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Local

Crundwell recovery: 5 years later

Finance director reflects on rebuilding city's system

Former Dixon Comptroller Rita Crundwell stands outside of the federal courthouse in Rockford on Nov. 14, 2012. Crundwell that day pleaded guilty to stealing nearly $54 million from the city over two decades to fund a lavish lifestyle that included a nationally known horse-breeding operation.
Former Dixon Comptroller Rita Crundwell stands outside of the federal courthouse in Rockford on Nov. 14, 2012. Crundwell that day pleaded guilty to stealing nearly $54 million from the city over two decades to fund a lavish lifestyle that included a nationally known horse-breeding operation.

DIXON – The $53.7 million wound left 5 years ago hasn't been easy to mend, but the city continues to recover financially over time.

Former city Comptroller Rita Crundwell was arrested April 17, 2012, for stealing $53.7 million across 2 decades to finance her quarter horse breeding empire and luxurious lifestyle.

That lifestyle came at the cost of the city taking on millions in debt for capital projects that it would have otherwise afforded, and it landed Crundwell in a Minnesota federal prison with a sentence of 19 years and 7 months, just 5 months shy of the maximum penalty.

It's pegged the biggest municipal embezzlement in U.S. history.

In the wake of the 5-year anniversary of an arrest that prompted a new turn for the city, here's a breakdown of how much has been recovered, spent and earmarked for the future.

The city reached a $40 million settlement with its former auditors and bank, which failed to spot the long-term siphoning, and a quarter of that – about $10 million – went to lawyer fees.

That total was brought back up to about $40 million after the city received $10.3 million from the federal government's sale of Crundwell's seized assets that included her roughly 400 award-winning quarter horses, her Dixon ranch and home, and her Florida vacation home.

The checks came in by the end of 2013.

City Finance Director Paula Meyer was hired 4 and a half years ago to wade through the financial muck left behind and develop a system with order and oversight.

“From an accounting standpoint, this was fascinating,” she said. “It was an opportunity to come and completely build a new system from scratch."

The first thing she insisted on doing with the money was repay the debt.

That consisted of $12,572,318 in general obligation debt, largely for capital projects, and $8,678,083 borrowed from mostly restricted city funds that needed to be paid back, totalling $21,250,401.

Crundwell didn't leave many city funds untouched, with pensions being the main exception – she had taken about $100,000 but returned it after a few weeks.

Meyer said Crundwell likely left those dollars relatively untouched because the police and fire pension systems are overseen by boards, and investments are tracked, making them an unattractive target for wire fraud.

After paying the debt, Meyer set up two reserve pools with $5 million as a rainy day fund – enough to operate the city for 6 months without revenue – and $3 million as an emergency capital fund.

Most cities carry about 6 months of operating expenses, but Dixon had no reserves to speak of, she said.

"Revenue sources could change quickly, especially with the stroke of a pen from the state, and reserves give you time to make plans without the impact being catestrophic," Meyer said.

The former City Council started spending the recovery dollars in spring 2014, putting nearly $3,960,110 into the River Street revitalization project.

"River Street desperately needed to be done," Meyer said. "It was one of the worst roads in the city."

That project isn't quite finished; rip rap still must be laid to help stabilize the riverbank.

Nearly $1.1 million went toward repairs and rennovations at the Dixon Public Library, and in June 2015, $856,538 was used to make emergency repairs to a portion of West Seventh Street that collapsed following a heavy rain.

Another $25,000 was put toward tearing down derelict property, and $15,000 was given to the Dixon Sister Cities Association.

Meyer said when Sister Cities fell under the city umbrella prior to receiving nonprofit status, Crundwell likely used it as a starting point to funnel funds from other areas to her pocket.

Her guess is that when it worked, Crundwell created the Reserve Sewer Capital Development Account, the checking account that housed the $53.7 million discovered by former City Clerk Kathe Swanson in October 2011 when Crundwell was on vacation.

Several processes have been put in place to prevent a similar fraud from taking place, and the software continues to be upgraded to ward against human error.

“There’s enough oversight that anything out of whack is going to get noticed,” Meyer said. 

Meyer, Public Works Director Terry Weter, and a department head sign off on invoices, and City Manager Cole O’Donnell signs off on anything more than $2,500. 

Crundwell, 64, continues to pay restitution at a pace of about $65 to $70 a month from working in prison. Her tab still sits at roughly $43 million owed to the city.

The city also received about $150,000 after the U.S. Marshals Service sold her remaining possessions through online auctions that wrapped up a year ago, and also gets a small sum from horse breeding royalties.

About $4,871,000 is available to spend in the recovery fund, and the City Council has discussed several ways to spend them.

Recent plans include offsetting a projected budget hole in the water fund by using $1.2 million from recovery money to replace the water main along South Galena Avenue from River to Fourth streets, and putting about $275,000 toward the bike path extension project for which the city received a $2 million grant.

Mayor Li Arellano Jr. has also suggested taking about $300,000 a year and adding it to road repair funds to get more work done.

Meyer said she would like to see the funds put into a practical, yet unpopular, project – police and fire pensions. Pension obligations continue to rise, and revenue that would normally go toward capital projects is projected to be fully taken up by pensions in about the next 5 years.

“It’s a liability, and it’s never going to go away,” she said.

Though substantial progress has been made, Meyer said the city continues to work on ways to improve the financial reporting process.

“There’s still work to be done,” she said. “We’ll keep plugging away.”

BY THE NUMBERS

Dixon Recovery Fund: The following is a breakdown of the $40 million the city has received in Rita Crundwell recovery dollars.

Debt repayment: $21,250,401

Available to spend: $4,871,152

Emergency reserve: $3 million

Rainy day reserve: $5 million

River Street improvements: $3,960,110

Dixon Public Library repairs: $1,096,499

Emergency repairs to West Seventh Street: $856,538

Nuisance property: $25,000

Dixon Sister Cities Association: $15,000

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