Los Angeles County Corporations

Public Benefit Corporations - Supported by Taxpayers

October 4, 2001 - Los Angeles Unified School District and O'Melveny & Myers have been notified by the IRS that the Certificates of Participation issued by their Public Corporation are now subject to taxes! The news was published by The Los Angeles Daily News today. We have again reminded the IRS of the same scheme being perpetrated by the Private Corporation - Los Angeles County Courthouse Corporation - with the same bond guarantees by the law firm of O'Melveny & Myers. Taxpayers are still getting stiffed by this scam, since there is no accountability for the money and NO TAX FORMS HAVE EVER BEEN FILED!

August 25, 2001 - Los Angeles County Courthouse Corporation and others. e.g. Los Angeles County Law Enforcement-Public Facilities Corporation and (too many to name or to discover). The Crusaders think that there are over a dozen of these 'Public Benefit' Corporations hiding in LA County. If you are aware of any of the others, drop us a line.

These companies are established as Tax exempt 'charitable trusts' under the Federal Statute - 501(c)(4). They direct millions of dollars but are basically unaudited. The Los Angeles County Courthouse Corporation (LACCC), for example, controls projects for $632 million, but as yet has not registered with the California Department of Corporations even though they have issued outstanding securities for this amount.

They have established trust agreements with banks, lease and leaseback agreements with developers, securities agreements with underwriters, legal assistance from high powered law firms, yet they have no employees. All work is done 'outside' on authorization from an officer of the Company. e.g. bills are paid, rents are collected, legal services are performed by outsiders through agreements. As an example, O'Melveny & Myers pays the fees for this Corporation.

Is this a donation? Somehow, I think O'Melveny & Myers are not providing legal services for free.

The company has offices in the LA County facilities, claims no employees, but has all of its utilities, telephone, rent, etc. paid by the County.

Who answers the phone? A county employee, doing 'part time' work but receiving no pay. At least the Corporation claims to have no employees.

How are bills paid? We have a letter to Henry P. Eng, an auditor , who is told that he will receive a check for $4,730 and a like amount will be charged to the rent due to the corporation in order to balance the books. You see, the Corporation has issued bonds (Certificates of Participation) recently for $115 Million to build the Antelope Valley Courthouse. The Banc of America and four other underwriters have guaranteed the purchase of all of these certificates.

Who gets to purchase these 'tax free' bonds? Well, we'll probably never know because they were all registered to Cede & Co. who is the registrar and holds a confidential list of the purchasers.

How do the bonds get paid? Curious - the bonds are paid through rents paid by LA County for use of the Courthouse. Never mind that the Courthouse has already been purchased by the County or did we mean the Courthouse Corporation? The $115 million in development costs for the Antelope Valley Courthouse will be paid off in 2034 when the entire cost to the taxpayer will total $251 million, which is just base rent and does not include operating costs.

The Scheme

Most of the land for these projects is acquired through eminent domain. Then the County hires a developer to build. It pays the developer to build it and then - amazing! - gives the developer the right to charge rent to the County for the next 50 years. But, it immediately assigns these rental rights to the LACCC which then directs its trustee (the bank) to collect rent from the County which then pays the LACCC which then directs its trustee to sent the rent money to the secret bondholders. (Prospectus for Certificates of Participation).

Where does the money come from? Well it comes from courthouse operations, you know - fines and sanctions and such.

Why does the County do this? We expect that it gets around the law that requires the voters to approve all new taxes.

Is this a tax? Heck no. Here is a charitable trust that is merely passing millions of bucks to its bondholders and showing that its net income is zero - every year - regular as clockwork.

Are the taxpayers getting their moneysworth? Good question. One that can only be answered if we knew how much money was coming in and going out. Since there are no expenses and no income, it is pretty tough to audit. The Crusaders are very concerned that these corporations are shoveling money to outsiders and bondholders with no ability for the taxpayer to see what is going on. One thing we do know - if you count the discounts given to underwriters and costs paid to law firms, like O'Melveny & Myers, the cost to the County was 2.4% of the $115 Million just to set up the Antelope Valley Courthouse deal. This is an exorbitant fee for such transactions.

We do know that Judge Michael J. Farrell is the President of the LACCC. He is a Superior Court Judge at the Van Nuys Courthouse when he is not acting as President of the LACCC. By the way, Judge Farrell was also working for the LACCC when it built the Van Nuys Courthouse. Nice to have a judge controlling what's going on there. The Judge's Corporation quit claimed (page1, page2) the Courthouse back to the County in 1997.

Funny though, Judge Farrell has never mentioned that he holds the position as Director of the Los Angeles County Courthouse Corporation. His form 700 (page1, page 2) shows no other positions other than judge. Judges are required by law to declare their other affiliations. But I guess since the Judge knew this was courthouse related, that there couldn't be a conflict here. Or could it? What if the judge is running short of rent payments this month? He could add a few thou onto his fines and easily make his quota. What a system - a Judge determines the fines that go to pay rent to his Corporation. The Judge is appointed by Supervisor Antonovich, who clearly separated himself from this conflict of interest by having Farrell sign a No Conflict of Interest form.

The articles of Incorporation for LACCC (page1, page2) authorize the Corporation to acquire property, issue bonds, collect rent, etc. but not pay taxes.

Is this a tax free corporation? We don't question the need to build courthouses or the need to raise money for such endeavors, but why go to all the trouble of setting up a Corporation that has to hide behind no employees, no pay, no income and stretch the laws that ordinary nonprofit corporations have to live under. This is a ridiculous state of affairs and it leads to massive corruption since the money is flowing freely and to whom.