earlier this month, the city sold $11.5 million in Mello Roos bonds to Sutter Securities, said Michael Langs, an attorney with Loeb & Loeb representing Teachers. The willingness of Teachers to forgive the mortgage means the new owners' only debt on the property will be their share of the assessments to retire bonds, Langs said. And the new financing means the new owners will be able to lower the "common area maintenance" fees charged to tenants.

Another owner of a tract of mall property, Broadway Stores Inc., objected unsuccessfully to the Mello Roos assessment. Robert Gilmartin, senior vice president for real estate at the Broadway, could not be reached for comment.

Langs said the transfer of ownership of Teachers' portion of the beleaguered mall to Hawthorne Renaissance Co. is "being negotiated pretty intently" and may be completed by month's end.

Hawthorne Renaissance Co. is reportedly a partnership between Oliver McMillan, a San Diego construction firm, and activist/supermarket developer Danny Bakewell.

Bill Stone, executive vice president of Oliver McMillan, also could not be reached. Stone was recently quoted in the Daily Breeze newspaper as saying that his new partnership plans to redesign the mall to make it more open and light and to develop eight acres at the southern edge of the mall.