CCDC Reevaluates Conflict-of-Interest Code

CREJ Staff Writer

S.D. agency looks to clarify Calif. law for public employees

Redevelopment agencies and other public-sector entities can avoid conflicts of interest when they hire officials from private companies, but state law regarding disclosure of past economic interests can be confusing for those new employees.

The Centre City Development Corp., the San Diego agency that oversees downtown planning and redevelopment, is revising its own Conflict of Interest Code in light of recent violations. California's Political Reform Act of 1974 also requires public officials to disclose their prior sources of income. Local agencies that want to avoid scandal have an interest in making sure new employees understand the rules.

CCDC began to reassess its policies on conflicts of interest after it became apparent that Nancy Graham, former president and chief operating officer, participated in discussions in San Diego with companies she worked for at N-K Ventures LLC, the Florida consulting firm she ran with her now ex-husband before joining CCDC in 2005. Graham resigned on July 24 to take care of her mother in Tennessee.

In revising its Conflict of Interest Code, CCDC board chairman Fred Maas said the agency wanted to "do our level best to restore the integrity of the organization and repair damage that may or not have been done."

An investigation by El Cajon law firm McDougal Love Eckis Smith Boehmer & Foley is under way to determine the extent of conflicts that may have occurred when Graham was involved in discussions with the Related Cos. in regard to a $409 million mixed-use project called 7th & Market that Related planned to develop with San Diego-based CityLink Investment Corp. using an $8.7 million CCDC subsidy for affordable housing.

In statements of economic interests required by state law, Graham did not disclose income in 2007 from the Related Group, a sister company to the Related Cos. of California.

But in a 2007 deposition, Graham said she received a $125,000 payment in June 2007 in connection with a Florida condominium project involving the Related Group and Lennar Corp., another national developer with a massive project in downtown San Diego.

Lennar is a partner in Ballpark Village, a 3.2 million-square-foot housing, office, retail and hotel development proposed by San Diego-based JMI Realty in the East Village.

The Ballpark Village developers have not submitted plans recently to develop any of their seven-acre site. The CCDC board of directors voted to cancel the 7th & Market project.

Related California Urban Housing LLC filed a lawsuit against San Diego, its citywide Redevelopment Agency and CCDC in San Diego County Superior Court on Dec. 9 alleging breach of contract. The developer is asking the court to force the CCDC to honor its contract for 7th & Market and reimburse Related for the $3.8 million spent on the project so far.

The investigation being conducted by the McDougal Love Eckis attorneys originally was focused on the 7th & Market project, but it was expanded to look at potential conflicts of interest for all of the projects in which Graham may have participated during her tenure.

Regaining Public Trust

In San Diego, public officials are subject to fines of up to $5,000 for each violation of conflict-of-interest law, which can be prosecuted under local and state law enforced by the San Diego Ethics Commission and the California Fair Political Practices Commission.

The CCDC board of directors approved numerous changes on Nov. 19 to the agency's Conflict of Interest Code as recommended by Robert A. Stern with the Center for Governmental Studies in Los Angeles.

Under the revised Conflict of Interest Code, CCDC will conduct a mandatory field audit of annual statements of economic interest filed by the president of the agency. The same forms filed by CCDC board members and senior staff members will be subject to a high level of scrutiny, but they will not be audited.

Maas said no other public agency in California requires senior staff to file statements of economic interest. The CCDC president's statements will be audited upon hiring and at various times during his or her employment.

"Anybody who replaces Nancy in that position is going to have to face the cloud and controversy that was left in her wake," Maas said. "Hopefully they will understand that to establish credibility they will have to endure some draconian measures, but in the process repair the reputation of a spectacular organization with great people working there."

Typically, when a public entity hires a new executive director or general manager, they look at the work he or she has done in the past and ask for a list of clients and projects to ensure that there is no potential for a conflict, said Kevin Ennis, shareholder and chairman of the public law department at Richards Watson & Gershon in Los Angeles.

Once hired, he or she is subject to the Political Reform Act, which precludes public officials from participating in decisions that affect their sources of income from the past 12 months. They must disclose their economic interests when they begin working for the agency and each year they are in office on Form 700, the statement of economic interests.

"If they received more than $500 from any particular company in the preceding 12 months, that would preclude their participation in a decision that affects that company," Ennis said. "A solution to the problem would be if as part of the screening of potential applicants they were asked to fill out the statement of economic interests, then these items would be identified before the offer of unemployment was extended."

Greg Moser, a partner at Procopio, Cory, Hargreaves & Savitch LLP in San Diego, said people who come from other states or from the private sector often are surprised by the disclosures public officials must make in California about their previous personal income.

"Because it's a personal obligation, people who serve as counsel to the agencies don't have an obligation to advise board members of the consequences of their personal financial interests," Moser said. "[They] often do."

Understanding the Marketplace

Jerry Neuman, chairman of the land use and governmental practice group in California for Allen Matkins Leck Gamble Mallory & Natsis LLP, said it isn't as often as one would think that he sees conflicts of interest involving public sector employees who previously worked in the private sector.

"I see it in certain contracting opportunities, where a person hired to write a contract worked for the company bidding on it," Neuman said.

Neuman said the potential for conflicts is not a good reason for public agencies to reject candidates from the private sector. When agencies are looking at redevelopment or contracts for services, he said it's helpful to have someone negotiating or writing requests for proposals that has experience in the public and private side of such projects.

"A lot of the consultants that are major consultants, most will do the majority of their work on the public side, but they always have a segment of their work on the private side," Neuman said. "It is about understanding their marketplace. I think it serves them well."

He said public agencies can protect against conflicts of interest by hiring a variety of personnel and consultants, so that if there is any question as to whether that person has a conflict someone else can take their place.

Katherine Aguilar Perez, executive director of the Urban Land Institute, Los Angeles, has worked in the public and private sectors as deputy to the mayor of Pasadena on planning and transportation issues and as a vice president of development at Forest City Enterprises.

With the economy in a recession and the real estate job market is in flux Perez expects more people from private sector companies to seek employment at public agencies.

To prevent conflicts of interest, Perez said employment contracts should be negotiated in a way that protects the public from the criticism that could ensue as a result of hiring executives from private sector firms. There should be a plan to avoid potential conflicts and deal with them if they occur.

"It is in the public's best interest to be as transparent as possible," Perez said. "You have to show you're demonstrating an effort to keep things as open as possible."

When people leave top-level positions at public agencies, including planning directors and redevelopment directors, she noted that they already have an obligation not to lobby their former employers on behalf of their new private sector companies for a year.

In addition to policies adopted by cities, Ennis said there's a provision of the state's Political Reform Act that became effective in July 2006 to ban former city managers and chief administrative officers from lobbying their former employers for one year after they leave for the private sector.

The new provision of the law is designed to keep former public officials from influencing administrative action.

Moser said former public officials can work for a developer and consult on projects in the city where they used to work, but they can't directly lobby a development department, redevelopment agency or City Council members to approve the project.

"It's very easy for people who come from other states and/or the public sector not to understand these California laws," he said. "California can criminally prosecute so that you vacate the office or to invalidate decisions that have been made. It happens to people largely through ignorance."